Ten Things to Avoid To Succeed with Your Marijuana Business

Our cannabis business lawyers have been on the front lines of representing marijuana businesses since 2010 and that has enabled us to see a lot of both good and bad things in this industry.

And though the good has overwhelmingly exceeded the bad, we would be remiss if we did not do what we can to protect you from the bad. So with that in mind, we provide you with the following ten things of which you should be wary in this industry.

1. Marijuana real estate agents. Truly successful real estate agents generally do not have the extra time to spend dealing with cannabis properties. This means that many real estate agents who claim marijuana expertise know very little about the state and local marijuana laws relevant to using a property for cannabis. On top of this, many cannabis realtors that claim to side with marijuana businesses are really doing so only to convince them to pay more. In determining who to bring on as your realtor, make sure that he or she has at least a rudimentary understanding of state laws as they relate to real estate and any local land use and zoning regulations. It also oftentimes makes sense to require your realtor to sign a non-disclosure agreement (NDA) so that you don’t clue your realtor in on a great property for marijuana and then have him or her tell your competitors about it. For more on some of the peculiar legal issues related to marijuana real estate, check out Marijuana Commercial Leaseholds: Any Resemblance to Regular Leaseholds is Purely Coincidental.

2. Anyone who uses statistics to convince you to hire them for licensing. You need to be wary of anyone who guarantees that they can get you a marijuana license. You need to be even more wary of those who use statistics to back this up. In some states it is fairly easy to get a marijuana license and in others it is extremely difficult. More importantly, in some states, who gets a marijuana license is pretty much random. Arizona and Washington, for example, granted their licenses based on a lottery system, which means the big factor determining who got a license was based mostly on pure luck. Despite this, we are hearing of “licensing experts” going around touting that they had a 100% success rate (apparently they were one for one) in one of these two states and using that boast to troll for licensing clients in states where luck is hardly even a factor. You would also be better off not using anyone who wants you to pay them premium prices even before the licensing process has become clear, and those who insist on getting a share of YOUR business for helping you secure your license.

Use those who have a wealth of licensing experience, especially when that experience includes states where securing a license requires more than getting your number drawn.

3. Holding companies. We know how tough it is to get a bank account, but because we represent a number of banks and credit unions either involved in marijuana banking or looking to do marijuana banking, we also know that things are slowly getting better on this front. In the meantime though, it does not make good sense for you to run your cannabis money through a holding company and use that holding company to get a bank account. Using a holding company to set up your bank account can attract unwanted federal law enforcement attention and lead to federal charges for lying to a bank or laundering “drug money.” Do not waste your money or relinquish your freedom on a holding company and do not work with those who suggest that you do so.

Be honest with your bank and be patient.

4. Ragged and rampant trade organizations. With legalization come all sorts of new marijuana trade organizations, many with names that sound like they are the state arm of reputable national organizations, but actually are not. Most of these new organizations are worthless at best. Many of these groups are scams, formed to leech fees from members or to pitch them on legal or other services. Trade organizations can be great tools for advancing marijuana policy, progress, and protection, but far too many marijuana trade groups are incapable of doing anything but wasting people’s money.Before you join a marijuana organization you should, at minimum, get satisfactory answers to the following questions:

  • Who is in charge?
  • What are its goals?
  • What will you get for your membership dues?
  • What’s the group’s track record on achieving its goals?
  • How loud will your voice be in the group?

5. Publicly traded marijuana companies. We are constantly blogging about the risks of buying stock in publicly traded marijuana companies. See Publicly Traded Cannabis Stocks. Watch OutPublicly Traded Cannabis Stocks. Be Careful Out There and Publicly Traded Pot Stocks. Watch Out. We do so because hardly any publicly traded companies are anywhere near to being profitable, and it seems like there are always new revelations coming out about the sordid background of this or that company founder. Marijuana is likely going to make a lot of money for a lot of people, but that does not mean that you do not need to be careful about investing in a particular marijuana business. You should be doubly careful about investing in any publicly traded company that provides licensing or any other sort of marijuana consulting.

6. Marijuana seminars, expos, consultants, and “colleges/institutes.” If the people running these were really so knowledgeable about the marijuana business, don’t you think that they would be out making money in the marijuana business rather than by popping into town to put on a cheesy seminar at an airport Hilton? We wrote about pot colleges in Buyer Beware: Pot College and Canna Consultants and we mention them again because they are proliferating out of control, especially in those states that recently went legal or are soon to go that way. Florida and Nevada seem particularly prone to these.

