In November 2012, Washingtonians voted in favor of Initiative 502 (I-502), which legalized the possession of certain amounts of marijuana by adults 21 and older. I-502 also legalized the commercial cultivation, manufacture, and retail sale of marijuana. While I-502 created a legal marijuana economy in Washington, it had no effect on the federal Controlled Substances Act. Should lawyers opt to practice in the ever-changing area of marijuana business law, here are five issues to consider before starting such a practice.
Federal law and priorities. The federal Controlled Substances Act is governed by 21 U.S.C 801-971 (the Act). Most business lawyers probably haven’t taken the time to read the Act, but being familiar with it is a requirement for those contemplating practicing in the marijuana business space. You have to know the consequences your clients face should the federal government take an interest in their businesses. On Aug. 29, 2013, U.S. Deputy Attorney General James Cole issued an enforcement policy memorandum that lists out the enforcement priorities of the Department of Justice regarding marijuana. That memo also stipulates that the federal government currently plans to have a tolerance for states with “robust” marijuana regulations. Though the memo is useful guidance, remember that it does not represent a change in federal law or marijuana’s status as a Schedule I controlled substance.
Federal prohibition leads to significant business conflicts. Federal prohibition causes substantial conflicts when actually doing business in the marijuana industry. Because of federal banking laws (namely, anti-money-laundering laws), marijuana businesses have great difficulty obtaining bank accounts, loans, and traditional types of institutional financing. Federal prohibition can also affect the willingness of institutional investors or commercial landlords to participate with marijuana businesses because of trepidation regarding federal arrest, prosecution, and asset forfeiture of real and personal property. Lastly, the Internal Revenue Service taxes marijuana businesses pursuant to Internal Revenue Code Section 280e, which denies standard business deductions to illegal businesses, including marijuana businesses in states where they are legal. IRS 280e tax calculations can skew any unprepared marijuana business’s balance sheet into the red, and attorneys need to be cognizant of this when advising their clients.
Know state marijuana regulations. Practitioners must be vigilant over state marijuana regulations to keep their clients in compliance. WAC 315-55 is broad, covering everything for a marijuana business from security requirements to package, labeling, and quality assurance standards. Be sure to study up on those regulations in order to prepare your clients for success. And be certain to have a system for keeping clients updated, as the Washington State Liquor Control Board will consistently amend the rules in response to perceived need.
Know where you want to focus. Like any other legal practice, a marijuana business practice doesn’t cover just one subject and it certainly isn’t static. Marijuana business law includes commercial litigation, corporate transactional work, corporate formation, land use, intellectual property and patent, environmental law, and so on. One practitioner cannot and should not do it all in a marijuana business practice. As a result, realize your limitations and figure out for yourself the area of the law on which you want to spend your time becoming competent.
Build up your professional referral network. Because no one lawyer can do it all in any practice, it is paramount that you familiarize yourself with other competent professionals to help your clients move their business forward. For example, your clients will need significant help when it comes to tax preparation for their business. Consequently, you should be building up your contact list with competent accountants familiar with not only those tax obligations set forth under I-502, but also with those tax requirements set forth by 280e. In addition to CPAs, be prepared to add other attorneys to refer your clients in cases where conflicts arise, in addition to having competent referrals in areas outside of your practice area. Other useful referrals include business consultants, architects, insurers, real estate brokers, and security companies, just to name a few.
Interested in learning more about marijuana law? Register now for a WSBA-CLE on Marijuana Law on Dec. 19 from 1:25 – 4:45 p.m. Find more information here.