Risk Update

Law Firm Cannabis Risk — Ethics Rules, Conflicts, Client Selection, KYC, Compliance and More

Posted Dan Bressler

“Cannabis Practice Creates Ethical Traps, Conflicts for Lawyers“ —

  • “Ethical and legal snags abound for lawyers representing cannabis industry clients in the growing number of states where weed is legal, requiring extra due diligence to ensure compliance, attorneys familiar with the rapidly evolving business tell Bloomberg Law.”
  • “For instance, the California Evidence Code covering attorney-client privilege requires lawyers to advise clients of state and federal law conflicts, and should be incorporated in engagement letters to balance ethical obligations.”
  • “Michelle Mabugat, counsel at Greenberg Glusker LLP in Los Angeles, said she also likes to counsel of the inherent conflict of representing clients with competing economic interests in the small industry. ‘The cannabis law practice is just particularly and especially ripe for conflicts in client’ engagement, she said. ‘It’s finite. There’s only so many players in this industry and they’re all trying to do business with each other. You have to be extra vigilant on with your ethical obligations in this space.'”
  • “Rachel Gillette, who leads Holland & Hart in Denver’s cannabis practice, said she sees ‘over and over lawyers in newly legalized states dipping their toes into what they would call ‘cannabis law.’ Really cannabis is an industry, and just because you practice criminal defense, DUI defense, or personal injury law, that does not mean you should now hang your shingle as a ‘cannabis lawyer.””
  • “Knowing who the client is crucial. Bricken said attorneys ‘need to develop a very good red flag radar where a lot of bad actors still make their way to your office in order to try to take advantage of licensing for other nefarious activities.'”
  • “Careful client selection is essential ‘because there are still operators in the industry that are not operating quite legally. If you want to protect your firm and practice, you want to work with good actors,’ said Ryan Lowther, founder of Farella Braun + Martel LLP’s cannabis Industry practice group in San Francisco.”

“Lawyers beware: NY and GA issue conflicting ethics decisions on representing cannabis clients” —

  • “Ethics authorities in New York and Georgia recently issued opposing opinions on whether lawyers can represent clients in navigating what Justice Clarence Thomas last month called the ‘half-in, half-out regime’ related to both recreational and medical marijuana, ‘a contradictory and unstable state of affairs’ that ‘conceals traps for the unwary.'”
  • “On July 8, 2021, following New York’s enactment of legislation legalizing recreational cannabis for adults, the New York State Bar Association gave attorneys the green light to counsel clients in the recreational marijuana industry… The NYSBA found that the federal enforcement policy created a ‘highly unusual and unique circumstance’ and that the prohibition in Rule 1.2 was not intended to ‘preclude lawyers from counseling or assisting conduct that is legal under state law or to provide assistance that is necessary to implement state law and to effectuate current federal policy.'”
  • “The NYSBA’s opinion comes on the heels of the Supreme Court of Georgia taking the exact opposite position in its June 21, 2021 order denying a motion to amend Rule 1.2(d) of the Georgia Rules of Professional Conduct.”
  • “In denying the motion, the Supreme Court of Georgia relied on the federal illegality of cannabis and held that passage of state laws permitting and regulating conduct that is still a federal crime does not change the long-standing prohibition against ‘counseling and assisting clients in the commission of criminal acts.'”
  • “If you are considering counseling a cannabis client, you should be familiar with the relevant jurisdiction’s position on cannabis and Rule 1.2. Unsurprisingly, many commentators note that lawyers are simply ignoring ethics opinions that prohibit advising cannabis clients and some expect that will be the case in Georgia as well. That seems risky. While it is unclear whether lawyers have yet faced disciplinary consequences for violating state ethics rules related to cannabis clients or will in the future, this is a continually developing area that requires caution.”