We constantly hear horror stories from people who attend these and we have a hard time respecting any lawyer connected to one. We refuse to speak at any of these because we do not have time to vet them and because we suspect about 90 percent of them are a joke at best, thieves at worst. We are aware of some that are run by convicted con artists and others that are run by frustrated actors, but we are not aware of any that are run by influential or highly respected marijuana businesspeople.

Our cannabis lawyers spend (and bill) massive amounts of time with new clients cleaning up the messes these companies were told to create by these colleges and consultants, and dispelling the out and out falsehoods they propagate. Please trust us when we tell you that having run a pot delivery service in California or having worked at a dispensary in Colorado does NOT make you an expert in anything or everything related to pot in Florida or in Oregon. Please think twice before hiring an allegedly “expert” consultant or acquiring a “degree” from xyz Marijuana “University.”

7. Anyone who claims they can get you a “regional trademark.” We have been fighting against this one for a long time. Your brand could well be your company’s most valuable asset and the best way to protect it will usually be by securing a trademark for it. But because the federal government does not generally allow federal trademarks for marijuana related products, getting the right trademark or trademarks for marijuana is a complicated process.

There are two ways to get around this federal prohibition. One is to secure a federal trademark for something other than cannabis, which works well in some circumstances and horribly in others. The other is to secure a state law trademark, which works well in some circumstances and horribly in others.

We leave trademarks to one of our attorneys who has been handling trademarks for more than a decade, but far too many former criminal lawyers, lobbyists and consultants are pitching “regional trademarks” or wrongly claiming that a trademark in one state will protect you in other states in the same region, when neither are correct.

For more on the importance of protecting your cannabis brand by doing your cannabis trademark correctly check out the following:

8. Law firms that claim a sudden expertise with marijuana business law. Would you have your business lawyer argue your DUI case? Of course not, which is why our law firm does not handle criminal cases. Using a criminal defense lawyer to do your marijuana business work is equally off base. Criminal lawyers and business lawyers have very different skill sets. Criminal lawyers work in court using criminal laws and procedures and business lawyers work in an office using business laws.

Good criminal lawyers are still valuable in this industry (unfortunately) but as criminal lawyers, not as newly minted business lawyers who are joining the green rush to stem income losses as marijuana arrests decline with legalization. Call a criminal lawyer if you are raided by the feds, but for your company formations, your trademarks, your real estate transactions, your employee contracts, or your safety compliance, you should be using a business lawyer.

You should also be very careful about hiring lawyers who engage in lobbying. First off, lobbying and legal work are very different things and your antennae should be up when someone claims expertise in both. Second, communications related to lobbying are not protected by the attorney-client privilege so if you retain a lawyer that does both, all of your communications with that lawyer may be subject to review.

9. Attorneys who seek an equity stake in YOUR marijuana business. Unfortunately, we are seeing far too many lawyers seeking to take advantage of the “green rush” mentality by pressuring their potential and actual clients to give them an equity interest in their client’s cannabis business. We are of the view that you should never use a lawyer who even talks of representing you in return for a share of your cannabis business. Even if you ignore the ethical issues involved (and the fact that so many lawyers ask for payment in equity without requiring that their potential/actual clients secure separate, independent legal counsel to determine whether doing that would be in the client’s best interest), you should question the stability of a lawyer or law firm willing to put themselves and their clients at such risk.

We have never, nor will we ever seek to take an equity stake in a client’s cannabis business because a cannabis business with its outside lawyer as a stakeholder is at greater risk of federal prosecution than one without such a lawyer. As such, we believe that we would be violating our ethical duties to zealously represent our clients — without conflict — were we to take an ownership stake in one of our client’s cannabis businesses. We just are not

10. The federal government. Marijuana remains a federal crime and you should avoid those who tell you not to worry about federal laws because the Feds are inactive or unwilling to enforce, as this is just flat out wrong. Marijuana remains a Schedule I drug, and possessing or selling it is still a federal crime. Failing to comply with all state and local laws will increase your risk of being raided, arrested, and convicted in a federal court. It pays to remain ever mindful of this.