Oregon State Bar Bulletin JANUARY 2016
Oregon’s legalization of recreational marijuana last July is shifting the practice landscape for many attorneys across the state. Some are broadening their services to accommodate the vast spectrum of needs of cannabis-related businesses. Criminal defense attorneys, no longer handling as many pot-related offenses, are adjusting their practices as well.
While the rules and regulations of legalized marijuana are still being crafted at state and local levels, “cannabis law” is emerging quickly as a practice area and is likely to be an economic boon for the region and the profession alike. Oregon attorneys stand at the forefront of this evolution, poised to lead as other states across the country increasingly consider legalization.
“An Exciting Time” for the Practice
Portland attorney Leland Berger has long been working for marijuana legalization and is a founding board member for the National Cannabis Bar Association, established last summer. The NCBA was created to provide attorneys in the cannabis industry with educational and networking opportunities to help them better serve cannabis businesses.
Berger, practicing with Oregon CannaBusiness Compliance Counsel, says Oregon’s rules regarding both recreational and medical marijuana continue to be in flux. The Oregon Liquor Control Commission, charged with regulating recreational marijuana, has adopted temporary rules. However, some such as residency rules are contingent on legislative action during this year’s short session. In addition, the Oregon Health Authority’s advisory committee is examining rules for growers and processors, and packaging and labeling are issues that still need to be sorted through, Berger says.
“I had been a criminal lawyer for decades and I was concerned that when I shifted my practice to advising clients about how to be compliant with the new rules and regulations it would be boring, but not so much. It’s an exciting time to be practicing in this area right now,” he says, noting recent action in other states seems to indicate that federal legalization may happen sooner rather than later.
Michael Hughes, a legal cannabis consultant and marijuana advocate with Hughes Law in Bend, grew up on a farm in eastern Nebraska, where his family had grown hemp among its crops since the 1940s. As he helped work the fields during the 1970s, Hughes wondered why this plant that grew plentifully could not legally be harvested and processed into industrial products. By the late 1990s, he was at Drake University Law School with the goal of changing regulations related to hemp and marijuana.
“I was studying agricultural law with the vision that someday we would have agricultural industries based around these products,” Hughes says. “I was also very interested in social injustice, so I went to law school with the hope of changing the laws around cannabis. I came to Oregon because I saw it being at the forefront of this issue.”
Hughes began his career as a criminal defense attorney and litigator, and also worked as a public defender in Minnesota. His practice will continue to involve clients involved in cannabis-related activities, though the focus has shifted significantly.
“Now we’re dealing with people who are starting businesses and getting licensed, and we’re no longer dealing with cartels,” he says. “Business formation is a huge issue, but it’s just the tip of the iceberg because we’re going from what was a black market to a legitimate industry.”
Attorneys are needed to educate cannabis entrepreneurs about the intricacies of new rules ranging from laws related to serving liquor onsite to tax regulations. Land use, real estate law, products liability, and patent and trademark issues are a few of the practice areas that are part of the cannabis law spectrum.
“Right now, cannabis businesses in Oregon need every possible lawyer they can have,” Hughes says, adding large corporate firms on the West Coast stand to benefit significantly because of their diverse pool of attorneys. “I can’t think of any practice area that cannabis businesses don’t need or won’t need.”
Robert Graham Jr., a Grants Pass attorney, has practiced for 38 years, 35 of them as a business law attorney representing clients in highly regulated industries such as securities and financial services. The level of regulation and compliance for those professions is very similar to the level for the cannabis industry, he says.
Graham established his practice in southern Oregon in 1998 as the state legalized medical marijuana. As a general practitioner, he says he became acquainted with people who grew recreational marijuana in Curry, Josephine and Jackson counties — which he calls Oregon’s “emerald triangle.”
“The opportunity we have is a brand new industry that is going to change the economic environment in Oregon and in southern Oregon in particular,” Graham says. “I think there are a lot of people who could look at this and say that since the mid-1990s the economy has declined because of the loss of logging and timber, and now there is a new industry that can make the economy grow. The potential is there to exceed timber because of the value placed on the product and the process of bringing the product to market.”
Graham recently partnered with Natalie Wetenhall to build a cannabis law practice called Evergreen Law Group. The pair plans to open an office in Ashland as well. Wetenhall says her experience in corporate business structuring and business law is “seamlessly transferrable to cannabis law.”
“I think we have a unique opportunity down here because we’re living in an area where it’s not just good for the economy generally if people get involved, but also because the climate down here is so conducive to outdoor growing,” she says. “We haven’t seen anything like this since the prohibition of alcohol, so to be involved in this industry at the grassroots level is really exciting.”
