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 who claim to have practiced cannabis. The following is the unfortunate totem from hacks we’ve 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 litigation attorneys and criminal defense lawyers whose business has failed due to legalization and therefore claim to do all kinds of cannabis legal stuff including company selection and governance, securities and compliance work, transactional work of all kinds and M&A. When looking for a law firm to represent your cannabis business, you should delve deep into the actual experience of that law firm as many of them have little to no experience in business law. 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 massive amounts of time and money on transactions that never get completed because they cannot even work out basic legal arrangements and they 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 or have minimal experience representing cannabis companies. We know about it because they asked our lawyers for help during their floundering deals. 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 required to ensure compliance with the numerous laws that govern such deals are connected.
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. My views on this quickly changed when it happened that 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 project to monitor the young employee and billing at partner rates) with a passion for cannabis, but no skills or bandwidth to get the real work done. Just as an example, I’ve worked on the other side of a large cannabis merger with a mega law firm whose partner didn’t know if their client had approval from the local government where their client’s cannabis operation was taking place, and not even once knew who to speak to in the local cannabis department to find out. This lack of even the most basic information led to the business dragging on and our client ultimately choosing to move on to simpler merger goals. I have more respect for the big law firms who hire lawyers from outside their own firm to assist them in areas of law where they lack knowledge and experience.
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 interested 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 a very specific, comprehensive renunciation to do it properly – which I almost never see in the cannabis room. How trustworthy is a cannabis law firm, where competitive licensing is becoming increasingly important at the state and local level, getting involved in a cannabis business whose revenues will take a hit if your company manages to get a license to compete in that business ? If your law firm calls for an interest in your cannabis business, assume that they have similar interests in other cannabis businesses, and you should think long and hard about how this will affect your own business in the future.
As federal legalization approaches, law firms will do better in cannabis and this totem of hacks will tip over because many of its characters will not be able to legitimately compete. 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.