As states continue to legalize cannabis for medicinal or recreational purposes, professional service firms are experiencing a rapid growth of new markets for their services. While this opportunity for growth is exciting, and despite the effect of state law, marijuana remains illegal under Federal Law. This conflict between state and federal statutes places marijuana businesses or supplemental businesses at risk of being federally prosecuted.
As a result, many insurance companies are hesitant to offer coverage to firms that represent clients in the cannabis industry. In fact, many Property & Casualty insurance companies will not insure a business if “marijuana” or “cannabis” are mentioned anywhere in the lease. Some professional liability carriers even refuse to offer coverage to law firms representing the cannabis industry, but Lockton Affinity Lawyer is different.
Why Lockton Affinity Lawyer is Different
We will not refuse to insure a law firm on the sole basis that it may provide legal services for the cannabis industry. Every law firm is unique and we will treat it accordingly in the underwriting process. We also provide risk management guidance for those firms that service the industry.
Why Your Firm should be Careful
A one page memo issued by Attorney General Jeff Sessions on January 4, 2018 rescinded the Cole memo, which stated that the federal government would not interfere with states that legalize recreational and/or medical marijuana, as long as they adhere to a set of guidelines.
The action taken by AG Sessions states that despite the effect of the state laws, such activities remain illegal under federal law. Parties that directly engage in such activities, like the law firms that provide their legal services, remain subject to prosecution for violating federal laws.
If your law firm continues to provide services for the marijuana industry, we encourage you to provide warnings to your clients about the conflict in federal and state law, as well as the enhanced risk associated with the rescinding of the Cole memo. Further, the California state bar association has spoken on this issue and you should routinely check for updates and ethical opinions.
If you are interested in representing the cannabis industry, ask yourself these risk management-related questions:
- Have you considered that your services could result in criminal investigations or prosecutions?
- Have you provided written warning to your clients regarding the risk of operating in an industry that is still illegal under federal law?
- Will your existing clientele react poorly if they knew you were servicing the cannabis industry?
- Have you considered that your services could result in civil litigation and/or regulatory investigations, including allegations of civil conspiracy, fraud, violation of anti-money laundering laws, etc.?
- Does your State Professional Board for its latest position on the subject?
- Have you considered that attorney-client privilege, both yours and your clients, could be jeopardized because marijuana is illegal under Federal Law?
Deborah Bjes, Risk Manager
Swiss Re Corporate Solution