Graham has reached a point in his career when many of his peers are considering retirement. “I just saw this as a wonderful opportunity to be involved in a new industry that is challenging. When you get up every day and go to work, there’s a new challenge in front of you. For an older lawyer, it’s very exciting.”
Longtime legalization advocate Philip Studenberg has practiced for 37 years, 34 of them as a criminal defense lawyer. He has represented many people charged with marijuana-related offenses over the years and says he is pleased to be able to help with the expungement process for those who request it.
“I’ve always enjoyed working with the marijuana people because I genuinely like them. They are folks who don’t belong in the criminal justice system, and I have a lot in common with them,” Studenberg says, adding he particularly regretted seeing college students get into legal trouble for selling marijuana to support themselves. “I think we as a society suffer when the potential for these people is lost.”
The Klamath Falls attorney says his practice is already changing because he has begun helping people get licenses for cannabis businesses and is fighting moratoriums in communities that have opted out under House Bill 3400, enacted during the last legislative session.
“It’s exposed me to new practice areas, and I’m more involved in administrative work and business law. I’ve teamed up with CPAs and intellectual property folks because there is a movement to try to patent strains of marijuana,” Studenberg says. “I find the marijuana entrepreneurs are almost like Silicon Valley. We’ve got some very smart people who are on the cutting edge of this stuff, and we as a society stand to benefit from that.”
Pendleton attorney William Perkinson Jr. would like to see his marijuana compliance and advocacy practice grow, but eastern Oregon has been much more reluctant than other parts of the state to support legalization. Many communities in the area have opted out, and continue to prohibit cannabis-related businesses.
“I think it’s unfortunate because there is a lot of discussion about how to create economic opportunities here and this is one of them,” he says, pointing out the many communities in eastern Oregon that are dependent on agriculture. “The counties in eastern Oregon are denying themselves an economic opportunity, clearly.”
Perkinson, who has participated in discussions about legalizing marijuana during city council and county commission meetings, says the people he speaks with at the policy level are reluctant to support legalization because they consider it a moral issue.
“It’s a moral issue because people think pot is an evil weed,” he says. “At this point, attorneys’ role in pot law in eastern Oregon is advocacy for local governments to allow entrepreneurship and business enterprises to start and generate profit, but it’s going to be a while before the lawyers here realize that benefit.”
While he does provide some compliance support for growers of medical marijuana, Perkinson’s practice is primarily criminal defense. He has represented many clients charged with pot-related offenses over the last decade and believes the benefits of legalization far outweigh the costs of penalization.
“I think the absolute biggest upside to the end of prohibition is you don’t see people being financially penalized for possession of small amounts of pot, and you don’t see people facing incarceration for making it available,” Perkinson says. “I don’t think kids should have access to it, but I do think responsible adults should be able to choose whether they want to use it.”
Eugene criminal defense attorney Brian Michaels agrees that legalization is better for society. “I’m very excited that people who don’t deserve to go to prison won’t go to prison. And if that diminishes my practice, that is something good that is happening,” he says. Michaels has expanded his practice and is now representing dispensaries, helping future cannabis growers get licenses and ensuring his clients comply with the new laws.
“The rules are rather complex and involve land use, water rights, building permits and zonings, among many other things. Those are some of the more exotic practices of law that don’t normally come into play in my practice,” he says. “I always recommend that people hire a CPA who can handle a lot of the accounting aspects that I don’t pretend to have expertise in.”
Michaels expects Eugene’s economy to thrive from cannabis businesses ranging from growing and selling marijuana to increased tourism. “People from cities that opted out will come to areas like Eugene, and they may stay overnight, see a show and go to a restaurant. So Eugene will reap some economic benefits,” he points out.
John Lucy IV, whose Portland practice encompasses cannabis business law, civil and administrative law, and criminal defense for drug-related offenses, grew up in the Carolinas and Virginia and says “cannabis prohibition was particularly difficult, sentences were long and oftentimes disproportionate to other crimes.”
“When I was a teenager, I had a close family friend, someone who I referred to as an uncle, who was sentenced to prison for growing marijuana. He ultimately died in prison,” he says. “I spent a fair amount of time thinking about the issue and researching it after that.”
Lucy’s family also had experience on the opposite side of the law during alcohol prohibition since North Carolina and Virginia were heavy producers of moonshine. He says science proved to him that marijuana was safer than alcohol, and that cannabis prohibition should end as well. He began working with the University of North Carolina’s chapter of the National Organization for the Reform of Marijuana Laws (NORML) when he was 17. He was running it a few years later and went on to work with NORML in Washington, D.C., before moving to Oregon.
His practice involves, in part, handling business formation and incorporation for growers, processors, wholesalers and retailers, as well as administrative and civil hearings for those businesses when they meet with state regulatory agencies. Lucy says interactions with city, county, state and federal agencies vary considerably, with differing and sometimes conflicting rules at each level.
