A few words are in order for Arizona lawyers habitually consulting medical marijuana enterprises now that Dennis Burke, the United States Attorney (“USA”) for the District of Arizona, shared some thoughts on the federal government’s position on local enforcement. Of course, in his May 2, 2011, letter to Will Humble, the Director of Arizona’s Department of Health Services, USA Burke begins by reminding the Director that Schedule I drugs are illegal to possess and sell under the Controlled Substances Act of 1970. Burke then focuses, off reservation (more on that later), on illegal drug manufacturing and trafficking networks. Burke states that disrupting such networks is a core priority of the Department of Justice (“DoJ”). He also indicates that anyone knowingly facilitating the actions of traffickers will be subject to prosecution. There is a suggestion in the letter that one indication of drug network involvement is the existence of “large marijuana production facilities.” DoJ seems to be not fond of such activities. Melinda Haag, USA in Northern California, advised the City of Oakland on February 1, 2011, that her office was opposed to any city endeavor to license “manufacturers” of large quantities of marijuana for distribution – even under the watchful eye of the city. Commercial growing operations are disfavored when they endeavor to “go to scale,” perhaps on the assumption that large dollar investors in cultivation, more probably than not, are persons engaged in criminal enterprises.
In any case, it appears that “mom and pop” –scale cultivation will be tolerated so long as the crop is harvested and readied for use for dispensing to licensed persons under the Medical Marijuana Act. If there’s a trend to be teased out from the USA advisory letters in the western United States, it’s that DoJ wants the medical marijuana trade to commence and remain on a cottage industry – scale. Except in “Indian Country,” as the phrase is used sometimes. USA Burke’s letter makes it clear that no matter what the quantity of marijuana is, there will be little tolerance for growing, distributing or possessing marijuana on federal lands or tribal lands.
So, the lawyer advising medical marijuana enterprises should shy away from advising his or her client about what’s permitted or not on federal lands or tribal lands (unless, I suppose, you plan on saying “you just can’t do that”). Second, the lawyer advising medical marijuana enterprises should not give any advice expressing or suggesting that large-scale growing operations will be tolerated by the U.S. Attorney’s Office in any circumstances. Third, the lawyer needs to have a very clear understanding about the intentions of the business operators in regard to first and second-generation investors in their businesses. If later (second and subsequent round) investors are contemplated after the business has been permitted by DHS and the city or county (zoning authorities) of its operation, and the initial business owner isn’t completely knowledgeable or forthcoming about whom these persons may be, the hairs on the lawyer’s arms, neck and head should stand straight up and out.
I’m not a criminal defense lawyer. I am disturbed about the potential exposure of lawyers who counsel medical marijuana enterprises. Lawyers for a while now (from time to time) have been found liable for aiding in public or private offerings of stock if an offering is predicated on fraudulent misrepresentations. When the defendant’s conduct aids and abets a principal’s fraudulent misrepresentation, a “secondary violation” exists under Section 10(b) of the 1934 Securities Act. Secondarily liable defendants can be attorneys employed by the issuer to help draft the offering prospectus. Because of their intimate involvement with the issuance of the securities — and because they may are more solvent than any other defendant — lawyers will be pursued by the SEC as a government watchdog — although private plaintiffs may not pursue secondarily liable folks.
Criminal law enforcement actions are not altogether dissimilar to securities fraud prosecutions. The Department of Justice has openly admitted that an essential part of the civil forfeiture process strategy has been to offset the cost of criminal enforcement of drug laws. (In fact, in some jurisdictions, the forfeiture process funds much of the enforcement budget, like a university football program that funds the rest of the athletic department’s costs.) So lawyers should at least ruminate on this: Is it likely that aiding and abetting liability would be pursued by federal law enforcement against counsel aiding an outlaw medical marijuana enterprise for instance, in documenting business premises’ leases or equity investment in a new business or in making misleading filings with a state or local licensing authority? Does the likelihood increase if the lawyer becomes an owner of an equity interest in such a business–perhaps, in lieu of being paid his or her legal fees?
Of course, if prosecuted, the Arizona lawyer will claim reliance (and the right to rely) on the State Bar’s Ethics Opinion (at least in its current version). I would imagine the federal government response will be, “okay, counselor, how much did you really know about the intentions and the activities of your client during the period you represented the client? Did you keep up with the changes in the management and operations of that business? Or were you just ‘for hire’?” If your knowledge of your client’s activities and stakeholders is limited, lawyers, aren’t you inviting trouble?