Choosing a lawyer for your medical or recreational Cannabis business presents a number of challenges and risks.
For many of you, this is your first business and you don’t have prior experience dealing with, let alone selecting, a lawyer. For others, your past experience with lawyers was in a criminal matter, where the skill set you needed in a lawyer was likely different. And, even for those of you with more experience working with lawyers in a business context, the canna-business is a different animal and presents unique challenges in selecting a lawyer.
The needs of the canna-business client typically cut across several different substantive practice areas. Canna-businesses are unlikely to find a single attorney to handle everything, as very few lawyers possess experience and expertise in the subject matter or a willingness to represent clients in the space, partially because unique dangers are presented by federal law. At the same time, opportunistic and ethically challenged lawyers are preying on the growing number of people interested in the cannabis sector, more interested in taking money from the client than providing meaningful information and services. The cannabis industry is ripe for such unscrupulous behavior, given the large numbers of well-intentioned but naïve entrants to the market, the allure of money, and the saturation of misinformation and confusion about the laws.
And yet, choosing the right attorney is critical to deciding whether to invest in the space, the success of the business, and perhaps even avoiding criminal prosecution.
Over the years, I have had a number of clients come to me after disappointing experiences with other lawyers. Many of the clients were out-of-pocket the legal fees or in some cases tens of thousands of dollars on a misguided investment. In an effort to help both the novice and the more experienced canna-businessperson navigate the lawyer selection process and avoid such pitfalls, here are six things to consider or questions to ask before selecting a lawyer.
- Consultations may cost. In some settings, lawyers do not charge a fee for an initial meeting to discuss the potential client’s needs, whether the lawyer can meet those needs, and what representation might cost. But many lawyers, including those in the cannabis space, charge for an initial consultation to discuss substantive issues. For example, I typically charge a slightly reduced fee for an initial one-hour consultation on cannabis law and business issues, and then credit that fee back to the client if they retain us, but I don’t charge for a shorter introductory call that covers my fees and services. There is no right and wrong here, but before you meet with a lawyer you should ask about his or her practice for consultations and what you can expect to cover. If you can find out in an hour and for a relatively small price whether or not the opportunity is worth pursuing and get valuable information, then a consultation fee is a good investment.
- Lawyers specialize in different practice areas. Starting or maintaining a canna-business raises a broad spectrum of legal questions and needs. For example, there are criminal law considerations (both federal and state) as well as state regulatory schemes that govern the business activity and the process for obtaining licenses. Even in California, the legislature finally got around to passing a licensing scheme nearly 20 years into the industry’s life. There are also corporate law and entity formation issues, which in turn have implications for tax liabilities and ownership/control between partners. There could also be intellectual property and leasing/real property issues. Outside larger law firms with lawyers in different specialties, where the fees are generally much higher, it is rare to find a single lawyer who can competently handle every need or problem that arises. I am a bit of an oddball—take that as you wish—because I came out of very large law firms and have a background in criminal defense, civil litigation, regulatory compliance, entity formation, and transactional work, among other things, but I don’t consider myself an expert in tax or employment law. If a lawyer represents they are an expert in each of these practice areas, that may be a red flag. The bottom line is to ask precisely how a lawyer can help you and the focus of their cannabis-law practice before signing an engagement.
- Not every lawyer is as advertised. This may come as a shock, but not all lawyers are built alike, and just as in any other profession, they come in different levels of competence and integrity. Being competent in a particular area means more than having a law degree or a splashy website claiming expertise. When it comes to lawyer advertising and marketing, each state has its own rules as to what is allowed. California, for example, does not allow lawyers to represent they are “certified specialists” in a given practice area unless they have passed the test specific to that specialty (i.e., criminal law). However, there is no such certification for cannabis law and therefore no prohibition against a lawyer marketing himself or herself as an expert in that area. In other words, there is room for lawyers to take advantage of the unwary by falsely claiming expertise in cannabis law. I recommend not being overly influenced by a lawyer’s marketing or putting too much emphasis on a lawyer’s statement that he or she represents so-and-so. Many of us don’t disclose the names of our other clients, so you have no way to know whether that other client is happy with the lawyer’s services. Ideally, get a lawyer referral from an industry insider you trust who has had personal experience with the particular lawyer, and don’t be afraid to ask the lawyer about his or her experience and background.
- Be aware of potential conflicts. Lawyers are obligated under rules of professional responsibility to avoid engagements where the interests of the prospective client are actually or potentially in conflict with the interests of another client. Among other considerations, lawyers owe each client a duty of loyalty and zealous representation, which is difficult to achieve if the lawyer represents two clients with even slightly different agendas. Although the rules vary by state, California lawyers are required to analyze and anticipate potential conflicts between two clients and, if there are any, inform both clients and have them waive the potential conflict in writing before accepting the engagement. Actual conflicts, which are easier to spot, typically cannot be waived, nor would you want your lawyer put in that position. Although such conflict issues arise in other areas of law too, they seem much more frequent with cannabis clients and are too numerous to cover here. Be aware, however, that potential conflicts can arise between two parties to a transaction—even between you and your partner who today is your best friend for life. It also can occur where the lawyer is trying to obtain a dispensary or cultivation license for a client while at the same time trying to get the same limited license for another client. Licenses are limited in number. Don’t be shy about raising potential conflict issues with your lawyer and be cautious about waiving potential conflicts without discussing and understanding them first.
- Beware of MIA attorneys. The primary complaint I hear from clients who come to me from other lawyers is that the attorney would not respond to calls or emails or failed to deliver work-product in a timely fashion. In California, as an example, lawyers are obligated to keep their clients reasonably informed about significant developments and to respond to reasonable requests for information and documents. This obviously leaves a great deal of discretion to the lawyer in terms of how often they must communicate with the client, and different lawyers handle this differently. While a failure to respond to calls and emails in a timely manner usually will not be an ethical violation, it certainly creates bad feeling and undermines the attorney-client relationship. Conversely, a lawyer’s failure to provide work-product in a timely fashion could constitute not only an ethics violation but also a breach of contract, depending on whether a deadline was missed. To avoid problems later, I recommend discussing your expectations with the attorney in advance, and if appropriate, perhaps even including in the engagement letter additional language addressing these concerns.
- Check with the state bar association. Lawyers in each state must be registered with the state bar, which is the entity within state government that regulates professional conduct and disciplines lawyers for professional misconduct. You can usually find information online about the lawyer and any disciplinary history. This will not necessarily tell you about past misdeeds because not all clients report complaints to the state bar. However, consulting bar association records is a good way to get information easily, and you can take some comfort in a lack of any reported complaints, especially with lawyers who have been in practice for some time.
Michael Chernis of Chernis Law Group P.C. in Santa Monica, California, is an attorney with 20+ years of experience. A graduate of Fordham Law School in 1994, he represents collectives, dispensaries, cultivators, manufacturers and other medical cannabis clients, and lectures frequently on California cannabis law compliance issues.