“What is a simple business licensing or siting transaction for a client in most industries, for example in purchasing or leasing a building, can take many times as much legal time and expertise for a client in the cannabis industry, especially when they are coming to me from a standard business attorney who may not understand that a banking issue, zoning issue or school zone can completely obliterate a $100,000 to $1,000,000-plus investment by a client,” Lucy says.
Other difficulties are primarily related to fear around the cannabis industry, he notes. “A good example currently is the Oregon restriction of marijuana consumption clubs or venues, as well as rules restricting the hours of marijuana sales that are more restrictive than those for alcohol,” Lucy says. “Adult marijuana consumers should have the same basic rights as adult alcohol consumers without question in my mind, since marijuana is less dangerous and harmful to themselves and society as a choice of a drug from a science-based perspective, but that will take some time to sort out in the legislature.”
Plenty of Problems to Sort Out
The challenges Lucy cites are just a couple to be considered as Oregon adjusts to legalized recreational marijuana. There are many others as well. Perhaps the most basic is the state’s interpretations of how to implement new rules and regulations.
“We’ve got the draft rules now in Oregon and I think it’s safe to say that they are not drafted as eloquently and as well as they could have been, so it’s hard to know how to interpret the rules and advise clients how to be compliant and get started,” Wetenhall says, adding the coming months should bring more clarification on how cannabis businesses can qualify and be compliant with the new regulations.
Also key among the challenges, the federal government still considers cannabis to be illegal, and since banks operate as a federal system they are deterred from accepting deposits from cannabis-related business operations.
The federal treasury and justice departments did issue guidelines last year that give banks immunity from punishment if they do business with legitimate cannabis businesses in states that have legalized medical and recreational marijuana. However, the guidelines gave the banking system little confidence, according to a New York Times article published shortly after the guidelines were issued.
“While we appreciate the efforts by the Department of Justice and [the Financial Crimes Enforcement Network], guidance or regulation doesn’t alter the underlying challenge for banks,” Frank Keating, president of the American Bankers Association, said in the article. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions.” www.nytimes.com/2014/02/15/us/us-issues-marijuana-guidelines-for-banks.html.
Hughes says the discrepancy between state and federal laws is not only inconsistent and inefficient, but also poses potentially illegal and downright dangerous situations. Noting that Oregon’s first week of recreational marijuana sales generated $11 million, the current system of managing cannabis revenue “is a recipe for either money disappearing, being laundered or attracting the wrong types of people who are involved in the black market,” he says.
“Until the federal government does more than put out a memorandum — and lawyers know that a memorandum is not as effective as an act passed by Congress and signed by the president — it’s a very scary situation that we’re allowing to happen,” Hughes says. “When I consult with people in the business, that’s one of their greatest concerns as well. They don’t want to be a cash-only business, and they want to find a good bank to work with.”
Taxation for cannabis businesses is another thorny issue, Studenberg says. The IRS does not allow cannabis businesses to claim the same basic expenses as other industries. The result is that cannabis businesses pay tax rates ranging from 40 percent to 70 percent. Studenberg credited Rep. Earl Blumenauer and Sens. Ron Wyden and Jeff Merkley with working to address this issue.
“It’s crazy but it’s terra incognita, especially in Oregon. We’ve really gotten out on the edge and it’s exciting, but it’s also fraught with peril,” he says.
Michaels expects to see more DUII cases involving people driving with marijuana in their system, though the legal process for determining when they ingested the drug is not conclusive. As it stands, only a urine test is available for this purpose. However, marijuana can stay in a person’s system for up to 30 days, so a positive result on the DUII test doesn’t necessarily mean a driver was under the influence at the time he or she was pulled over.
“A typical DUII would be an alcohol-related DUII and the driver would take a breath test,” he says. “We all know that marijuana stays in your system for 30 days, so now if they detect medical marijuana or if someone has marijuana in their car, even if it’s the legal amount, it could be considered a DUII.”
Michaels says he has many cases in which law enforcement officials requested a urine test from his clients, and imposed the ultimatum of a urinary catheter under the search and seizure law. The majority voluntarily agreed to the urine test in the face of the threat.
“Why get a urine test if (marijuana) stays in your system so long? Why not get a blood test, because whatever is in your blood will (more directly) affect your brain?” he says.
In a June 2014 Bulletin article, Coos County District Attorney Paul Frasier, then president of the Oregon District Attorneys Association, said the ODAA was concerned about DUIIs in which marijuana was the intoxicant in question.
