NYSBA Ethics Opinion Gives Green Light To Lawyers’ Involvement With Marijuana Businesses

This article was originally published July 10, 2021.

In the past ten years, seventeen states and the District of Columbia have legalized the recreational use of marijuana. Earlier this year, New York joined the list when it passed the Marihuana Regulation and Taxation Act (the “Recreational Marijuana Law”). But as dispensaries continue to pop up across the country and more states move towards full legalization, marijuana remains illegal under federal law. The federal Controlled Substances Act lists marijuana as a Schedule I narcotic – on the same level as heroin, LSD and ecstasy (and a higher classification than cocaine and opioids, which are Schedule II).

So what are lawyers permitted to do? On one hand, Rule 1.2(d) of the New York Rules of Professional Conduct (the “RPCs”) prohibits a lawyer from “counsel[ing] a client to engage, or assist a client, in conduct that the lawyer knows is illegal or fraudulent, except that the lawyer may discuss the legal consequences of any proposed course of conduct with a client.” But, on the other hand, the federal government has been relatively clear that it does not intend to interfere with a state’s decision to legalize and regulate marijuana. This conflict between state and federal law has created a particularly hazy ethical landscape.

Enter the New York State Bar Association Ethics Committee. Earlier this week, the Committee issued Ethics Opinion 1225, which addresses lawyers’ ethical obligations when engaged in activities regulated by New York’s Recreational Marijuana Law. The Opinion answered three questions:

May an attorney ethically provide legal services to assist a client to comply with New York’s Recreational Marijuana Law?
May an attorney ethically use marijuana recreationally and grow it at home for personal use?
May an attorney accept an equity interest in a client’s cannabis business in exchange for providing legal services?

Relevant Background

Opinion 1225 began with an important overview of the evolution of marijuana laws and enforcement policies at the state and federal level. Opinion 1225 was not the first time that the NYSBA Ethics Committee addressed these issues. The Committee first issued an opinion in 2014 (NYSBA Op. 1024) concerning a lawyer’s ethical obligations under New York’s Compassionate Care Act, which legalized the cultivation, prescription and distribution of medical marijuana. Opinion 1024 concluded that a lawyer does not violate RPC 1.2(d) by assisting a client with activities under the Compassionate Care Act.

The Opinion also outlined a series of enforcement policies both from the U.S. Department of Justice (DOJ) and Congress, which make clear that the federal government is not interested in policing marijuana use and distribution that is legal under state law. For example, On August 29, 2013, DOJ issued a memorandum known as the “Cole Memo” (named for then Deputy Attorney General James Cole, who was its author), which announced that DOJ would not prosecute individuals or entities who were acting in accordance with state laws that legalized and regulated marijuana. Instead, DOJ stated it would enforce federal marijuana laws only if it furthered other federal law enforcement priorities such as preventing the flow of revenue to criminal enterprises or as a cover for trafficking of other narcotics. Similarly, in December 2014 Congress approved legislation that prohibited DOJ from using any congressionally-appropriated funds to prevent states form implementing their own laws that legalized medical marijuana (the legislation was known as the Rohrbacher-Blumenauer Amendment).

Then, in 2019 the Committee issued Opinion 1177, which reaffirmed the conclusion in Opinion 1024 that the RPCs did not prohibit a lawyer from assisting clients under the Compassionate Care Act even though DOJ had rescinded the Cole Memo.

With that background, the Opinion addressed the three questions posed to the Committee.

Question 1: May an attorney ethically provide legal services to assist a client to comply with New York’s Recreational Marijuana Law?

As detailed above, the Committee previously concluded that a New York lawyer could assist a client to comply with the Compassionate Care act, which regulated medicinal marijuana. The Opinion reasoned, therefore, that the relevant inquiry in Opinion 1225 is “whether New York’s broader legalization of cannabis for recreational use imports into the analysis any additional factors or competing considerations that would alter the conclusion reached by the committee in N.Y. State 1024 and 1177 regarding medical marijuana.” For several reasons the Opinion concluded that the broader legalization of marijuana did not change its earlier analysis.

First, the Opinion concluded the federal policies discussed above did not meaningfully distinguish between medicinal and recreational marijuana. In light of the continued push towards legalization in the states, the Opinion reasoned, “it seems fair to say that for nearly a decade federal forbearance in the enforcement of federal narcotics laws has been equally applied to state laws legalizing recreational marijuana and to state laws legalizing medical marijuana.”

Second, the Opinion reasoned that lawyers’ assistance to clients was necessary for the complex regulatory system under the Recreational Marijuana Law to survive. “Without the aid of lawyers, the recreational marijuana regulatory system would, in our view, likely break down or grind to a halt. The participation of attorneys thus secures the benefits of the Recreational Marijuana Law for the public at large, as well promotes the interests of the private and public sector clients more directly involved in the law’s implementation.”

