Although cannabis is now legal (whether medicinal or recreational) or decriminalized in all but eight states, the plant and its byproducts remain illegal at the federal level under the Controlled Substances Act. This dichotomy presents an ethical question for lawyers advising clients in the cannabis industry. The California State Bar Ethics Committee (“Committee”) recently weighed in and formalized the parameters for lawyers to counsel and advise clients involved in this emergent industry.
Lawyers are subject to many rules and duties pertaining to competence, confidentiality, and candor, to name a few. Many of these rules are potentially violated when a lawyer in California advises a client on matters relating to the cannabis industry. For example, California Rules of Professional Conduct (“CRPC”) Rule 1.2.1 prohibits advising or assisting in a violation of law. Similarly, CRPC Rule 8.4(b) prohibits committing a criminal act that reflects adversely on the lawyer’s honesty. Finally, California Business and Professions Code (“BPC”) Section 6068(a) raises a particularly interesting issue in that it imposes on lawyers a duty to support not only the laws of the states in which they are licensed to practice, but the Constitution and laws of the United States.
Recognizing that advising clients with cannabis businesses potentially violates one or more of these prohibitions—regardless of whether the business complies with state and local law—the Committee decided to address the issues head-on. After circulating a proposed opinion and receiving public comments thereon, the Committee issued a finalized, formal opinion (“the Opinion”), the main takeaways of which are as follows:
Lawyers may provide advice regarding California state and local laws pertaining to cannabis despite the fact that the “client’s contemplated course of conduct violates federal so long as the lawyer believes the client is engaged in a good faith effort to comply with California Law;”
Lawyers may not, however, give advice about how to avoid detection of, or to conceal, a violation of state or federal law;
The Committee acknowledges that assisting in conduct that violates federal law is contrary to BPC 6068(a), but it ultimately concludes that complying with Rule 1.2.1 as outlined above is sufficient to constitute compliance with BPC 6068(a);
Lawyers must clearly explain that a client’s contemplated conduct violates federal criminal law, the penalties for such violation, and the risks of civil forfeiture, if any; and
The committee is careful to note (on page 12) that Rule 1.2.1 and Comment [6] do not authorize a lawyer to acquire an interest in a cannabis business in lieu of fees.
With respect to the first bullet listed above, the articulated permission includes engaging in “negotiating and concluding sales agreements, real estate purchases, acquisition of inventory . . . general corporate counseling . . . and other business activities . . . including . . . employment and taxation.” These are all areas where a lawyers may provide counsel and assistance. Note, however, that these activities are permitted only if a client is attempting, in good faith, to comply with California law. If a client is not attempting to comply, or, if such attempt is merely a pretext for masking unlawful conduct, the lawyers representation, which might otherwise have been proper, would be rendered unethical, if not unlawful.
With respect to the second bullet, examples of conduct that might violate the specified prohibition include creating a “rainy day fund” in the lawyer’s trust account to protect against federal seizure and assistance in establishing offshore bank accounts. Accordingly, when consulting with lawyers regarding a proposed course of action, cannabis business owners should think carefully about whether the action will implicate the prohibitions described herein. Although a lawyer may inform a client on whether an action violates the law, the lawyer cannot advise a client on how to hide such violation.
The Opinion is encouraging for both the industry and counsel. Although many lawyers were likely already advising cannabis business clients on sales agreements, real estate purchases, and the like, they may now do so with a greater degree of confidence in the propriety of their actions. Cannabis business clients, in turn, may find it useful knowing exactly where their lawyers ethical limitations lay. The lawyer is likely not being difficult for difficulties’ sake, but, rather, trying to comply with the permissions and prohibitions articulated by the Committee. Moreover, familiarity with the Opinion may provide insight into whether a lawyer is as prepared as he or she advertises. For example, if a lawyer failed to provide the disclosures described in the fourth bullet, the lawyer may not have done its homework.
The lawyers at Huguenin Kahn are experienced and skilled in traversing the relatively unexplored waters of the cannabis industry, will tactfully and shrewdly navigate the permissions and prohibitions described above, and ultimately, stand ready to assist you with all your business, employment, and litigation needs. Please call us at (916) 367-7098 or e-mail us at info@hkcannabislaw.com. You can also follow us on social media at @hugueninkahn and @hkcannabislaw, and please visit our websites at hugueninkahn.com and hkcannabislaw.com.