“That being the case, most D.A.s’ offices are stretched as it is and if we get an influx in these types of cases, that is going to add to our caseload. The big question is how much of a drain on resources that is going to have on prosecutors’ offices,” he said.
Frasier noted then that public defender offices must be prepared because many of the accused drivers will need indigent defense. The Oregon State Police Forensic Services Division, which conducts all DUII testing, also has voiced concern about the additional burden marijuana-related cases might place on its staff and resources.
While urine samples are not as effective as blood samples for pot-related DUII cases, blood samples are more costly and involve more privacy issues. In addition, the state police crime lab does not conduct the type of blood tests that would be required for marijuana-related DUII cases, Frasier said in the article.
Greater Acceptance, Legalization Expected to Come
Each of the attorneys interviewed for this article agreed that as more states legalize recreational marijuana, the result will be greater social acceptance of its use, clearer rules and regulations, and broader opportunities for law firms.
“Change is going to come and I think it will come at a moderate pace as each state passes legalization,” Graham says. “It’s definitely a movement that is gaining momentum and that is going to influence the changes necessary in the banking laws and the taxation laws …to make it less prohibitive [for these businesses] to operate.”
Lucy expects recreational marijuana to be legal at both the state and federal levels within the next decade.
“There will always be holdouts, just like there are still dry counties and cities, but they will be the exceptions, not the rule,” he predicts. “We can look to the global stage to see this development with recent decisions in Mexico at the SCJN (Suprema Corte de Justicia de la Nación), shifts in government in Canada via [Prime Minister] Trudeau, and changes in rules in Jamaica surrounding ganja as just a few examples of not just a national, but global shift in perspective.”
Perkinson says he has talked with several police officers and, while some view marijuana as a gateway drug and adhere to the “DARE school of thought,” many others believe cannabis prohibition diverts time and resources that could be dedicated to more serious crimes.
“Fear of ending prohibition, and the parade of horribles that has been used to argue for maintaining it and these bans in rural cities and counties, will subside,” he says. “People in law enforcement and our local leaders will realize it’s not a scary thing. It’s not as bad as they believed or they were told. And I think in a few years time you’ll see the reluctance to allow marijuana businesses will relax.”
As more attorneys across the country begin representing cannabis-related businesses, Berger says the National Cannabis Bar Association is planning a series of CLEs about the topic as well as a professional journal to help guide lawyers about the myriad issues related to cannabis law. He also is working to establish a Cannabis Law Section within the Oregon State Bar.
“For both the Cannabis Law Section and the National Cannabis Bar Association, my interest is in being able to pool or share information,” he says. “I’m hopeful that both locally and nationally we will be able to provide that service, particularly once we legalize nationally. People are going to need counsel in far-off places and information generally.”
Berger also looks forward to exploring the issue of interstate agreements related to the trade of cannabis products along the West Coast. “If it’s legal and the borders are butting up next to each other, why shouldn’t we be able to trade with each other? I’m excited about that prospect.”
Hughes says that, given the broad spectrum of legal services required by cannabis-related businesses, he expects to see more large, corporate law firms getting involved. “Right now we see firms that are specializing in cannabis law and I think that’s a sustainable model if you can incorporate as many industries as you can,” he says. “Cannabis is primarily an agricultural industry and that’s become an increasingly corporate practice.”
He also expects to see a spike in litigation among cannabis businesses as the industry evolves, from the dissolution of partnerships and disputes within boards of directors to disputes related to interstate trade if marijuana is legalized at the federal level.
“The first wave of litigation will be between the industry and local governments with regard to economic equality,” Hughes says, referring to the legislation that allows cities and counties to opt out of allowing cannabis-related businesses. “You’re going to see a lot of small farmers getting left out of the industry and large farms are going to benefit. House Bill 3400 passed and I’m surprised there aren’t any challenges to that, but that will be the first wave of litigation we’ll see.”
Hughes, whose practice specialty is representing cannabis producers, points to the prime growing area in Josephine, Douglas and Jackson counties and notes that Douglas County has implemented a moratorium preventing cannabis production.
“I know guys whose grandpas were growing weed back in the ’60s and they are some of the best growers in southern Oregon, but they’re not going to be able to get a license and will continue to be in the black market,” he says.
Ultimately, Oregon will serve as a leader in the successful legalization and regulation of recreational marijuana, as will the attorneys who have and continue to forge the way, he says. “We have some longtime, really good attorneys like Lee Berger, Phil Studenberg and Paul Loney who are known throughout the West Coast and throughout the country. They’ve had success in the community for a long time and contributed to the laws being changed,” Hughes says.
ABOUT THE AUTHOR
Melody Finnemore is a Portland-area freelance writer and frequent contributor to the Bulletin. Reach her at firstname.lastname@example.org.
© 2016 Melody Finnemore