Representation in Marijuana Industry Chilled by Ethics Rules
By Ian S. Clement, Litigation News Associate Editor – May 2, 2016
Lawyers seeking to do business in the marijuana industry need to consider State ethics rules before accepting representation. For example, Pennsylvania Rule of Professional Conduct 1.2(d) prohibits lawyers from counseling a client to engage, or assisting a client, in conduct that the lawyer knows is criminal or fraudulent. The Pennsylvania Bar has proposed a new subsection to one such rule that will, if adopted, guide lawyers who wish to represent clients in the growing marijuana industry.
Legal under State Law, Illegal under Federal Law?
The Pennsylvania Legislature is debating a bill to legalize medical marijuana in the Commonwealth. Pa Senate Bill 3 has already passed in the Pennsylvania Senate. The House bill is expected to pass but as has been delayed with amendments. However, if medical marijuana is legalized in Pennsylvania, its lawyers will be faced with a quandary that lawyers of other states that have legalized marijuana have also faced—how can they give advice regarding activity that is legal under state law, but still violates the federal Controlled Substance Act (CSA)?
The U.S. Department of Justice has advised that it would defer to enforcement of state law by state and local authorities in jurisdictions that have enacted laws legalizing marijuana in some form and that have also implemented strong regulatory enforcement systems. Nevertheless, Pennsylvania Rule of Professional Conduct 1.2(d) prohibits lawyers from counseling “a client to engage in, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.”
This dichotomy has caused some law firms to shy away from, or cease, representing entities involved in the marijuana industry. Consequently, the Legal Ethics and Professional Responsibility Committee of the Pennsylvania Bar Association and the Professional Guidance Committee of the Philadelphia Bar Association recommends amending Rule 1.2 to include a subsection (e) to provide clearer guidance and comfort to lawyers seeking to assist marijuana industry clients. The proposed subsection (e), which serves as an exception to subsection (d), states:
(e) A lawyer may counsel or assist a client regarding conduct expressly permitted by the law of the state where it took place or has its predominant effect provided that the lawyer counsels the client about the legal consequences under other applicable law, of the client’s proposed course of conduct.
Dichotomy of State and Federal Laws
Twenty-three other states have legalized marijuana use in some form. Many of those states have amended their ethics rules. For example, Connecticut requires that, at a minimum, a lawyer inform his client of the conflict between Connecticut and federal law regardless of the fact that federal authorities in Connecticut may not be actively enforcing the CSA. Hawaii has proposed a similar amendment to its rules. Arizona and Washington have taken the approach that a lawyer who fully advises a client of the federal law implications of the state law and the CSA may assist the client as long as the counseled or assisted conduct is expressly permitted by state law. After Colorado legalized marijuana for medicinal and recreational use, its bar association adopted a similar comment to its Rule 1.2(d).
Contrarily, in ISBA Prof’l Conduct Committee Op. 14-07 the Illinois State Bar Association’s Professional Conduct Committee specifically noted that “negotiation of contracts and the drafting of legal documents for a medical marijuana client would be assisting the client in conduct that violates federal criminal law, even though such conduct is permissible under state law.”
Need for Lawyers in the Marijuana Industry
The burgeoning marijuana industry has an estimated annual worth of $5.4 billion. But the dichotomy of between the CSA and state legalization has hampered the industry. “There is substantial demand from clients who wish to participate as owners, investors, lenders and suppliers of goods and services to marijuana related businesses,” says Thomas G. Wilkinson Jr., Philadelphia, PA, cochair of the Conflicts of Interest Subcommittee for the ABA Section of Litigation's Ethics & Professionalism Committee, and past president of the Pennsylvania Bar Association. “These clients clearly need legal advice to navigate the area and to understand the risks, and lawyers should be free to provide that advice, so long as they explain the legal consequences of their clients' proposed conduct,” says Wilkinson.
“For example, the refusal or reluctance of mainstream banks to handle business accounts and cash generated by marijuana related operations has been a key obstacle to growth,” says Wilkinson. Moreover, “marijuana dispensaries must adhere to a regulatory scheme specific to the marijuana industry in addition to all of the normal labor and employment laws” says Dinita L. James, Phoenix, AZ, associate editor of Litigation magazine. “Arizona’s marijuana ethics opinion makes it possible for lawyers to advise marijuana dispensaries about labor and employment issues” says James.
Federalism and a Carve-Out of the Controlled Substance Act
Some believe it is likely that the patchwork of ethical rules will continue to confound lawyers seeking to advise marijuana industry clients unless a carve-out of the CSA is enacted. For example, "Cooperative Federalism and Marijuana Regulation", a University of California-Irvine School of Law research paper, suggests that a federal carve-out for states that have legalized marijuana is the best solution to the CSA quandary. The paper suggests that under the CSA carve-out, “[f]ederal law would supplement state law only when states defer to federal law or fail to satisfy federal requirements.”
Keywords: marijuana, cannabis, Controlled Substance Act, preemption, federalism
- » Pennsylvania Bar Association Legal Ethics and Professional Responsibility Committee, Recommendation and Report on Change to Rule 1.2 Regarding Advice on Medical Marijuana.
- » 204 Pa. Code Rule 1.2.
- » 21 U.S.C. § 801.
- » Stephanie Francis Ward, “Marijuana Businesses Need Lawyers, But How Do You Build That Practice?” ABA Journal, June 1, 2015.