Ethical Issues Associated with the Proliferation of State-Legalized Marijuana Distribution and Use 2017 In House Counsel Conference

Transcription

1 Pot holes Ethical Issues Associated with the Proliferation of State-Legalized Marijuana Distribution and Use 2017 In House Counsel Conference

2 Presenters Jeffrey Foster Sr. Vice President, Chief Legal Officer & Secretary CubeSmart 5 Old Lancaster Road, Malvern, PA JFoster@cubesmart.com John J. McAleese, III Partner McCarter & English, LLP 1600 Market Street, Suite 3900, Philadelphia, PA JMcAleese@mccarter.com

3 Today s Presentation I. Can An Attorney Advise A Client On Cultivating and/or Selling Marijuana? II. III. IV. Can An In-House Lawyer Participate In The Enforcement Of Corporate Drug Policies? Miscellaneous Pot holes Can A Lawyer Partake Of Marijuana In States Where It Is Legal?

4 ADVISING CLIENTS IN THE MARIJUANA INDUSTRY

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6 Marijuana Industry 29 have legalized the cultivation, sale, possession and use of marijuana for medical purposes with a prescription 8 states (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington) and the District of Columbia have legalized the cultivation, sale, possession and use of marijuana for non-medical (i.e., recreational) use

7 Federal Law The Federal Drug Enforcement Agency has listed marijuana as a Schedule 1 controlled substance pursuant to the Controlled Substances Act (21 USC 812(b)(1), 841 (a)(1)), making its cultivation, sale, possession and use illegal in all 50 states and the District of Columbia

8 U.S. Department of Justice Policy In 2013, the U.S. DOJ issued a memorandum stating its general policy not to interfere with the medical use of marijuana pursuant to state laws, provided the state tightly regulates and controls the market Guidance Regarding Marijuana Enforcement (August 29, 2013)

9 The Lawyer s Role Cultivation and sale of marijuana is a burgeoning industry in the states that have legalized it. Lawyers practicing real estate, financing, labor and employment, and environmental are in high demand by industry players to advise the in the development of this industry In 2016, the cultivation and sale of marijuana is estimated to have been a $5.8 billion. North American sales topped $6.7 billion in 2016 which represented a 30% increase from As more states move toward legalization, the industry will expand exponentially. Arcview Market Research estimates that North American sales are expected to reach $20.2 billion by 2021.

10 The Ethical Dilemma Model Rules of Professional Responsibility Rule 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 to make a good faith effort to determine the validity, scope, meaning or application of the law.

11 Prohibited Conduct A lawyer cannot assist a client who engages or seeks to engage in conduct the lawyer knows to be illegal A lawyer cannot suggest to a client the means by which an illegal act may be committed

12 Prohibited Conduct Assisting a client in obtaining a license to dispense Assisting a client in the negotiation of a lease or a real estate purchase agreement Negotiating a supplier agreement with a pesticide distributer Assisting a client with employment contracts Many other examples in which lawyers assist marijuana cultivators, dispensaries, etc.

13 Permissible Conduct A lawyer can explain to the client the conflict between the state and federal law A lawyer can advise about the consequences of engaging in conduct that is legal under state law, but illegal under federal law The lawyer can advise about the likelihood of federal enforcement A lawyer may counsel and advise a client regarding the scope and general requirements of the state law and how it would be applied to the client s proposed conduct A lawyer can also advise on the good faith arguments regarding the validity of the state and federal laws

14 State Disciplinary Board Responses California Rules of Professional Conduct Rule Advising the Violation of Law provides: A member shall not advise the violation of any law, rule or ruling of a tribunal unless the member believes in good faith that such law, rule, or ruling is invalid. A member may take appropriate steps in good faith to test the validity of any law, rule, or ruling of a tribunal. Ohio Rules of Professional Conduct Rule 1.2(d)(2) (new subsection) reads as follows: 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.

15 State Disciplinary Board Responses Washington State Rules of Professional Conduct Rule 1.2(d) remains unchanged: 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 to make a good faith effort to determine the validity, scope, meaning or application of the law. Connecticut Rules of Professional Conduct Rule 1.2(d) was amended to add the following exception: A lawyer may. (3) counsel or assist a client regarding conduct expressly permitted by Connecticut law, provided that the lawyer counsels the client about the legal consequences, under other applicable law, of the client s proposed course of conduct.

