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Feb. 20 --Now that an increasing number of states are decriminalizing marijuana, clients are getting involved in cannabis enterprises. They naturally seek advice from their attorneys on how to comply with the law. But lawyers must comply with the rules of professional conduct when counseling clients. “How the hell are you going to do that when it's a federal crime?” Seattle lawyer Hilary Bricken asked members of the National Organization of Bar Counsel.
Bricken is a member of Canna Law Group, a practice group of Harris & Moure, PLLC that represents cannabis companies. She posed her question as part of a Feb. 5 panel discussion, “Up in Smoke: The Burning Issues Related to Limited Legalization of Marijuana,” presented at NOBC's midyear meeting in Chicago.
Colorado Supreme Court Regulation Counsel James C. Coyle, who moderated the session, told the gathering that over the last two decades more than 20 states have passed laws that either decriminalize or expressly permit the use of marijuana for medical purposes. In November 2012, Colorado and Washington became the first two states to legalize the drug for “recreational” purposes, with cities in Michigan and Maine following shortly thereafter.
Thirteen additional states are considering similar legislation, Coyle reported, and recent surveys show that an increasing majority supports the legalization of marijuana nationwide.
To date, four state bar associations have issued legal ethics opinions on marijuana issues:
• Arizona Ethics Op. 11-01, 27 Law. Man. Prof. Conduct 163 (2011)
• Colorado Ethics Op. 125, 29 Law. Man. Prof. Conduct 808 (2013)
• Connecticut Informal Ethics Op. 2013-02, 29 Law. Man. Prof. Conduct 128 (2013)
• Maine Ethics Op. 199, 26 Law. Man. Prof. Conduct 431 (2010)
Colorado alone has addressed whether a lawyer may personally use marijuana for medicinal purposes in compliance with state law. Colorado Ethics Op. 124 (2012).
Big money is involved: the medical marijuana industry counts its revenues in the billions, Coyle said, and, in states where it's legal, the millions in taxes paid as a result are helping to fund schools and other public services. Now that states and local governmental units are beginning to legalize marijuana for recreational use, those numbers are projected to surge.
Banks, large law firms and individuals, including lawyers, are increasingly wondering whether and how they can provide services to or otherwise participate in this complex and lucrative industry, according to Bricken. “We need attorneys representing these people. If these states want tax revenue, these businesses had better survive. If no lawyers participate, we have a problem,” she said.
Panelists Jamie Sudler, chief deputy regulation counsel in charge of the Litigation Division of Colorado's Office of Attorney Regulation Counsel, and Douglas J. Ende, chief disciplinary counsel for the Washington State Bar Association, explained some of their states' restrictions on the recreational use of marijuana.
Both states, they said, limit the numbers of production, processing and retail licenses to be issued and closely vet the identities of license applicants.
In Colorado, Sudler said, state residents who are over 21 may purchase up to one ounce of marijuana at a time from a licensed store between 8 a.m. and 7 p.m. Colorado nonresidents may purchase one-quarter ounce at a time.
In Washington, Ende said, retail outlets may not be within 1,000 feet of a school, public park, child care facility and any other area where children are concentrated. Consumption of marijuana on store premises or even in public is not allowed. “So no marijuana bars,” he said. Retail displays and signage are heavily restricted, Ende added, as is the vertical integration of marijuana production, processing and retail businesses.
Still, possession and distribution of marijuana remain federal crimes with “no ands, ifs or buts,” observed panelist Douglas J. Ende, who is chief disciplinary counsel for the Washington State Bar Association.
Marijuana dealing “funds terrible things,” including gangs and terrorism, Coyle commented, and state laws cannot override federal statutes. “So why aren't the U.S. attorneys in Denver and Seattle stepping in and closing these businesses down?” Coyle asked the panelists.
Ende noted that the Justice Department has issued a series of memos to U.S. attorneys stating “how prosecutors should exercise discretion and deploy public resources.”
Most recently, in its “Guidance Regarding Marijuana Enforcement,” also known as the Cole memorandum, the department stated that taking action against participants in marijuana businesses or individuals who use small amounts of marijuana is a low priority for federal prosecutors so long as state and local laws effectively address federal law enforcement priorities, such as keeping marijuana away from children and preventing marijuana revenues from being used to fund other, more heinous, criminal enterprises and activity. (See box.)
Panelist James Sudler, chief deputy regulation counsel in charge of the Litigation Division of Colorado's Office of Attorney Regulation Counsel, said his understanding is that the U.S. attorney's office in Colorado, where the state has regulated its medical marijuana industry more strictly than Washington state, “will not get involved” as long as the state regulates its marijuana industry effectively and enforces its laws.
