A Growing Dilemma: A Lawyer's Ethical Obgliations in World ......A Growing Dilemma: A Lawyer’s Ethical Obligations in the World of Weed M. Kate Strauss Overturf Mcgath & Hull, PC

A Growing Dilemma: A Lawyer’s Ethical Obligations in the World of WeedM. Kate Strauss Overturf Mcgath & Hull, PC

56th Annual Meeting of Invited AttorneysChicago, IllinoisMay 25 – 26, 2017

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58th Annual Meeting of Invited Attorneys

A Growing Dilemma

• California Proposition 215 first legalized medical marijuana on the state level in 1996

• Colorado Amendment 64 first legalized recreational marijuana on the state level in 2012

“Legal” Marijuana


• As of May 2019, 33 states, plus the District of Columbia, Guam, Puerto Rico, and the US Virgin Islands have legalized marijuana in some form on the state level, and 10 states plus the District of Columbia have legalized recreational marijuana

• Marijuana remains a federal regulation schedule 1 substance under the Controlled Substances Act, 21 U.S.C.S. § 801 et seq.

• Persons and entities participating in state-legal marijuana economies may expose themselves to severe civil and criminal penalties under federal law

A Growing Dilemma“Legal” Marijuana


1)Do you know the applicable marijuana laws in your home state?

A. YesB. No

A Growing DilemmaA Poll


2) Is marijuana state-legal and, if so, legal in what capacity?A. Legal for Recreational UseB. Legal for Medical UseC.Legal for Medical Use, Limited THC

ContentD.ProhibitedE. Decriminalized

A Growing DilemmaA Poll


By Lokal_Profil, CC BY-SA 2.5, https://commons.wikimedia.org/w/index.php?curid=2370050

A Growing Dilemma


By Lokal_Profil, CC BY-SA 2.5, https://commons.wikimedia.org/w/index.php?curid=2370050

A Growing DilemmaLegality by State


• The Department of Justice issued an August 29, 2013 Memorandum for All United States Attorneys authored by James Cole (the “Cole Memorandum”):

• 8 DOJ “enforcement priorities” including: preventing distribution of state-legal marijuana to minors and the use of marijuana revenue to fund cartels

• DOJ typically relies on state governments to regulate marijuana law

• Advised US Attorneys against using departmental funds to prosecute federal marijuana law in states which legalize marijuana, so long as those states provided robust and effective regulatory systems to address enforcement priorities

• Other DOJ memoranda provided similar guidance regarding prosecuting marijuana-related financial crimes and against use of DOJ funds to prosecute ailing medical marijuana users

A Growing DilemmaA “Safe Harbor” Under Federal Policy?


• The Memorandum for All United States Attorneys issued Jan. 4, 2018 by then-Attorney General Jefferson B. Sessions, III officially rescinds previous nationwide guidance specific to marijuana enforcement as “unnecessary”

• The Sessions Memorandum rescinds the Cole Memorandum, along with 4 other previous DOJ memoranda

• The Sessions Memorandum contends that the DOJ has well-established principles governing federal prosecutions, and that US Attorneys should follow these principles

• DOJ enforcement memoranda do no create any substantive or procedural rights, and are subject to change

• Even under the Cole Memorandum, marijuana possession, use and cultivation remained federal crimes

A Growing Dilemma. . . Maybe Not


Which of these candies is a marijuana edible?

Marijuana Edible

CandyBy Jebulon - Own work, CC0,

https://commons.wikimedia.org/w/index.php?curid=27753729

Reuters photo

A Growing Dilemma


Does federal law prohibit sale of packaging a dispensary uses to sell these edibles, so long as you don’t sell the edible itself?

Reuters photo

A Growing Dilemma


• Participating in state-legal marijuana economies, even in ancillary ways, remains a felony crime under federal law.

• 18 U.S.C.S. § 2(a), “[w]hoever commits an offense against the United States or aids, abets, counsels, commands, induces, or procures its commission, is punishable as a principal.”

• Landlords or others maintaining a physical space could be found liable under the federal “drug house” statute, 21 U.S.C.S. § 856.

• Service providers may violate federal money laundering statutes, including 18 U.S.C.S. § 1956.

A Growing DilemmaAncillary Service Providers May Violate the CSA


• It is a federal crime to “knowingly or intentionally … manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance,” 21 U.S.C.S. 841(a)

• Medical practitioners cannot prescribe Schedule I drugs, and face significant criminal and civil penalties including loss of DEA registration and being excluded from Medicare, 21 C.F.R. §1306.04

• The Cole Memorandum and other DOJ guidance did not and do not create immunity under federal law

• Landlord, investors, lenders, and ancillary service providers face risks under federal law for aiding a marijuana business, 18 U.S.C.S. 2(a), 21 U.S.C.S. § 856, etc.

