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Cannabis Clients Present Unique Risks For Lawyers

Law360 (October 24, 2019, 10:57 PM EDT) -- Brian Vicente always knew he would use his law degree to fight the War on Drugs.

As he pursued his degree at the University of Denver's Sturm College of Law, he was outspoken about his desire to work in cannabis law after graduation. He had the support of a pair of mentors, a federal judge and one of his professors.

But "that was like two folks," Vicente told Law360. "And then there's considerable negative feedback in terms of this not being established area of law and, you know, me needing to get a job that paid."

These days, Colorado has a robust recreational marijuana industry — and Vicente's law firm, Vicente Sederberg LLP, is a national presence.

Things have changed dramatically for lawyers working with the cannabis industry. But its existence in a sort of semilegal gray area — legal on the state level but against federal law — exposes pot lawyers to a collection of risks.

Lawyers who work with the industry told Law360 they're paying extra for malpractice insurance, struggling to keep bank accounts open and sometimes having trouble getting loans — all because of cannabis' legal status.

Still others worry about ethical issues when they're advising clients on an illegal industry — and whether their clients are operating as legally as they can.

Getting Off the Ground

More and more law firms are announcing the formation of cannabis practice groups. But it's hard to imagine a corporate cannabis law practice even existing without Brian Vicente.

Before stepping into the corporate cannabis world, Vicente was an activist pushing for changes to Colorado's drug laws — work he says earned him death threats. But in 2012, he was part of the group that drafted the ballot measure that ultimately legalized recreational marijuana in Colorado.

It was after that that Vicente recognized an opening for corporate cannabis attorneys.

Vicente Sederberg attorneys advise cannabis businesses on everything from licensing to compliance to banking. And Vicente says the firm is slammed.

But he says it is extra expensive to run a law firm focused exclusively on cannabis.

Vicente says his firm pays three or four times as much for malpractice insurance as firms that don't do cannabis. He can't get a loan to help the firm meet payroll in lean months, and, over and over, he's had firm bank accounts shuttered. Lawyers at the firm have even had trouble getting mortgages.

In the mid-2000s, when Vicente was first working with cannabis, he said it was a real question whether ethics boards would allow lawyers with cannabis clients to keep their licenses. Some states have since put rules on the books that say attorneys are free to advise these businesses, but many haven't.

When the firm wants to branch out into another state, they first have to sit down with the local attorney regulators to see what their stance is on attorneys and cannabis.

"There was a degree of heavy prejudice early on," Vicente said. "It's getting less and less every day, but we still face the same banking and malpractice issues … so there's still some stigma to be fought."

Taking on Pot Clients

When Eduardo Provencio left a law firm to go in-house at a Colorado cannabis company, he knew there might be an issue with his law license.

The American Bar Association's model rules for attorneys expressly forbids them from helping clients with businesses that are illegal or fraudulent. It doesn't draw a distinction if the business is in line with state law, but against federal.

Around 20 states have addressed the ethics of allowing attorneys to take on cannabis clients.

But for attorneys working in the states that haven't made that shift, taking on cannabis clients means risking serious discipline, according to Mike Rubin, an ethics expert and partner at McGlinchey Stafford PLLC.

Rubin says ethics boards aren't actively looking to catch cannabis attorneys and punish them.

But if a client or opposing attorney files a complaint about an attorney's cannabis work, "disciplinary counsel cannot sit on the sidelines," Rubin said.

And since attorney discipline can apply in all the states where a lawyer is licensed, working in a state that hasn't given lawyers the green light could mean risking licenses in states that have, Rubin added.

That's what Provencio was worried about. When he was coming on as general counsel for cannabis company Mary's Brands, he was thinking about his licenses in New Mexico and Colorado.

Colorado has no problem with cannabis lawyers. But even though the state legalized medical marijuana, New Mexico's legal ethics committee had never weighed in on whether they were OK with lawyers advising on an industry that is against federal law.