He noted that Colorado's federal prosecutor has, however, issued warnings to dispensaries that violated Colorado's restrictions on proximity to schools to shut down or face prosecution. “They shut down.”
But this is “at best a yellow light,” Bricken said, because prosecutors retain discretion over whether to take action against what are, after all, criminal acts. “This conduct is criminal, the Cole memorandum notwithstanding,” Ende pointed out, which leaves lawyers with ethical dilemmas.
Model Rule 1.2(d) provides “A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.” If a lawyer assists a client to form a business to, say, grow, transport or sell marijuana, all of which are criminal acts under federal law, said Ende, “the lawyer has violated Rule 1.2(d).”
Additionally, Model Rule 8.4(b) prohibits a lawyer from committing a criminal act that reflects on the lawyer's honesty, trustworthiness or fitness to practice law, and, Ende noted, versions of this rule in some jurisdictions are even more restrictive.
Furthermore, Ende pointed out, lawyers take an oath to abide by state and federal laws when they are inducted into the bar. If the bar in states in which marijuana has been legalized wants lawyers to assist marijuana businesses in operating in compliance with state law, getting around the idea that those lawyers are violating the rules of ethics is a challenge, he said.
On Aug. 29, 2013, the Department of Justice issue its “Guidance Regarding Marijuana Enforcement,” also known as the Cole memorandum. It states, in part:
“[T]he Department [of Justice] in recent years has focused its efforts on certain enforcement priorities that are particularly important to the federal government:
• “Preventing the distribution of marijuana to minors;
• “Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
• “Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
• “Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
• “Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
• “Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
• “Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
• “Preventing marijuana possession or use on federal property.
“Outside of these enforcement priorities, the federal government has traditionally relied on states and local law enforcement agencies to address marijuana activity through enforcement of their own narcotics laws.
“In jurisdictions that have enacted laws legalizing marijuana in some form and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale, and possession of marijuana, conduct in compliance with those laws and regulations is less likely to threaten the federal priorities set forth above.
“[P]rosecutors should continue to review marijuana cases on a case-by-case basis and weigh all available information and evidence, including, but not limited to, whether the operation is demonstrably in compliance with a strong and effective state regulatory system…. The primary question in all cases--and in all jurisdictions--should be whether the conduct at issue implicates one or more of the enforcement priorities listed above.”
Shortly after the NOBC conference concluded, the Treasury Department's Financial Crimes Enforcement Network (FINCEN) Feb. 14 released guidance that clarifies the obligations of banks and other financial institutions when doing business with marijuana dispensaries.
Bar regulatory authorities have moved cautiously in addressing whether and how lawyers may act with respect to marijuana businesses that comply with state statutes but violate federal law. Still, Ende said, during the 15 or so years that medical marijuana has been legal in his state, lawyers “undoubtedly” have advised and assisted medical marijuana enterprises, “and nobody batted an eye,” he remarked. Ende noted that marijuana businesses have been relatively lightly regulated in his state.
With Colorado's and Washington's legalization of nonmedical use of marijuana, Ende said, has come a flurry of new and proposed regulations.
In Washington, “The most vocal opponent of the legalization of recreational marijuana was the medical marijuana industry,” Ende said, “because it had been virtually unregulated” and feared being subjected to the strict protocols drafted by nonmedical marijuana proponents aiming to win voter support.
By way of illustration, Bricken told the audience, while there are more than 200 medical marijuana dispensaries in the metropolitan Seattle area, only 21 recreational marijuana retail locations will be permitted in the city, and only 334 statewide. Demand for those retail licenses is highly competitive, Bricken and Ende said, with the Washington liquor control board receiving around 2,600 applications for the 334 statewide licenses, 400 of which are for the 21 Seattle permits.
Some lawyers and bar associations believe modifications to the ethics rules should be adopted to better guide lawyers with respect to representing marijuana businesses as well as to what is allowed in their personal conduct--whether as a marijuana investor or business participant or as a weed user--without fear of discipline.
Pending before the Washington Supreme Court, Ende told the audience, is a proposal from the King County Bar Association in Seattle to amend the state's Comment to Rule 8.4 to provide that a lawyer's use of marijuana in compliance with state law shall not reflect adversely on the lawyer's honesty, trustworthiness or fitness to practice law, and to adopt a new Rule 8.6 declaring that a lawyer shall not be subject to discipline for engaging in or counseling or assisting a client to engage in conduct such as marijuana use that is permissible under state law but violates federal law.
In December, the Colorado Supreme Court's Standing Committee on the Colorado Rules of Professional Conduct submitted a similar proposal, supported by the Colorado Bar Association Ethics Committee. See 29 Law. Man. Prof. Conduct 808.
