DISCLAIMER: You might think I was writing this to lead you to the conclusion that you should hire me as your cannabis attorney. WRONG! Read this to help find the right fit between you and your potential legal counsel. I filter who I bring into my practice and want my clients to be a good fit with me. The good news is that there are some great attorneys out there with various levels of experience, pricing and personality! Shop wisely!
Why I am writing this.
I get calls from some potential clients, many of whom are unsure what they need an attorney for but they see everyone around them lawyering up and they have a sense that they need a guardian of some sort to navigate the new waters. Often, these are people who have not had a traditional business background and in most cases, have not used an attorney except for a divorce or a criminal case. There are a lot of unknowns.
I actually want to explore in this Series of articles what cannabis business people really need in the way of legal services, not just what they THINK they may need, what they are expecting from an attorney, what they understand about the costs and value of legal services and what they may understand about the psychology of the working relationship with an attorney. I will also address in the following sections, the different stages in cannabis business development and how that impacts what type of lawyer and what level of legal services you may need.
The key here is that you need to understand what you need before you go shopping for an attorney.
So, let’s call this Rule 1: KNOW THINE OWN LEGAL NEEDS
Let’s look at what people in the cannabis industry appear to need right now in the way of legal services:
1. Understanding the New Cannabis Laws.
We are entering a brave new world of law and regulations. In California, we have a new medical cannabis licensing and regulatory statute (2015) and a new adult use licensing and regulatory statute (2016). Many attorneys and public interest groups are summarizing and explaining the law on the internet and many of the explanations are very good and to the cost-conscious client, provide enough information to help them think about their next steps. But, if you want to get attorney to explain it to you, that’s really just a relatively straightforward consultation. That may take an hour or so. Attorney hourly rates vary but the low end is probably $250 and more likely $300-400 per hour. The low rate is for someone who has been involved on the legal side for only a year or two. There are also public seminars about this so keep a lookout for those and save yourself a consultation fee.
2. Understanding the Steps Necessary to Set Up a Cannabis Business
Most potential clients want more than just an understanding of the new laws. They want an attorney to help them figure out a way to set up a for-profit cannabis business under these new laws (a for profit business will become legal beginning in 2018 when the State gives that business a State license). There’s a lot to know for sure.
Here’s an example: Lately, when people call me for the first time, I first ask them if they have a plan to obtain local approval (a “permit”), which is a prerequisite to applying to the State for a State-issued license (a “license”). If they say no, I advise them to get a plan to do that before hiring legal services. They may need a lobbyist more than a lawyer. They can find one on their own or I can help them link up with a political consultant. As my friend Will Skaarup says, “If you’re in pot, you’re in politics.”
If they say yes, then I can help them figure out what else they need to do to move forward in this new regulatory environment and marketplace, and sometimes, that will lead to our meeting up. At a meet up, we discuss much of what I am writing about here and if the client still wants to hire me, I am ready to look at what they need, give them an estimate for the work (or in my case, because I mostly use a flat fee structure for outside corporate counsel, I let them know the pricing structure for those flat fees) and then write up a retainer agreement with them if they want to move forward with my representation. Many times, they not only want me to serve as general counsel but the client wants me to bring in other specialized counsel such as those who handle intellectual property.
RULE 2: So, if you talk to an attorney, find out what the attorney thinks you will need to do, and how much the attorney will charge you for the work.
The specific legal tasks should be broken down and you should get a good estimate of the end price. Most attorneys charge by the hour so you can get an estimate for example, on the pricing for the attorney to review investment-related documents, by asking the attorney how long it will take them to review it. Or, if you want an attorney to set up a domestic stock corporation or an LLC, many usually have a flat rate for that work. Find out what exactly you get for it. Do you get the initial articles filed, plus by-laws and minutes? What about a federal tax number or a BOE Seller’s permit? Do those come with the flat rate? The more specific you can be, the easier and better time if will be for both of you.
3. Other Critical Legal Issues to Consider or, Maybe These Are Your Issues!
A. CALIFORNIA CRIMINAL LAW
At least in California, without state licenses being issued until 2018 the only defense a medical cannabis operation has is found in the exemptions from prosecution described in The Compassionate Use Act (1996) and The Medical Marijuana Program Act (2003). And the immunity/defense to a criminal prosecution goes away sometime in 2019. So, as you plan the transition from a non-profit enterprise to a for profit one, you must consider the borderland between the two legal regimes (the one that started in 1996 and which will end in 2019) and the new one starting in 2018, and at least be aware of the compliance elements for each one. So remember folks, as of this writing (March, 2017), it is still illegal to distribute medical cannabis for a profit, not to mention you need to meet other requirements to keep yourself out of jail.
B. INTELLECTUAL PROPERTY
This is an example of an area that I refer to other attorneys. With so many issues of branding, inventions, and trade secrets arising, and because I never handled trademarking, I make sure that anyone calling seeking that sort of assistance is referred to a competent intellectual property attorney.
Trademark attorneys can file trademark applications to the US Patent and Trademark Office, patent applications, and advise on the challenging and pesky problems of protecting the cannabis brand the client is developing in the face of federal prohibition. The typical legal fee for filing a trademark application is relatively low and the filing fees charged by the government are reasonable.
C. SECURITIES LAWS
Once you consider asking people to invest money (in California, for businesses that plan to get a license in 2018 or after) there are numerous issues to consider. The governments’ (federal and state) regulations of this arena (“securities”) focuses mostly on protecting investors from false and misleading claims about a company and its ability to make money in the future.
Attorneys who understand securities laws can help both the investor and those seeking investors. Investors have to watch out for “puffery” or making the business projections too optimistic. Those seeking investors have to carefully lay out the risks of the investment and provide enough information for the investor to make an informed decision.
D. LANDLORD TENANT ISSUES
Property owners often have question about tenants using buildings and land for cannabis operations. State and federal forfeiture laws are relevant here and if you are a property owner or considering buying a property to lease to a cannabis operation, you’ll want to figure out your risk tolerance once you develop an understanding of these forfeiture laws. I have noticed that many landlords do not want to pay an attorney to tell them something they really already know, which is that federal law still prohibits properties to be used to manufacture, cultivate or produce cannabis. Such properties can theoretically be forfeited. Most know this and are typically using an attorney as a sounding board to make sure they understand the implications of allowing cannabis operations.
THERE ARE OTHER AREAS OF LAW, NOT INCLUDED ABOVE, THAT MAY BE RELEVANT. I WILL COVER MORE LEGAL ISSUES BUT MOSTLY, I WILL STICK TO THE TOPICS I MENTIONED ABOVE IN “WHY I AM WRITING THIS.”