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Cannabis Counsel

On the eve of legalized medical marijuana, Missouri firms wade into the water — or dive right in

In a matter of weeks, the legal framework for medical marijuana in Missouri is expected to be in place — and Shook Hardy & Bacon is the latest big law firm to offer help navigating it.

“This emerging industry is directly in our wheelhouse,” wrote partner Katie Gates Calderon in an email on May 14, announcing the creation of a “Cannabis and Hemp Practice” at the Kansas City-based firm.

While other firms may focus on transactions, Calderon added, Shook will differentiate itself by helping clients to anticipate potential regulatory, litigation and reputational risks.

No doubt there will be a jostling for clients: Among the nine largest firms in the state by gross revenue in Missouri Lawyers Media’s forthcoming MOney 2019 issue, four are now advertising cannabis counseling on their websites. Those firms include Husch Blackwell, Stinson, Thompson Coburn and Armstrong Teasdale.

stock photo

stock photo

It’s easy to imagine why.

According to New Frontier Data, a cannabis market-research firm, legal marijuana was a $10.4 billion industry in 2018. Missouri is now among 34 states to have legalized the drug for medicinal use — a result of the passage last November of Amendment 2. That initiative mandated that the Missouri Department of Health and Senior Services promulgate rules and regulations for medical marijuana by June 4. The department will begin accepting applications for cultivation, manufacturing and dispensing facilities on Aug. 3, and it expects patients will be able to get prescriptions filled as early as January 2020.

In the meantime, lawyers all over the state at firms large and small are fielding inquiries from interested parties.

“I’ve never been so busy in my life,” said Joseph D. “Chip” Sheppard III, one of the architects of Amendment 2 and a shareholder at Carnahan, Evans, Cantwell & Brown in Springfield.

An online search reveals a variety of small to medium-sized firms getting into the act: Carson & Coil in central Missouri; Reynolds and Gold in Springfield; Kennyhertz Perry in Kansas City; and Michael Hill, founder of the Canna Jurist firm in St. Louis.

Peter Andreone, an attorney in Kansas City, has gone a slightly different route: Before the initiative even passed, he reached out to the Denver-based Hoban Law Group and agreed to become of counsel for that national “cannabusiness” firm, thus giving it a toehold in Missouri.

“I do have corporate law experience,” said Andreone, “but I didn’t feel personally comfortable winging it with clients, especially in light of the money involved. These clients are investing hundreds of thousands to pursue these licenses. I wanted to learn this stuff from the best. I just feel like it brings more to the client.”

Not all Missouri firms are diving in. The two largest firms in the state, Bryan Cave Leighton Paisner and Polsinelli, so have far stayed on the sidelines, although a BCLP spokeswoman sent the following statement: “We continue to evaluate the field.”

Firms may avoid this industry for a variety of reasons, according to Royce Barondes, a professor at the University of Missouri School of Law. It may be a stylistic choice about the type of client they wish to represent. It also may be an effort to prevent conflicts of interest — for example, if the firm already represents clients who consider themselves to be in competition with medical marijuana with products like the Best cbd cream, or clients who one day could serve as creditors to medical-marijuana companies and might end up in a lending dispute with them.

The ongoing federal prohibition of marijuana could be another potential worry, said Peter Joy, a professor at Washington University School of Law in St. Louis, even if the danger of prosecution appears remote.

“I understand that as a possible concern,” Joy said, “but the fact that now so many states have done it and the feds have not done anything — and continue to do nothing — suggests to me it’s highly unlikely that feds will enforce federal marijuana law against people doing what’s legal in the states.”

Indeed, the Rohrabacher-Farr amendment that has appeared in annual federal appropriations legislation since 2014 has blocked the U.S. Department of Justice from using federal funds to prevent states from implementing their own medical-marijuana laws. In October 2016, the 9th U.S. Circuit Court of Appeals ruled that this rider effectively barred the DOJ from prosecuting individuals for engaging in activity that is authorized by such state laws.

Prosecution aside, there’s still the question of attorney discipline. Four years ago, the Missouri Supreme Court’s Legal Ethics Counsel Melinda Bentley issued informal advisory opinion 2014-4. The question prompting it was whether the rules of professional conduct permit a lawyer to “ethically assist [a] Client in setting up an enterprise for the production and distribution of” medical marijuana.

The answer was that attorneys may not commit, nor assist a client in committing, a crime, and that “In light of possible inconsistencies between state and federal law in this matter, Attorney should consider limiting the scope of the representation and Attorney’s role.”

“It’s not entirely illuminating,” said Barondes, who this fall will teach a class at Mizzou on the legal framework regulating the medical-marijuana industry. “It doesn’t say in detail what it is a lawyer can’t do. It indicates properly that a lawyer is not permitted to counsel or assist [a] client in engaging in criminal conduct, but it doesn’t say how that applies in this context.”

Amendment 2 decreed that “an attorney shall not be subject to disciplinary action by the state bar association or other professional licensing body” for participating in activities that were legalized by the initiative.

Yet since the passage of Amendment 2, Bentley has not publicly issued a new opinion on this issue. She declined an interview with Missouri Lawyers Media.

Nevertheless, Barondes said, the two texts can be harmonized in that limiting the scope of representation, as suggested in the 2014 opinion, remains “entirely prudent.” For example, medical-marijuana retailers are barred by Internal Revenue Code Section 280E from taking deductions on ordinary business expenses such as advertising, labor and rent. A company that wants to structure its business so as to mitigate this negative tax treatment may seek advice on how to do so, but a Missouri attorney may not be protected in giving that advice if the client chooses to follow it outside of the state.

Joy co-authored an academic article in 2017 on the differing reactions by state ethics bodies to marijuana legalization. He wrote that every legalizing state “should provide clear guidance to its lawyers about what they are ethically permitted to do.”

“There is no good reason for keeping those lawyers in the dark,” he wrote. “Providing guidance in advance will save time and resources and avoid the potential unfairness of having to resolve these issues later through disciplinary proceedings against individual lawyers.”

In interviews, many attorneys expressed confidence that the wording of Amendment 2 served as an effective shield for lawyers acting in good faith.

“I think I’m in compliance with all my ethical responsibilities by following the constitution,” said Sheppard. “In defense of the ethics counsel, they can’t really create an opinion unless somebody asks them a specific question.”

Jon Gold of Reynolds & Gold said the Legal Ethics Counsel may simply be waiting for the industry to fully launch before delineating the dos and don’ts. In the absence of the DHSS regulations due by June 4, much of the requested advice revolves around mundane issues such as real estate or LLC creation.

“Technically, you’re not advising a cannabis company at this point,” said Gold. “You’re advising a company that wants to be a cannabis company.”