• Marijuana businesses deal primarily in cash, and failing to report a cash transaction of over $10,000 is a crime under the Internal Revenue Code and US Code

Bruce E. Reinhart, Dazed & Confused: Legal and Ethical Pitfalls in Marijuana Law, ABA Crim. Just., Winter 2017

A Growing DilemmaWhat are (some of) the risks?


• Engaging in financial transactions with a marijuana business may violate federal money laundering laws, 18 U.S.C.S. § 1956

• The federal government may seize assets related to a marijuana-business even if it does not prosecute the business, 18 U.S.C. §§ 981, 988

• Insurance policies may carry exclusions for criminal acts• Working with marijuana-ancillary businesses may violate the ethics and

conduct rules of regulatory bodies or licensure boards• Communications with an attorney in furtherance of illegal activity are not

privileged, and an “advice-of-counsel” defense waives attorney-client privilege

• The IRS does not allow a business to deduct or credit expenses for a marijuana-business, and marijuana businesses can pay an effective tax rate of over 70 percent without deductions

• Bankruptcy cannot protect a marijuana business from its creditorsBruce E. Reinhart, Dazed & Confused: Legal and Ethical Pitfalls in Marijuana Law, ABA Crim. Just., Winter 2017

A Growing DilemmaWhat are (some of) the risks? (continued)


• Rule 2.101 of the AIA Code of Ethics and Professional Conduct provides that “Members shall not, in the conduct of their professional practice, knowingly violate the law.”

• Rule 2.106 of the AIA Code of Ethics and Professional Conduct, “Members shall not counsel or assist a client in conduct that the architect knows, or reasonably should know, is fraudulent or illegal.”

• Colorado Bylaws and Rules of The State Board and Legislature for Architects, Professional Engineers, and Land Surveyors Rule 3.1.9, “Licensees shall inform the Board […] within 45 days of the conviction of the licensee of a felony” under state or federal law.

• C.R.S. § § 12-25-108, 12-25-208, 12-25-308, “the board has the power to deny, suspend, revoke, or refuse to renew the license and certificate of licensure or enrollment of, limit the scope of practice of, or place on probation” an engineer, architect, or surveyor who is convicted of a felony.

A Growing DilemmaConsiderations for a Licensed Professional


• Most state supreme courts adopt the American Bar Association Model Rules of Professional Conduct

• Rules of Professional Conduct provide ethical guidelines and standards for the attorneys practicing in those jurisdictions

• ABA Model Rule of Professional Conduct 1.2 prohibits attorneys from assisting clients in conduct that the lawyer knows is criminal or fraudulent

• The ABA Model Rules do not differentiate between conduct that is illegal on the state or federal levels

• Under USCS Const. Art. VI, Cl 2, federal law is held supreme over conflicting state law

A Growing DilemmaEthical Considerations Advice of Counsel


1.2(d) 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

A Growing DilemmaModel Rules of Professional Conduct R.1.2(American Bar Association 2016)


• As with clients, an attorney’s ancillary participation in state-legal marijuana economies still violates federal law.

• Moreover, counseling or assisting client in conduct reasonably permitted under state marijuana laws may violate Model Rule of Prof’l Conduct 1.2(d).

• Conduct prohibited under Model Rule of Prof’l Conduct 1.2(d) may include, e.g., drafting contracts or leases for dispensaries and other conduct normally within an attorney’s practice.

A Growing DilemmaScope of the Ethical Problem: RPC 1.2


• Most (but not all) states whose legislatures have legalized marijuana provide some formal or informal ethics guidance addressing the prohibitions of Rule 1.2.

• Attorneys practicing in states where marijuana remains illegal on the state level should not advise clients regarding a marijuana business.

• As more states have legalized marijuana, patterns have emerged among attorney regulatory bodies regarding permitted attorney conduct.

A Growing DilemmaResponses in Marijuana-Legal States toModel RPC 1.2(d)


Does your home state expressly permit attorneys to assist clients in conduct permitted under state marijuana laws?

A Growing Dilemma


• Most states adopting state-legal marijuana laws either modify or provide formal commentary to their Rule of Professional Conduct 1.2.

• Other states have issued formal ethics opinions regarding marijuana clients.

• Minnesota has enacted statutory protections for marijuana clients.

• Florida and Massachusetts have issued disciplinary board policies.

