Budding Business

An entirely new industry was born in Washington state on Nov. 6, 2012, when voters approved Initiative 502, making the state one of the first two in the nation to legalize recreational use of marijuana for adults age 21 and older.

 “I don’t think this happens twice in a lifetime, where we get to see an American industry built from the ground up,” says Hilary Bricken, head of the new Canna Law Group at Harris Moure in Seattle.

While the measure decriminalized, under state law, adult possession of small amounts of marijuana, it also saddled recreational marijuana businesses—producers, processors and retailers—with the duty to comply with a complex regulatory framework. And it failed to iron out a big wrinkle: Marijuana remains a Schedule I controlled substance under federal law.

Three young Seattle business lawyers—Bricken, Andy Aley of Garvey Schubert Barer, and Stephanie Boehl of KB Law Group—were among those who recognized early on that these developing companies would need guidance. “If this democratic experiment is going to work, these people need real business counsel,” says Bricken.

Advising cannabis clients means walking a tightrope of uncertainty. Boehl notes that the “bare-bones” rules and regulations “have not had an opportunity yet to respond to and react to the industry and its opportunities coming at a fast and furious pace.”

Bricken, just five years into her career, is already recognized as a national leader in cannabis law. Major media outlets—including Al Jazeera America and MSNBC—have sought her input as an expert on the topic.

Despite her high profile and passionate advocacy, “I am not here because I love cannabis—I am here for very different reasons,” she says. These include statistics showing that criminalizing marijuana disproportionately results in incarceration of people of color, as well as her belief that the “War on Drugs” is a “huge waste of resources.”

“I am also a big fan of capitalism,” she notes. “Let’s give these businesses a chance to expand and grow.”

Aley chairs his law firm’s cannabis industry group, which was launched at the end of 2014. The 2008 UW law graduate has a background in advising startups and high-growth companies on matters such as entity structure, early stage financing, and mergers and acquisitions.

Boehl, admitted to the bar in 2007, co-owns her firm with her husband, criminal defense attorney Kurt Boehl. She began advising businesses on marijuana regulatory compliance right after passage of I-502. Working in this area “is an opportunity to start on the ground floor with something in its infancy,” says Boehl. “The sky is the limit.”

She admits that her early representation of marijuana businesses left some people scratching their heads. “It was challenging,” recalls Boehl. “But in my mind, voters wanted a regulated marijuana industry, and a part of that is sound legal advice and counsel.”

Clients for these attorneys range from first-time prospective business owners to seasoned veterans hoping to break into the nascent industry.

The ominous cloud looming over the industry is the specter of potential federal prosecution or civil forfeiture. “That aspect colors all advice you give to clients,” says Aley.

While cannabis attorneys themselves could theoretically face federal prosecution for “aiding and abetting,” Bricken is not concerned. “It would be a constitutional crisis if attorneys were federally prosecuted for advising compliance with state statutes,” she says.

The financial aspect of operations has been an obstacle for some marijuana businesses. Regulations require Washington residency for those loaning or contributing to a licensee, says Aley. And the “banking epidemic,” which refers to the reluctance of banks and credit unions to provide services to marijuana businesses, continues to be a problem.

Bricken observes that federal tax issues have further become a big concern for her clients: “We have to help them avoid being taxed out of existence.” Another problem area involves trademarks and trade secrets. “It is difficult to protect your brand when federal law will not let you have a federal trademark,” she says.

Landlord-tenant issues have also arisen. “I have had landlords become uncomfortable and try to renege on a lease,” says Bricken. One landlord asserted that a next-door-neighbor, a pasta-maker, claimed that the smell of pot was getting into the noodles.

While Aley and Boehl also advise other types of businesses, Bricken says cannabis law takes up “110 percent” of her time. She notes that the marijuana battles she has fought in court—including suits against the cities of Wenatchee and Lacey to require the municipalities to permit cannabis businesses—have been a challenge. Both cities now permit recreational cannabis operations. “Judges have a hard time with these cases, since they are public figures, and federal prohibition looms large,” she says.

Her favorite part of the job is probably the business ideas she gets pitched. “I can imagine this is what it felt like for a seed investor in Silicon Valley during the tech boom,” she notes, pointing to a cannabis-friendly bowling alley as a notable pitch.

“The challenge now is the lack of direction of the rules and regulations for the tremendously creative ideas clients come up with,” observes Boehl. Other items on the industry’s to-do list, she predicts: developing laws in other states and tackling the interplay of laws as Native American tribes consider cultivating marijuana in their own regulatory environment.

Aley and Bricken liken recreational marijuana to alcohol, another heavily regulated product that was once prohibited nationwide. The difference is that the alcohol industry “machinery” was already in place when Prohibition ended, says Bricken. “Here, a good amount of people are coming straight off the black market,” she says, “and they find it very tough to adhere to transparency, state regulations and accountability. And it is really tough to condition drug dealers to behave like businesses. It will take years of conditioning, socially and legally, to make sure the industry runs like alcohol.”

Aley thinks the practice area is constricted by fears about risk and uncertainty, and potential negative connotations about being labeled a “marijuana-law firm.” But the three lawyers all anticipate that the circle of marijuana-business lawyers will eventually expand—especially if the federal government lifts its ban on marijuana.

Boehl expects that it is only a matter of time: “It really is a state’s rights issue; states should decide what’s best and what citizens want to do.”