Attorney Quandary: Is it Ethical To Advise a Client in Violation of Federal Cannabis Law?
9.9.2021
A panel of four attorneys, all veterans of the practice of cannabis law, offered their opinions, experience and best practices in the steadily evolving field as part of the New York State Bar Association’s continuing legal education programing on Thursday.
Coming a week after Gov. Kathy Hochul’s picks to head the Cannabis Control Board and Office of Cannabis Management were confirmed by the state Senate, the panel focused on ethical questions surrounding lawyers who represent clients in the cannabis industry.
While former Gov. Andrew Cuomo signed legislation legalizing the sale and use of cannabis into law on March 31, certain aspects of the law, including cultivation and sale, won’t take effect until the Cannabis Control Board offers regulations and guidelines.
Panel host Andrew Kingsdale of the Law Offices of Omar Figueroa set the stage for the initial quandary facing attorneys and the cannabis industry: Is it ethical to provide legal advice to those who are technically in violation of federal law?
According to Ethics Opinion 1225 issued by the NYSBA Ethics Committee on July 8 of this year, attorneys in New York can ethically provide counsel to those in the cannabis industry given that New York State has established a set of rules and guidelines. And that further, both the legislative and executive branches of the federal government have indicated they do not want to interfere in well-regulated state cannabis markets.
Kingsdale pointed out that the NYSBA Committee’s opinion could change should federal policy take a turn toward enforcement.
Cannabis and Courtrooms
Cristina Buccola. of Cristina Buccola Counsel and one time general counsel to High Times Magazine touted Opinion 1225 for recognizing just how essential lawyers are to the cannabis industry.
“Without the aid of lawyers, the recreational marijuana regulatory system would in our view likely break down or grind to a halt,” reads the opinion.
Buccola said she believes New York State understands that point, “Attorneys are already shaping the regulatory system,” she said, pointing to the fact that four attorneys have been appointed to serve on the Office of Cannabis Management and the Cannabis Control Board.
License to Smoke?
Omar Figueroa, of the Law Offices of Omar Figueroa took on the question of whether it is ethical for attorney’s to use and cultivate marijuana. Figueroa, director of the National Cannabis Industry Association, the founding lifetime member and former director of the International Cannabis Bar Association, director of the Cannabis Travel Association International and author of multiple cannabis law reference books, said that he was happy to share the “good news” that the NYSBAR Ethics Committee found it generally ethical for attorneys to use and cultivate marijuana within the law.
However, Figueroa pointed out that there are a number of caveats to go along with the committee’s general assessment. First he noted that the NYSBA Ethics Committee warned of the overuse of marijuana stating, “The excessive use of marijuana, however, like excessive consumption of alcohol, may adversely impact a lawyer’s ability to competently and diligently represent a client as required by Rules 1.1(a) and 1.3. It could also have more serious consequences and create a physical or mental condition that materially impairs a lawyer’s ability to represent a client, requiring mandatory withdrawal from representation (see Rule 1.16(b)(2)).
As for the cultivation of marijuana in the amounts approved under state law, Figueroa said that while the ethics committee found it would not reflect poorly on an attorney, there is a more immediate concern. ”Home cultivation of cannabis is not yet allowed until the Office of Cannabis Management issues regulations for home cultivation. When it is issued it will be copasetic for lawyers.”
Pro Ganja Lawyers
Karen J. Bernstein, of Bernstein IP and a lifetime member of the International Cannabis Bar Association, addressed whether it is ethical for an attorney to accept partial ownership of a recreational marijuana business in lieu of traditional payment.
Like the question about use of marijuana, Bernstein noted that while in general the ethics committee found that it is ethical for an attorney to accept a stake in a recreational marijuana company in lieu of payment, there are a number of circumstances that would make it unethical.
“Once you start going down that road it can be very exciting especially with the nascent legal cannabis system,” said Bernstein. “But it all depends on your risk.”
According to the opinion, the terms must be fair and reasonable, the client must disclose fully what they are giving in compensation and according to Bernstein “even more important the client should be advised to seek independent counsel.”
Bernstein advised that an outside arbiter should be brought in to determine whether the amount of equity being transferred for services is excessive to avoid ethical pitfalls. She further advised that attorneys may want to disclose to other cannabis clients that they own a portion of what could be perceived as a competitor.
Overall, Bernstein noted that while ethical, taking equity in a recreational marijuana business in exchange for services could create more headaches than it is worth. “By taking interest you could cause a major optics problem. You have to consider disclosure to other clients? How does a lawyer take equity interest without other clients perceiving that lawyer as not trustworthy? That they might use secrets against me. You may lose business due to taking equity in another business.”
Best Practices
With the floor opened to questions, panel members discussed how they avoid ethical quandaries while advising clients who may be moving out of the shadows of the black market and into the light of legalization.
“If something makes me feel uncomfortable, I’m out. I have enough practice to understand what is dishonest,” said Buccola. I still have to go to bed at night and know my license is still intact.”
Buccola says she looks out for a common red flag–the phrase “can’t we just do this so that…?” combined with topics like structuring capital, immigration concerns and real estate.
“In New York there is a premium put on properties that will be able to house some kind of cannabis business and a client might ask ‘can we disclose this as something else?’ and I’m out, it’s something I am routinely faced with.”
Bernstein says one of her major redflags is when a client wants to pay cash. “A lot of these businesses are applying for licenses coming out of what I like to say is the ‘legacy market,’ out of the shadows. People who were working the black market and want to go legit. They work in cash and a lot of them want to pay you in cash. If you take it, you could be facing a ‘Bye bye!’ from your bank.”
Figuero agreed, saying that cash payments come with the risk of losing your banking partners in an environment where many banks refuse to do business with the marijuana industry in the first place. Figueroa says he is up front with his bank about the industry he works in.
Bernstein and Figueroa also advised against giving business advice. “I’m afraid to provide business advice,” said Bernstein. “I help comply with state law, the minute I get involved in business details I might be crossing a line into a RICO situation, the federal government could see it that way.”
“When an attorney morphs from a legal to a business adviser they are no longer explaining how to follow law but to maximize profit. That is extremely iffy and outside providing strict compliance with state law.”
Finally one audience member asked whether it would be OK for an attorney to partake in a “cannabis happy hour.”
“It would be odd if you didn’t drink wine at a wine industry event,” said Figueroa smiling. “You can’t fit into the industry if you act like the stuff is contraband.”
“Just drink responsibly,” said Kingsdale.
