Law firms form cannabis practice groups to assist new industry

This item is part of The Daily Record’s occasional series examining Maryland's medical cannabis program.

Full coverage: Md. medical cannabis industry hailed, but room for improvement seen | A unique business, Md. cannabis industry still trying to find its footing | Law enforcement seeks to differentiate legal cannabis from contraband | Maryland law still unclear on medical cannabis use by employees | Law firms form cannabis practice groups to assist new industry | Marketing cannabis via social media, texts and deals | Md.’s medical cannabis regulators struggle to escape ‘punching bag’ stage | Legislators to weigh bills to protect the rights of cannabis patients | Lawmakers skeptical that recreational pot will pass in session

Given the complex legal hurdles of starting a medical cannabis operation, most people who have opened, or attempted to open, a growing, processing or retail operation in Maryland have contracted with an attorney.

To meet this need, law firms in Maryland have been developing cannabis practice areas.

Technically, prospective medical cannabis growers, processors and distributors can operate without consulting a lawyer. But Jonathan Havens, an attorney with Saul Ewing Arnstein & Lehr LLP in Baltimore who has represented multiple clients in the medical cannabis industry, said most applicants do use a lawyer at some point.

“When you’re dealing with a business that has a conflicting state and federal legal posture, I would say most of them have used a lawyer, or multiple lawyers, at some point to do what they need,” said Havens, whose firm has more than 100 cannabis clients.

While medical cannabis has been sold in Maryland since December 2017, the federal government still categorizes cannabis as a Schedule I – illegal – drug.

A new industry

Maryland’s medical cannabis industry is still in its infancy and the laws about who can invest in the industry, who can apply for licenses and where operations can be located are always changing, Havens said.

In addition, cannabis growers, processors and distributors must report their expenses and income to the state’s regulators – in detail and frequently – to maintain their operating licenses.

Incorrect reporting or failure to report consistently can lead to a cannabis operation’s having its license suspended, or to the shutdown of a facility, said Jason Klein, principal of Offit Kurman’s cannabis practice area.

“In fact, the Code of Maryland Regulations were recently amended to provide for additional penalties and discipline against licensees who fail to maintain proper operations, recordkeeping and reporting,” Klein said Monday. “Depending on the seriousness of the allegations, the commission now has broader authority to impose fines, bring administrative charges or even summarily suspend a license and demand that all operations be immediately halted pending further investigation.”

Jonathan Wachs, who helped found Offit Kurman’s cannabis practice area, added that other penalties for not properly documenting expenses can include being taxed by the state at a higher rate.

Given these challenges, cannabis growers, processors and dispensaries often hire lawyers to help manage their day-to-day operations and the logistics involved in operating cannabis facilities.

Lawyers start to help at the beginning, with the lengthy license applications to grow, process or distribute cannabis. Havens said this first step is particularly challenging because of the paperwork involved – a security plan, a growing plan for growers and a community engagement plan, among other requirements. He noted that only a handful out of hundreds of applicants are approved by the state.

“It’s more thorough and intensive than almost any other regulatory application I’ve worked on,” Havens said of the cannabis industry applications. “They end up being hundreds, if not thousands, of pages long.”

Before taking on cannabis clients, firms such as Saul Ewing screen prospective clients to make sure their principals are serious about following all state compliance regulations, Havens said.

“We can’t bury our heads in the sand and say, ‘They told us they have a license with the state but we don’t need to verify it,’” Havens said. “We use language in engagement letters like ‘preferring to meet clients in person,’ ‘demanding to know what their interactions are with regulatory agency’ and ‘do they have good compliance history?’ We do this because there is more risk in this space.”

If a cannabis operation license is granted, the next step is securing approval of the facility by state regulators.

Lawyers who specialize in zoning for marijuana operations, such as Justin Williams of Rosenberg Martin Greenberg in Baltimore, say a major challenge is objections by neighbors.

“I know in some jurisdictions like Baltimore County, they’ve attempted to restrict the zoning code to prohibit (cannabis operations) in the county,” Williams said.

Lawyers who seek to ensure that their cannabis clients are in compliance say many of their most important discussions are not in formal hearings but in day-to-day conversations with state regulators.

Klein said that while he encourages his clients to develop a rapport with the Maryland Medical Cannabis Commission, he emphasized that lawyers are crucial in advocating for cannabis clients.

“Sometimes lawyers can serve as intermediaries to deliver a message or advocate for a position with the commission in a way that’s more compelling than what the client can do on their own,” Klein said. “Sometimes the lawyer has a particular insight or angle based on experience that the client does not have, so there’s an element of strategy that can come into play.”

Representing cannabis clients

Havens said attorneys from many backgrounds can make the shift to representing cannabis clients.

After all, he said, cannabis lawyers are concerned with real estate, deal-making and regulatory compliance – common practice areas for attorneys.

Havens, who specializes in regulatory and compliance matters, previously worked as an attorney for the U.S. Food and Drug Administration. It was his experience dealing with regulatory matters that led him to the cannabis industry.

“To be a good cannabis attorney, you just have to be an excellent attorney within your respective area,” Havens said.

He noted that “cannabis attorney” is a broad term, perhaps overly so.

“It’s too dense of a practice to say, ‘I’m a cannabis attorney,’” Havens said, adding that lawyers tend to specialize in particular areas of Maryland’s nascent medical cannabis industry.

Havens said his experience working with the industry has been rewarding.

“It’s very exciting. The deals we’re involved with are cutting-edge,” Havens said. “It’s the first time these deals are happening, too, so it’s very rewarding handling these complex challenges and having success growing our business.”