Today more than ever, lawyers face an unusual risk dealing with the ethical complexities of cannabis law. Dozens of states have legalized certain cannabis products, creating a new industry in need of professional legal services.
However, marijuana remains illegal at the federal level. Here’s what to know about cannabis clients and where cannabis law stands for lawyers today.
Cannabis Clients of the Past
Not too many years ago, a lawyer representing a cannabis client would be preparing for that client’s criminal defense. Cannabis has been subject to U.S. legal restrictions for around a hundred years, culminating in its inclusion as a Schedule I controlled substance in the Federal Controlled Substances Act of 1970, 21 USC § 846.
Schedule I substances are said to be those drugs with no accepted medical use and a high potential for abuse. Other Schedule I drugs include heroin, LSD and MDMA. Cannabis has remained on the Schedule I list for the past 53 years.
During this time, lawyers advising clients were obliged to comply with Rule 1.2(d) of the ABA Model Rules of Professional Conduct, which states:
“A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.”
Compliance with the rule had been necessary because 21 USC § 846 criminalizes the manufacture, distribution or dispensing of cannabis. For much of the last 53 years, this was not a difficult ethical area because both state and federal laws agreed on the illegality of these cannabis-related activities.
Evolution of Cannabis Law
Fast-forward and a lot has changed in terms of cannabis law in just the last 10 or so years. Medical and recreational use of marijuana has been legalized in an increasing number of states and territories. In fact, there are recent developments in multiple areas of the law.
To date, medical use of cannabis products has been allowed by 37 states, three territories and the District of Columbia. Meanwhile, non-medical adult recreational use of cannabis has been permitted in 21 states, two territories and the District of Columbia. However, 13 states continue to outlaw cannabis entirely and cannabis also remains illegal at the federal level.
The law continues to evolve. In the most recent midterm election, new cannabis-related ballot measures were presented to voters in several states. Those in Maryland and Missouri voted to approve recreational use of cannabis, while voters in Arkansas, North Dakota and South Dakota rejected similar measures.
Last fall, President Biden issued an official proclamation on marijuana possession announcing:
“…a full, unconditional, and categorical pardon for prior federal and D.C. offenses of simple possession of marijuana. The President’s pardon lifts barriers to housing, employment, and educational opportunities for thousands of people with those prior convictions.”
The proclamation also included a request for the Secretary of Health and Human Services and the U.S. Attorney General to:
“…initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.”
Legislative activity at the federal level is also underway. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act is making its way through Congress. The U.S. House of Representatives passed a version of the bill in the spring of 2022.
The legislation would not technically legalize cannabis, but would remove it from the Controlled Substances Act list, leaving regulation up to the states, similar to alcohol. The Senate has yet to review the House bill, but several Senators have sponsored a similar measure called the Cannabis Administrative and Opportunity (CAOA) Act.
The government has prudent reasons for working to resolve the conflicted legal standing of cannabis. For instance, on November 10, 2022, a court-appointed receiver put the City of Chester, Pennsylvania into federal bankruptcy under Chapter 9. Yet the State of Pennsylvania has a legal medicinal cannabis program, meaning that the City of Chester technically derives tax revenue from cannabis activities.
Up till now, the protections of the Bankruptcy Code were universally denied to individuals and businesses deriving any portion of their income or revenue from the cannabis industry. Bankruptcy courts have held that federal courts cannot be used as a tool to support federally illegal conduct, and trustees cannot be forced to possess or sell cannabis or to assist in ongoing violations of federal law by participating in plans to utilize cash derived from cannabis related activities.
The potential for outsized profits has long been a motivating factor for individuals participating in the illicit drug trade. However, as cannabis enjoys increasing legality, legal businesses and governments are now experiencing some of the same monetary benefits.
Still, cannabis-related businesses currently cannot use federally insured banks due to the risk posed by money laundering laws. That leaves only seven percent of banks and three percent of credit unions currently which offer a cannabis program. But for those who do accept them as clients, business is booming.
In 2021, legal U.S. cannabis sales saw a 30 percent annual increase to more than $22 billion. By comparison, wine sales brought in just $17.5 billion. Sales in 2022 were anticipated to rise another 20 percent, but surpassed 32 percent, for a total of $33 billion.
Ethical Legal Approach
Other non-cannabis businesses stand to benefit from increasing legality. In particular, cannabis-related businesses are in need of professional legal services. Beyond completing applications and communicating with the state, legal advice is now sought to guide the formation of new businesses and assist those companies with legal compliance.
While there is still a fine line to walk from an ethical standpoint, law firms large and small have taken on clients in this burgeoning legal field. Illinois State Bar Association Professional Conduct Advisory Opinion 14-07 addressed this topic in 2014 (and has not spoken on the issue since).
Opinion 14-07 refers to Rule 1.2(d) of the Model Rules of Professional Conduct, discussed above. The opinion states that a lawyer may provide services (such as negotiating agreements and drafting corporate and contractual documents) to clients who wish to operate a medical marijuana business if the lawyer:
“…concludes that a client’s conduct complies with state law in a manner consistent with the application of federal criminal law.”
The opinion does not explain how the two can be reconciled, except by referencing “the accommodation provided by the Department of Justice,” which has issued a memorandum that indicates the DOJ will exercise prosecutorial discretion in this area.
Like cannabis-related businesses themselves, cannabis law continues to reside in a legal grey area. Those many positive signs can be seen around the country, but legal ambiguities remain. This leaves some lawyers and law firms still lacking clear assurances that it is safe to engage with cannabis clients. While there is no answer yet, lawyers can continue to pay close attention to current developments for the laws and regulations in their state.
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