• Louisiana refused to adopt any ethics modification.

A Growing DilemmaMethods of Ethics Guidance


• The issuance of a state opinion or modification does not guarantee policies of state bar will not change.

• Many opinions reference State Bar of Arizona Opinion 11-01, finding that the previous DOJ memoranda “essentially carve[d] out a safe harbor for conduct that is in ‘clear and unambiguous compliance’ with state law.”

• Unclear how rescission of Cole Memorandum affects this “safe harbor.”

• Subsequent modifications may contradict earlier guidance.

A Growing DilemmaMethods of Ethics Guidance (continued)


“Prof.Cond.R. 1.2 prohibits a lawyer from counseling or assisting a client to engage in conduct the lawyer knows is illegal under any law. The rule does not contain an exception if the federally prohibited conduct is legal under state law. However, a lawyer may advise a client as to the legality of conduct either permitted under state law or prohibited under federal law, explain the scope and application of the law to the client’s conduct, but a lawyer cannot provide the legal services necessary to establish and operate a medical marijuana enterprise or transact with a medical marijuana business.” (Aug. 4, 2016)

A Growing DilemmaComparison: State Bar of Ohio Opinion 2016-6


1.2(d)(2) “A lawyer may counsel or assist a client regarding conduct expressly permitted under Sub. H.B. 523 of the 131st General Assembly authorizing the use of marijuana for medical purposes and any state statutes, rules, orders, or other provisions implementing the act. In these circumstances, the lawyer shall advise the client regarding related federal law.” (Sep. 20, 2016)

A Growing DilemmaComparison: Ohio Prof. Cond. Rule 1.2


• All states who provide guidance to attorneys with marijuana-ancillary clients require that attorneys advise their clients of the conflict between state and federal law, and risks of violating federal law.

• Paradoxically, none advise on the scope of advice an attorney must give regarding potential violations of federal law.

A Growing DilemmaBest Practices Across Jurisdictions


• Attorney should address potential civil and criminal ramifications of violating federal law.

• Attorney should also address potential ramifications outside federal law, including potential licensure ramifications and risks to attorney-client privilege.

• Attorney should address rapidly changing laws, and that DOJ policies or priorities are not law.

• Best practices include a thorough recitation of risks in writing, and may be addressed in an engagement letter.

A Growing DilemmaBest Practices Across Jurisdictions (continued)


A Growing Dilemma


• Many states modify their Rule 1.2 itself (e.g., Ohio Prof. Conduct Rule 1.2(d)(2).

• Some provide formal commentary to Rule 1.2, addressing whether attorneys may counsel clients in state-legal marijuana ventures.

• There is a distinction among states who allow attorneys to assist clients in conduct permitted under state marijuana laws specifically, or potentially any state law which conflicts with federal law .

A Growing DilemmaRule 1.2 Modifications and Commentary


“Notwithstanding paragraph (c), a lawyer may counsel and assist a client regarding Oregon's marijuana-related laws. In the event Oregon law conflicts with federal or tribal law, the lawyer shall also advise the client regarding related federal and tribal law and policy.” ORPC 1.2(d).

A Growing DilemmaComparison: Oregon RPC 1.2(d)


Illinois attorneys may “counsel or assist a client in conduct expressly permitted by Illinois law that may violate or conflict with federal or other law, as long as the lawyer advises the client about that federal or other law and its potential consequences.” Ill. Sup. Ct. R. Prof'l Conduct, R 1.2(d)(3).

A Growing DilemmaComparison: Ill. R. Prof’l Conduct 1.2(d)(3)


Formal ethics opinions tend to permit attorneys to give counsel regarding state-specific marijuana laws, rather than the broad language of RPC changes such as Illinois’

A Growing DilemmaFormal Ethics Opinions and Informal Policy


• Policies adopted by disciplinary boards that the board will not prosecute bar members solely for assisting clients in conduct permitted under state law.

• Reference only state-specific marijuana laws.• Do not address whether conduct is permitted

necessarily, but only that boards will not prosecute members of bar for conduct.

A Growing DilemmaBoard Policies


• Even among states who have adopted modifications, future change is probable given the changing nature of the legal-marijuana industry.

• Ethics modifications in states with budding marijuana industries necessitate a frank evaluation of whether attorneys are everallowed to break one law in the commission of acts permissible under a second law.

A Growing DilemmaMaking Room for Growth

Documents

A Growing Dilemma: A Lawyer's Ethical Obgliations in World ......A Growing Dilemma: A Lawyer’s Ethical Obligations in the World of Weed M. Kate Strauss Overturf Mcgath & Hull, PC