“It's interesting,” Coyle said, “that the bar associations are asking the supreme court to act in its official capacity to enact rules saying it's OK to violate federal law.” He asked “What are these proposed rules intended to do? Are they good policy? Is it a good idea for our supreme courts to weigh in on these issues?”
Ende noted that the King County Bar Association drafted and filed its proposal without consulting with the Washington State Bar Association and asked the supreme court to adopt it on an emergency basis, without a public comment period. This was “unheard of,” Ende told the audience. He said he believes part of the reason for the “rush” to amend the rules is that “lawyers who are lying in the weeds are wanting to get into this business.”
Ende said that in his written response to the King County bar proposal he suggested the proposed changes were overbroad and that “the issue needs to develop” before concluding that amending the rules is necessary. “I pointed out that we have been operating in Washington with a medical marijuana law for 15 years without any rule amendment being necessary,” he said.
And, as Ende stated in his letter to the supreme court, his office's current policy is not to prosecute lawyers “who in good faith advise or assist clients or personally engage in conduct that is in strict compliance with” Washington state law. “I don't want lawyers to feel they are taking a disciplinary or ethical risk as we wait for the dust to settle,” he told the audience.
Bricken agreed that many lawyers are considering participating in this lucrative industry, both as counsel and as businesspeople or investors. “They think it's the gold rush,” she said, likening attitudes toward involvement in the marijuana industry to making a killing “selling pickaxes” to Forty-Niners. But she cautioned that “a lot of work goes into selling pickaxes.”
Bricken said that to stay on the right side of the hazy ethical line when she meets with a potential client to discuss a representation, “The first thing I tell people is 'This is a federal crime.’” Next, she explains that “Nothing I tell you is going to help you get around or break federal law. I will advise you on how to comply with state law.”
Coyle asked Bricken to describe some additional issues peculiar to the representation of marijuana companies.
Because of the novelty of state legalization of marijuana, Bricken said, “you're going out on a limb with your own analysis when you're reading the law.” Washington law, for example, is “very vague and ambiguous,” and “tough to comply with,” she said.
Bricken said the conflicts among those in the medical and recreational marijuana industry, not to mention “the locals, many of whom do not love this industry,” pose additional challenges.
For example, she said, many of those in the medical marijuana industry disapprove of lawyers who represent recreational marijuana businesses. She recommended taking extra care to “narrow the scope of representation and get it in writing.”
Still, Bricken said she has seen the profile of potential clients in the marijuana business improve dramatically since Washington's legalization of recreational marijuana and the attendant increase in regulation.
When marijuana was legal only for medical purposes, she said, “You had drug dealers everywhere,” because of the relative lack of regulation. With the advent of stricter regulation for the recreational marijuana industry, she said, “if you're not game to comply with all that regulation, you're out, so it tends to attract the more sophisticated, educated businessperson.” Indeed, she said, she sees “tremendous business acumen” on the part of her clients who are applying for recreational marijuana business licenses.
Bricken noted that she herself had been the subject of a complaint to the state bar. A “gadfly” medical marijuana activist, she said, alleged “that I was incriminating clients and stealing their money by encouraging them to pay taxes,” among other things. “Our defense was very simple: We are following the bounds of state law.” Bar personnel, after extensive analysis of issues it considered of first impression, ultimately agreed with her, she said.
Looking forward, Bricken said, “I worry that if I draft a great contract between clients, or a client and a business associate” that, after all, would further conduct that remains illegal under federal law, “is a judge going to uphold that in court?” If not, she wondered, “is a client going to sue me?” But, she said, “I don't think a formal rules change would address that situation.”
To contact the reporter on this story: Helen Gunnarsson in Chicago at Helen.Gunnarsson@americanbar.org
To contact the editor responsible for this story: Kirk Swanson at firstname.lastname@example.org
Text of the proposal by the Colorado Supreme Court's Standing Committee on the Colorado Rules of Professional Conduct to add a new Comment 2[A] to Rule 8.4 and adopt a new Rule 8.6: http://www.courts.state.co.us/userfiles/file/Court_Probation/01st_Judicial_District/Summary%20of%20and%20Proposed%20New%20CRPC%208_4%2C%20Comment%20%5B2A%5D%20and%20New%20CRPC%208_6.pdf.
Materials relating to the King County (Washington) Bar Association's proposal that the Washington Supreme Court adopt a new Comment  to Rule 8.4 and a new Rule 8.6 are available at http://www.kcba.org/judicial/legislative/502ethics.aspx.
The DOJ's memo on federal enforcement of marijuana laws is available at http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf.
The Treasury Department's guidance on financial institutions' obligations concerning marijuana dispensaries is at http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf.
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