Is my Cannabis Business Lawyer Doing Enough for My Marijuana Business?

A client recently asked me for a lawyer referral in a state where we do not have an attorney on the ground. It was for a real estate and marijuana license acquisition deal with all the usual complications: getting approval from state licensing authorities and local authorities, getting money into escrow from numerous sources, engaging in (very) last minute face to face negotiations, and recording property and security interests with the state and county. It’s the type of deal where the client wanted boots on the ground, which makes sense. So, I gave our client the name of a local attorney we know and respect. Unfortunately, that attorney just happened to be representing the other side of the deal and so he was conflicted out. The client asked for a different referral, and, based on what we saw out there, we simply couldn’t come up with one we trusted to do more than just go through the motions on our client’s behalf.

Cannabis Business LawyerFar too many lawyers with little to no business law experience are branding themselves as “cannabis lawyers” these days simply because cannabis is a “hot” legal area. And very few of these so-called cannabis lawyers meet what we consider the minimum requirements to provide competent business counsel in the legal cannabis space. Here are a few things we think anyone hiring a business lawyer for their marijuana operations should be looking for:

Criminal vs. Corporate Perspective: There’s nothing stopping a criminal attorney from learning a new set of skills and transitioning to a predominantly corporate practice, but seasoned criminal lawyers tend to have a very different perspective than commercial lawyers when it comes to corporate clients, and especially when it comes to transactional work. In Washington and California, for instance, a number of attorneys with criminal backgrounds advised their clients not to pay state taxes because they didn’t want their clients “to incriminate themselves” by admitting to cannabis sales on tax forms. That advice may make sense when your goal is to keep your client from confessing to federal crimes, but it led to a large number of marijuana businesses incurring massive interest and penalties and a number eventually had to shut down because of it. We still see the impact of this poor advice when we get a new client who failed to pay its taxes in a timely matter be precluded from securing a license either in its home state or in another state.  A lot of what good business lawyers do is to add transparency to cannabis businesses which is now required by most states. For more on this, check out Marijuana Business Self-Policing.

Boilerplate Bonanza: All attorneys have boilerplate templates. If a client wants a sales contract, I have a number of different sales documents I use to begin the transaction. That said, I then heavily customize these documents for every individual deal since each deal always demands different terms and conditions. Too many times I’ve seen documents drafted by opposing counsel who did nothing more than “find and replace” for the parties’ names on a key document and then ship it out for signature. People don’t hire serious corporate attorneys to get that kind of contract, they hire Legal Zoom. And, for marijuana businesses, that boilerplate contract is dangerous because nine times out of ten it will not accomplish the goals of the parties and it can set the parties up for imminent failure in the deal. People use real corporate lawyers because they need a contractual relationship specific to them and to their situation, which can be wildly complicated given the constant changes to marijuana regulations. If you get the feeling that your lawyer is just filling out boilerplate forms, you have a problem.

Scriveners: Similar to boilerplate contracts, clients should also be on guard for “scriveners.” These are attorneys who simply translate a client’s requests, bar none, into legalese. Though that may seem like what a client wants, the client isn’t getting the full benefit of actual counsel in that interaction. Your attorney should be asking you questions and/or pushing back on you, letting you know whether your deal points seem fair or unfair, whether they comply with regulations, what the liability is to you for those terms, and whether the requested terms are standard or our of the ordinary course of business. Most importantly, your lawyer should have done so many deals like yours that he or she can tell you about the business and legal options you may have missed and about other similar deals he or she has handled. Attorneys that practice in the corporate space day in and day out have a unique perspective that can add value in negotiating the deal. If your lawyer is just transcribing your every wish without question or just acquiescing to all of your demands, you should be worried.

So, don’t just go through the motions with your attorney and think you’re protected in your marijuana dealings. Your lawyer should be taking an active corporate role as your protector and crafter of safeguards for your marijuana business. If they’re not, it will only be a matter of time before it comes back to bite you and your business.