The state-legal cannabis industry is often a place of displacement. Government cannabis regulations are difficult to navigate and it usually takes significant capital to get a cannabis business up and running. And even once they are up and running, aggressive and unfair federal taxes and limited access to banking are reducing margins. To top it off, cannabis is still illegal nationwide.
To make matters worse, lawyers and law firms persecute and harm industrial companies. Literally anyone can call themselves a “cannabis expert” and many do.
Our law firm continues to see bad behavior and sloppy (sometimes dangerous) work from various law firms claiming to have cannabis practices and the following are what we have seen lately:
1. The “cannabis law firm”. It is not uncommon for a law firm to focus on a specific area of activity. It happens all the time in niche areas like estate planning, environmental law, labor law, patent law, etc. However, when you see a “cannabis law firm” you should be wondering what that even means. Many of these law firms are made up of former litigators and defense lawyers whose business has failed due to legalization, and therefore claim to be able to provide all kinds of assistance in the field of cannabis business law, including company selection and governance, securities and and compliance work, as well as all types of transactional work and M&A. If you are looking for a law firm to represent your cannabis business, you should dive deep into the actual experience of that firm as many of them lack business law experience. These firms have become experts at hiding this by focusing on cannabis regulations and blowing them back up while aimlessly wandering through the real commercial side of things. We have seen law firms waste time and money on transactions that never complete because they couldn’t even work out basic legal arrangements and would try to cover it up through endless negotiations.
2. The suburban law firm with the “cannabis type”. Every city and county in America has the law firm that almost everyone uses for their everyday legal problems. Many of these law firms claim to have a cannabis division or practice, but they really only have one or two lawyers who have an interest in cannabis and have little experience of representing cannabis companies. We know these law firms because they turned to our lawyers for help during their difficult business. All you need to know is that these firms are unlikely to have worked on large cannabis deals, and that’s because they lack the legal depth to ensure compliance with the numerous laws associated with such deals.
3. The big law firm with the cannabis practice. Our law firm has had a sizable cannabis practice since 2010 and I was really excited to see some of the mega-firms jump on the cannabis bandwagon after the first Cole Memo in 2013. But my views on it quickly changed when it became clear that many of these mega-corporations had no knowledge of cannabis regulation at all. Most of the time we were dealing with a very young employee (and a “cannabis partner” who knew nothing about cannabis but was involved in the young employee monitoring and partner billing project) with a passion for cannabis, but with no skills or bandwidth for actual work. Just as an example, I worked on the other side of a large cannabis merger with a mega law firm whose partner didn’t know if their client had local government approval and didn’t know who he was with in the local cannabis department speak should find out. This lack of even the most basic information stalled the deal and eventually led my client to opt for simpler merger targets. I have more respect for the big law firms who hire lawyers from outside their own office to help them in the areas of law they lack knowledge and experience than those who struggled through the deal and botched it.
4. The solo cannabis practitioner. Solo cannabis practitioners have always preoccupied me because it is impossible for an attorney to be briefed on all business and legal issues related to cannabis. When it comes to dealing with an individual practitioner, less is more when it comes to cannabis. A solo practitioner dealing with cannabis licensing issues is far more likely to know what he is doing than a solo practitioner who claims expertise in all aspects of cannabis commercial law, from intellectual property compliance through mergers and acquisitions up to takeover etc.
5. The cannabis law firms involved in their clients’ cannabis business. A lawyer getting involved in his client’s cannabis business has an inherent conflict of interest. This conflict can be dispensed with, but it takes very specific, sweeping waivers to do so properly and we practically never see these in the cannabis room. With cannabis, where competitive licensing at the state and local levels can be critical, ask yourself how trustworthy a law firm is that has an interest in a cannabis company whose revenues will take a hit if your business succeeds in would you be able to compete with the attorney’s own firm? If a law firm calls for an interest in your cannabis business, assume that they have similar interests in other cannabis businesses and think long and hard about how this could affect your own business financially in the future.
As federal legalization approaches, law firms will do better in the cannabis space, and most of the law firms described above will leave the industry because they will not be able to legitimately hold their own. If you look at the types of law firms for sale, you can see that many of the cannabis hacks know that their days are numbered.
But please keep an eye out for these usual suspects in the meantime.