16 State Disciplinary Board Responses The New Jersey Supreme Court amended its Rules of Professional Conduct in September 2016 to add the language to add the following language to 1.2(d): A lawyer may counsel a client regarding New Jersey s medical marijuana laws and assist the client to engage in conduct that the lawyer reasonably believes is authorized by those laws. The lawyer shall also advise the client regarding related federal law and policy.

17 Pennsylvania Amendment In October 2016, the Pennsylvania Supreme Court adopted the following addition to Rule 1.2: (e) A lawyer may counsel or assist a client regarding conduct expressly permitted by Pennsylvania law, provided that the lawyer counsels the client about the legal consequences, under other applicable law, of the client s proposed course of conduct. Same as Connecticut s amendment and now allows Pennsylvania lawyers to counsel or assist regarding medical marijuana business, but requires the lawyer to counsel about the legal consequences from such conduct under other applicable law, i.e., federal law.

18 ENFORCING CORPORATE DRUG POLICIES

19 ABA Model Anti-Discriminatory Rule Rule 8.4(g): A lawyer may not: (g) Engage in conduct that the lawyer knows or reasonably should know is harassment or discrimination on the basis of race, sex, religion, national origin, ethnicity, disability, age, sexual orientation, gender identity, marital status or socioeconomic status in conduct related to the practice of law. Pennsylvania has proposed a similar amendment to its Rule 8.4, but would require a court or administrative agency determination that the lawyer engaged in an unlawful discriminatory act.

20 Corporate Drug Policy Company has zero drug tolerance policy Randomly tests employees because of operation of Company vehicles. Employee Jeff Spicoli works in Pennsylvania, and gets a medical marijuana card because of chronic back pain Can the Company fire Spicoli under its drug policy? Can the In-House Counsel be disciplined because she approved the Company s drug policy?

21 OTHER POT HOLES

22 Federal Tax Issue Federal Tax Rule 280E No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted. Lawyers advising clients in the marijuana business need to be cognizant of the tax implications so as to not inadvertently advise client to violate federal tax law Rent, payroll, energy costs (which can be very high for cultivation) may not be able to be deducted (consult a tax lawyer)

23 Pesticide Issue Pesticides are critical to cultivation of marijuana Efforts to grow organically exist, but mass production relies on pesticides. The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) requires every pesticide to be registered with EPA and EPA must approve the label The label specifies the manner in which the pesticide may be used and the crops on which it may be used. It is a violation of FIFRA to use a pesticide not in conformity with its label A lawyer in Pennsylvania must counsel the client that the use of any pesticide on marijuana could be a violation of FIFRA

24 Pesticide Issue How EPA has Responded FIFRA authorizes a state to issue a special local needs (SLN) registration EPA has advised states to issue SNL registrations for pesticides for use on marijuana The state approval process for pesticides is becoming more complex due to the proliferation of THC (the active narcotic in marijuana) delivery methods such as edibles and body lotions The safety of a pesticide must be analyzed across the broad spectrum of delivery methods

25 Lawyers Investing in the Marijuana Business Preamble 5 to the Pennsylvania Rules of Professional Conduct states: A lawyer s conduct should conform to the requirements of law both in the professional service of clients and in the lawyer s business and personal affairs. Fitness to be a lawyer requires adherence to the law Difficult to argue that having a business interest in an operation that violates federal law does not violate Rule 8.4(b)

26 USE OF MARIJUANA BY ATTORNEYS

27 Is This Your Daily Commute?

28 Extra Credit: Who Are the Three Dudes?

29 Anthony Edwards Sean El Chapo Penn Eric Stolz

30 Use of Marijuana By Attorneys At a Bar Association meeting in Colorado, Pennsylvania attorney Bill visits a local dispensary and eats a THClaced cookie Has Bill violated any ethics rule? Pennsylvania Rule 8.4(b) It is professional misconduct for a lawyer to: (b) commit a criminal act that reflects adversely on a lawyer s honesty, trustworthiness or fitness as a lawyer in other respects. Generally, possessory crimes have not been deemed misconduct If Bill drives a car after eating the cookie, it becomes a more difficult question

31 QUESTIONS AND COMMENTS

32 Presenters Jeffrey Foster Sr. Vice President, Chief Legal Officer & Secretary CubeSmart 5 Old Lancaster Road, Malvern, PA JFoster@cubesmart.com John J. McAleese, III Partner McCarter & English, LLP 1600 Market Street, Suite 3900, Philadelphia, PA JMcAleese@mccarter.com