Where the clients ‘are no stoned-out hippies’

When Brian Vicente, a lawyer in Denver, donated $45,000 to the Sturm College of Law at the University of Denver last week to endow a professorship to study marijuana law and policy, the gift seemed almost inevitable.

Vicente, who specializes in marijuana law, said this was an “opportunity to give back to the university that has supported me.” But the gift also showed just how far lawyers have come in working in the burgeoning cannabis business.

Small firms, like Vicente’s, have been advising clients on issues for several years. Now even some bigger corporate firms are tiptoeing into the business.

It’s not that clients aren’t reputable or financially sound. Those entering the space are typically well-funded individuals or groups who understand that they’re trying to enter a heavy regulated industry.

They’re not, as one might suspect, wearing tie-dyed clothes and sporting gray pony tails.

“These are business people,” said William Bogot of Fox Rothschild LLP. “There are no stoned-out hippies.”

Twenty-three states have legalized medical marijuana and recreational use has been approved in Alaska, Colorado, Oregon and Washington state, as well as in the District of Columbia. Revenue estimates range from $3 billion a year to more than $5 billion.

It’s not an area that firms enter into lightly, said Richard Goldfarb, a banking and corporate partner at Stoel Rives LLP.

“There are both ethical issues and reputational issues involved,” he said. There are also differences of opinion among partners, Goldfarb said.

“We have offices in Washington, Oregon and Alaska, where marijuana is legal, but we also have offices in Utah and Idaho where the law is different,” he said.

Anderson Kill P.C. formed a regulated products practice group in December to focus on marijuana as well as industries including the wine and spirits business.

While its website doesn’t trumpet its cannabis work, the two shareholders at the firm who head the group — David Graff and Jerry Goldman — said the growing business is a primary focus. The practice group is multidisciplinary since the applicable regulations can be complicated.

As Graff explained, “when a client expresses a desire to invest in a new industry, we need to advise on the applicable regulations and how to comply, but we also need to talk to the client about how to structure their business.”

Other issues, Graff said, can include intellectual property questions, including the availability of trademarks and “real estate issues such as where plants can be grown and where products can be sold.”

Fox Rothschild has also strengthened its bench in this area. When the firm opened an office in Chicago this year, it recruited Donna More and Bogot from Nixon Peabody LLP. More’s background included stints as both a state and federal prosecutor, and both have advised the Illinois Gaming Board, the state agency that regulates casinos. Their experience, Bogot said, segued into the marijuana business, since Illinois approved medical marijuana in 2013.

About 25 percent to 30 percent of their time is devoted to entrepreneurs coping with the thicket of regulation. Cultivators must comply with the Illinois Department of Agriculture which began to issue licenses this year. After the plants have grown, the next stage — the opening of dispensaries — will occur. Those businesses will be governed by the state’s Department of Financial and Professional Regulation.

Marijuana growing and selling is largely a cash business because banks have shied from accepting proceeds from these businesses. It isn’t illegal per se; the problem is that federal banking laws require stringent compliance to accept money from the cannabis industry.

Guidelines issued in 2014 by the Financial Crimes Enforcement Network of the Department of the Treasury, known as FinCEN, suggest that the proceeds from a state-licensed marijuana business can be deposited in banks as long as the banks have rigorous compliance systems that will ferret out anything illegal.

Nonetheless, because these programs are expensive, and considered by many banks to be too risky, many have shied away from accepting these deposits, Goldfarb, of Stoel Rives, said.

“The obstacles for anyone who wants to bank the proceeds of marijuana businesses are huge. Those in the business have an entrepreneurial attitude of ‘there must be a way around this.’ But there often isn’t. The answer, however, cannot be that they just won’t say what they’re doing. It’s illegal to do that.”

Many firms with employment practices, have already been confronting issues that emanate from the use of medicinal marijuana, Mark Berry, a partner at Davis Wright Tremaine LLP in Seattle, explained. “Employers want to understand how existing policies are affected by employees who are using marijuana medicinally or recreationally outside of the workplace.” Permissibility, he said, is often akin to alcohol use — even if it’s legal, it can still be impermissible on the job. The trickier question, he added, is medicinal use, since discrimination laws also come into play. “In most cases, enforcement of drug policy has prevailed,” he said.

Davis Wright’s cannabis practice is limited to employment issues, Berry said. The firm, despite its Seattle roots, hasn’t ventured into advising clients who want to start marijuana businesses.

Uncertainty in the market remains. States that haven’t legalized either medicinal or recreational marijuana aren’t happy with their neighbors who have.

In December, Nebraska and Oklahoma filed suit in the U.S. Supreme Court, under the theory of original jurisdiction, claiming that Colorado’s legalization of recreational use creates a “dangerous gap” in enforcement and undermines other states’ “own marijuana bans, draining their treasuries, and placing stress on their criminal justice systems.”

In March, Colorado Attorney General Cynthia Coffman filed a brief arguing that the Supreme Court should decline to take the case.