The Opinion also concluded that “the tension created between federal and state narcotics laws remains a highly unusual if not unique situation that was never intended to fall within the blunt prohibition of Rule 1.2(d) against a lawyer counseling a client to engage in, or engaging in, conduct that the lawyer knows is illegal.”

The Opinion therefore concluded that a lawyer does not violate Rule 1.2(d) by counseling a client under New York’s Recreational Marijuana Law, simply because marijuana remains illegal under federal law.

Question 2: May an attorney ethically use marijuana recreationally and grow it at home for personal use?

The inquirer in Opinion 1225 also asked the Committee whether the ethics rules would prohibit her from using cannabis products recreationally or growing lawful quantities of marijuana at home for personal use. Analyzing RPCs 8.4(b) and 8.4(h), the Opinion concluded that the inquirer’s proposed conduct was permissible.

RPC 8.4(b) states that a lawyer shall not “engage in illegal conduct that adversely reflects on the lawyer’s honesty, trustworthiness or fitness as a lawyer.” RPC 8.4(h) similarly prohibits a lawyer from engaging “in any other conduct that adversely reflects on the lawyer’s fitness as a lawyer.” The Opinion concluded that neither rule would prohibit the lawyer’s personal use of marijuana or home cultivation of marijuana, provided both activities were otherwise lawful under New York’s Recreational Marijuana Law. Quoting Comment [2] to RPC 8.4, the Opinion reasoned that although the proposed activities “are technically illegal under federal law, they will not constitute illegal conduct that involves ‘dishonesty, fraud, breach of trust, or serious interference with the administration of justice.’ Accordingly, without more, such conduct would not adversely reflect on the inquirer’s ‘honesty, trustworthiness or fitness as a lawyer.’”

The Opinion also cited to Comment [4] to RPC 8.4, which states:

A lawyer may refuse to comply with an obligation imposed by law if such refusal is based upon a reasonable good-faith belief that no valid obligation exists because, for example, the law is unconstitutional, conflicts with other legal or professional obligations, or is otherwise invalid.

The Opinion reasoned that “the scope of federal forbearance provides inquirer with a “reasonable good-faith belief that no valid obligation exists” to comply with federal narcotics laws that would otherwise prohibit her ownership of an interest in a cannabis business, her home cultivation of marijuana plants for personal use, and her recreational use of marijuana, where and when such activities are authorized by New York State law.”

Question 3: May an attorney accept an equity interest in a client’s cannabis business in exchange for providing legal services?

Having already concluded that assisting a client with a marijuana business and engaging in personal use and cultivation of marijuana under New York’s Recreational Marijuana Law did not run afoul of the ethics rules, the Opinion concluded that a lawyer may accept an equity interest in a client’s cannabis business provided the lawyer follows the appropriate conflict of interest rules. A lawyer’s agreement to accept equity in a client’s company In exchange for legal services constitutes a business transaction with a client under RPC 1.8(a). Accordingly, “the terms of the transaction must be fair and reasonable to the client, fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client, with the client being advised of the desirability of seeking independent legal advice and given a reasonable chance to do so, and the client signing a writing that describes the transaction and the lawyer’s role in the deal, including whether the lawyer was acting for the client in the matter.” The Opinion also reasoned that the lawyer should determine whether her equity interest in the client’s business would give rise to a personal interest conflict under RPC 1.7(a)(2). If so, the lawyer may still proceed with the representation provided “(i) the lawyer reasonably believes she can provide competent and diligent representation despite the conflict and (ii) the lawyer obtains the client’s informed consent, confirmed in writing” as required by RPC 1.7(b).

A Final Word of Caution

Opinion 1225 concluded with words of caution for New York lawyers: the proposed conduct in the opinion is ethical only to the extent that it is also legal under New York law. However, if a lawyer decides to engage in “any cannabis related activity that constituted a serious violation of New York State law or of other federal laws, or in activity that would materially implicate federal enforcement priorities not subject to federal forbearance – for example, assisting in the transfer of sales revenues from recreational marijuana sales to criminal enterprises, or using a cannabis business as a cover for trafficking in other narcotics – [the lawyer’s] conduct would fall outside the safe harbor established by this opinion.”

Opinion 1225 is a must read for any lawyer who is considering getting involved in the cannabis space, either on behalf of a client or in a personal capacity. Although Opinion 1225 will likely not be the last word on this issue, it provides helpful guidance for lawyers trying to navigate the murky waters of cannabis regulation.