Provencio asked the committee if he could go inactive on his license while he worked in Colorado. After looking into it, they told him no — he would have to withdraw entirely from the New Mexico bar to work in cannabis law.

But a few months after he withdrew, New Mexico's state Supreme Court finally weighed in on pot, saying it was ethically OK for the state's lawyers to advise medical marijuana businesses.

After that experience, Provencio said he had an honest conversation with his bosses about how his move to cannabis was going to impact his overall career.

"It may be hard for me to get back to mainstream law practice because I'm doing this, and I want you guys to recognize that from a professional play for me," Provencio said he told them.

Provencio was referencing something he says he's come to understand about working in cannabis law: It could take him off the table for would-be employers. Some firms won't hire someone who has done cannabis work because they or their clients don't want to be associated with the industry, he said.

But he also has seen more and more firms getting into the space. Some of them have shown up at Mary's door, hoping to pitch them for business, he said.

When they come knocking, Provencio said its important that they take seriously the things that make cannabis practice unique.

"Before you go pitch, learn these issues because this is what's important to us," Provencio said he's told lawyers. "I'm sure you guys can do the regulatory work cause you guys do tons of regulatory work in other areas, but these are issues that are really unique to our space."

Keeping It Legal

For attorneys that have chosen to make the jump into pot law, lawyers in the industry told Law360 they need to be conscious of what kinds of clients they take on.

For Kimberly Simms, graduating from law school amid 2008's economic downturn set the stage for her to do cannabis law. And a roommate who smoked pot got the ball rolling.

He introduced her to a friend who had some land he wanted to use to cultivate medical marijuana and needed some legal advice. That work led Simms to more clients, who led her to more clients.

The work kept coming, and eventually Simms set up a law firm of her own in San Diego. As confident as she was that cannabis was the right path for her, the early years felt really risky. Clients were coming to her with brown paper bags of money, and the laws surrounding medical marijuana were at that time still being fleshed out.

"I met some somewhat unsavory characters at the time," Simms said. "They had me advising them on a bunch of different operations, and oftentimes they would pose an idea and be like, 'Kimberly, can we do A, B, C or D?' And the answer was always no."

At one point, Simms agreed to go to some cannabis facilities some of her clients had to check on their compliance. They stopped at one facility, and her clients jumped in the car with garbage bags full of cash and weed.

"I remember thinking like, I'm like a consiglieri," Simms said. "I'm riding in the back of this car. This feels like the movies. I want to keep doing this, but I will not keep doing this. This is not a good idea."

At the time, medical marijuana was legal in California, but people could still be arrested for possession, distribution and more, Simms said. By being in the car, she was at risk, she said.

She terminated her relationship with those clients not long afterward, she said. It made her realize she needed to reevaluate how she was going to run her cannabis practice, and be careful about what clients she brings on.

Worth the Risk

But the excitement that Simms felt about being on the forefront of a new industry has stayed with her. While things are much more rigid now that California has a legal recreational market, the ground is still shifting as the state reworks its regulatory scheme, Simms said.

"I love the sort of constant change, and you can always sink your teeth into something," she said. "We're always putting together the puzzle pieces in a new way, especially right now in California, trying to problem solve for where the regulations perhaps leave a little bit for the wanting."

Brian Vicente has also found that there is a lot of enthusiasm for this area of the law. He says his firm gets tons of unsolicited resumes from newly minted lawyers interested in the cannabis industry.

"There's a lot of those folks out there," he said. "I think there's more everyday, because it's a new and exciting opportunity."

Because of its newness, Simms said the cannabis bar is really collaborative. There's room for more lawyers, but they have to be all in, she said.

"If one person makes a mistake, it really does affect all of us," she said. "You know, one bad apple can really mess everything up for the industry as a whole. So I say, come on, join the party. Just do it right and don't dabble."

--Editing by Breda Lund.

This is the final article in a series that accompanies episodes of our new podcast, Law360 Explores: Legalization. Catch up with all the episodes by subscribing to the show on Apple Podcasts, or find all the episodes here.

For a reprint of this article, please contact reprints@law360.com.

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