The Federal Government’s Ongoing War Against Cannabis; A Bit On Cannabis Lawyer Ethics Too

A Vox article by German Lopez, “6 ways the federal government continues its war on marijuana,” is a good reminder of how the feds still wage their war on marijuana despite the legalization movement sweeping the nation. Although the DOJ and other federal agencies are not raiding state-sanctioned marijuana businesses as frequently as they were just a few years ago, the feds continue to throw up roadblocks. Lopez’s piece explains this well.

The article lists these six ways the federal government continues to fight against marijuana. The list (in bold), and our take on them, follows:

1. Marijuana businesses can’t file for some federal tax deductions. Section 280E, “originally meant for illegal drug dealers,” prohibits cannabis businesses (legal or not) from deducting “typical business expenses, such as advertising or rent.” [For more on this, check out our posts, IRS Section 280E: Unfair To Marijuana and Cannabis Taxes: Will 280e End Soon?]

2. Federal prohibition makes it too difficult for marijuana businesses to work with conventional banks. “The cash-only model makes pot shops and cultivators more vulnerable to theft, and the loans given to these businesses typically have much higher interest rates.” [For more on cannabis banking, check out the following: Cannabis Banking. Eventually….Cannabis Banking. Here At Last?Feds Green Light Marijuana BankingCannabis Business Banking. When, When, When?Marijuana Commercial Loans. Marijuana As Collateral Is THE IssueMarijuana Banking. Still Very Much Alive.]

On banking, we can report that things are changing. Fast. Our lawyers have done a lot of work with banks and credit unions that have opened their doors (in a limited way), or that are seriously considering doing so, to cannabis customers. We know we keep saying this, but expect big changes on this front soon.

3. The National Institute on Drug Abuse holds a monopoly over medical marijuana research. Good point. And what a shame that medical benefits to real people are being delayed because of this. It’s also an inherent good for everyone for the truth come out, whatever that truth may be. Conveniently, the federal government still preaches that there’s no medicinal value to marijuana, but until it actually allows such research, we have no real choice but to remain dubious about such a statement.

4. The feds restrict water for growing marijuana plants. [See No Federal Irrigation Water for Marijuana Growers.]

5. The DEA sometimes raids marijuana businesses. Yes they do, which is why our law firm keeps a top criminal lawyer on a monthly retainer, and why we frequently consult with him on behalf of our cannabis business clients operating legally within their respective states.

6. The DEA intimidates doctors into not participating in the medical marijuana industry. This is true. If you are a doctor or a dentist or a pharmacist, or even a lawyer, you should think long and hard about getting involved with cannabis as it could mean revocation of your professional license (or worse, jail time).

Lopez’s article encapsulates the feds’ prohibition era politics for the twenty-first century. Though we are still not in an ideal cannabis business world, the feds are obviously shifting their policies on how they treat marijuana. It’s our job as marijuana business lawyers to help them get there by making sure our clients abide by every tenant of state and local law, ensuring safe and responsible business establishments.

How do we at Canna Law Group do that? We’ll tell you. Honesty, transparency, and a no-nonsense approach to the reality of federal prohibition. In 2010, when we first got into the business of representing cannabis clients on their business matters, we were pretty much it in the Pacific Northwest. Yes, there were a few criminal lawyers doing a bit of this work, but here we were, a highly respected business law firm with a bunch of business lawyers with the highest rating possible on and an AV firm rating (the highest possible) from Martindale-Hubbell (generally regarded as the most accurate lawyer rating system). We had a lot to lose for taking on this type of work.

And very early on, someone (NOT a client) filed a bar complaint against one of our cannabis attorneys, alleging that just our representing state-legal cannabis businesses violated our ethical obligations as attorneys. We fought that bar complaint and we prevailed, as we absolutely should have. Think about it. Lawyers can (and should) represent those alleged to have committed grave crimes and yet there was, at one time, some doubt as to whether we as lawyers should be allowed to advise companies on COMPLYING with state and local laws!

We mention the bar complaint because one of the reasons we were able to defeat it was that, from day one in our work, we have been upfront and transparent about the impact federal law can have on state-legal cannabis businesses. The federal government is still out there and marijuana is still federally illegal and there are plenty of federal government workers unhappy about the states that have legalized marijuana for medical or recreational use. And these unhappy people remain interested in doing what they can to make life difficult for those involved with cannabis.

In turn, let’s look at our regular client (and blog readership) disclaimers. We put the following disclaimer (in bold) into all of our fee agreements with all of our cannabis business clients:

Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and neither the forms we provide you nor any legal advice we give you are intended to assist you in violating federal law nor will they in any way assist you in complying with federal law.  Please also note that the Internal Revenue Service (IRS) will not recognize your entity as a not-for-profit for federal tax purposes so you will need to pay federal taxes just as though you are a for-profit entity.

Even this blog has the following disclaimer on its first page:

Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, much less lead you to believe that marijuana is legal under federal law. Please also note that even though marijuana is illegal under federal law, you will need to pay federal taxes just as though you are a legal entity. This is true even if you are a state law not-for-profit entity.

We’ve learned that transparency is the best policy, and you should, too.

On to conflicts. No matter the client, all attorneys have an obligation to avoid conflicts of interest with their clients. Unfortunately, we are seeing far too many lawyers skirting the conflicts rules so as to take advantage of the “green rush” mentality: lawyers who pressure 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.

The bottom line reason our firm will never ask for, nor ever take an equity stake in a client’s cannabis business is that we believe 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 fully realize that some lawyers disagree with us on this and we are NOT in any way saying that all of those lawyers are unethical. But we are saying that we are not comfortable with the ethics of doing this and we so we simply won’t.

We see our job as acting as our client’s legal gatekeepers and that means we must do our best to ensure that we are ethically setting our clients up for success while reminding them of the limitations posed by federal prohibition.