Lawyers walk fine line to navigate state, federal pot laws

Just as entrepreneurs getting into the retail pot industry need a good lawyer, some of those lawyers might be wise to consult an attorney of their own.

Lawyers in the burgeoning business are entering a legal gray zone where the drug is permitted for some purpose in most states but illegal under federal law — in the same controlled substances category as heroin. Missteps could lead to prosecution for conspiracy, money laundering or aiding and abetting drug dealers.

"Any lawyer that goes into this should be aware that a literal reading of federal law permits such a prosecution," said Sam Kamin, a University of Denver marijuana policy law professor, whose research five years ago found lawyers more susceptible to being disbarred than criminally charged for cannabis-related work. "It probably makes sense for a lawyer to at least talk to a legal ethicist or get an opinion from a legal ethicist."

Attorney General Jeff Sessions reiterated his opposition to legal weed on Wednesday, and a congressional amendment prohibiting federal prosecutors from targeting medical marijuana is due to expire at the end of the year.

Sessions has not said if he will reverse a longstanding Justice Department policy not to interfere with purveyors complying with state laws but to focus prosecutions on trafficking, sales to minors, cartels and gangs in the business, violence or gun use in cultivation or distribution, and pot grown on public land.

Despite a few instances of lawyers being prosecuted in federal and state court — including a pending San Diego County case — more attorneys are jumping into cannabis law. Legal needs range from financing to permits, real estate, water law, intellectual property, contracts and banking.

With California allowing recreational pot retail sales Jan. 1, interested investors are reaching out to attorneys like Mitch Kulick to find out how to safely finance the potentially lucrative industry.

Kulick, a New York lawyer who offers his expertise in many states, recently gave his typical scare spiel to a real estate magnate about the possible legal consequences, and said he could only help mitigate risk so much.

"At a certain point, you have to realize this is against the law. There's no insurance policy to take away the risk," Kulick said he told the man. "If I was already a billionaire, I might not be taking the risk."

Kulick, who once worked as a lawyer for the Securities and Exchange Commission and a major international firm, had to do a similar risk analysis and soul searching before deciding to commit to the higher cause, so to speak.

There has been a tipping point for many lawyers setting up boutique pot law firms and jumping from old-school law firms as demand for their services trumps fear of legal repercussions and the stoner stigma fades as more states legalize marijuana use.

Attorney Chris Davis, who grew up in Berkeley around friends and family who use the drug, found people operating in the shadows who wanted to go legit when he returned to California from New York two years ago.

"So many people were asking how to go legal and how to worry less," said Davis, executive director of the National Cannabis Bar Association, which has about 300 members in the U.S. and Canada and is growing rapidly. "It became impossible to turn people away."

Lawyers specializing in the business see themselves at the frontier. That leaves a fascinating opportunity to shape laws and regulations and the daunting prospect of the unknown.

"Lawyers like things to be settled," Davis said. "It's hard to get a lawyer to give you a yes or no answer. In the cannabis industry, there really is no yes or no answer."

Some state bar associations have given lawyers cover to counsel marijuana clients within the bounds of state law. Others say federal law keeps the area off-limits because ethical rules prevent them from helping clients commit crimes.

Attorney Larry Donahue had several medical marijuana clients at his firm in Albuquerque, New Mexico, until the state bar issued a January 2016 opinion that said lawyers could be exposed to ethics charges for such work. Donahue had to terminate four or five clients.

"It was a very chilling opinion," he said. "It basically scared the hell out of us."

While prosecutions of attorneys are rare, a case in San Diego has gotten the attention of many lawyers, mainly because of aggressive tactics employed by the district attorney.

Attorney Jessica McElfresh was charged with several felonies alleging she helped a client hide evidence of marijuana manufacturing.

The case might have received less notice if prosecutors didn't unsuccessfully try to get around the sacrosanct lawyer-client privilege and seek communications with all her marijuana clients.

McElfresh, who vehemently denies the charges, said she knew specializing in pot law carried risks, but she couldn't foresee "in a million years" police raiding her house. She and her boyfriend and mother were escorted into her backyard, where she was handcuffed barefoot in her pajamas during the search.

She said she didn't take the risks some lawyers do by sitting on the boards of a client's company, owning a share in a business or introducing clients to one another.

"I am one of the most conservative and boring people you would ever meet in cannabis law," she said. "The only way I could have been more careful would have been not to engage in this area of law at all."

A new district attorney took office after McElfresh was charged and allowed five co-defendants facing similar charges to plead guilty last month to misdemeanors and get probation.

The San Diego district attorney's office wouldn't comment, but in a statement cited the recreational pot law passed by voters last year and the new administration's "changing focus" as part of the reason for the plea deals. It's not clear if that change will affect McElfresh's pending case.