Tag Archives: law

By Robert T. Hoban, Esq.

Twenty-four U.S. states now have some form of medical marijuana legalization on the books. These states allow patients with a variety of qualifying conditions to possess and cultivate cannabis lawfully as a treatment for such medical conditions. The number of states allowing medical cannabis is set to increase dramatically, as various additional state legislatures have bills or ballot measures pending on this topic. You can read more about this topic here.

The federal government surprisingly already has their hands in medical marijuana. The federal government sends free, pre-rolled cannabis cigarettes to a special, albeit dwindling, group of patients on a regular basis and they have been doing so since 1976. This is a product of the 1976 federal Investigational New Drug Program (Compassionate Access I.N.D.), which still operates, but was closed in 1992 to any new patients.

The U.S. Government holds a federal patent for therapeutic cannabinoid use (US6630507 B1). The patent, “Cannabinoids as antioxidants and neuroprotectants,” (LINK) covers a method of treating diseases by applying a therapeutically effective amount of cannabinoids derived from marijuana. In addition, the White House website provides links to government-funded research projects involving medical marijuana. Presently, the links show 219 completed projects and 95 projects in progress.

On June 23, 2015, the American Medical Association adopted the formal position that marijuana is a form of medicine. Reliable scientific studies address the medical efficacy of the use of medical cannabis for an increasing number of conditions. Medical cannabis is here to stay and the health care industry needs to pay close attention.

Simply put, the health care industry has been resistant to beginning the study of medical marijuana. This does not bode well for health care systems that will see more patients utilizing various forms of medical cannabis. Moreover, this is not a sustainable health care business model. With an increased focus on alternative forms of medicine and treatment both by practitioners and health care insurance providers, it is imperative that the health care industry studies the facts.

The New Mexico Workers’ Compensation Administration began requiring employers and insurers to reimburse injured workers for medical marijuana when the state’s health care provider fee schedule took effect January 1, 2016. Workers compensation claimants can be reimbursed up to $12.02 per gram of marijuana for up to 226.8 grams of marijuana per year, according to the fee schedule. Such reimbursements were ordered after the New Mexico Court of Appeals had ruled three times since May, 2014 that medical marijuana should be classified as reasonable and necessary medical care for injured workers.

The same momentum is impacting Latin America. Brazil’s governmental health care agency, ANVISA, recently removed a component of cannabis, cannabidiol (CBD), from the list of banned substances, meaning the marijuana molecule can now be prescribed by physicians for treating seizures, multiple sclerosis, schizophrenia and other ailments. As such, ANVISA has approved the importation of CBD from the United States.

More and more research studies are published every year. In the National Center for Biotechnology Information database of biomedical literature, 4,516 medical abstracts reference both cannabis and cannabinoids. Still the vast majority of medical schools do not educate students about the human endocannabinoid system.

Denis Petro, a neurologist and pharmacologist, researches cannabis as a treatment for multiple sclerosis. He founded Patients Out of Time, a non-profit organization dedicated to research and education on the endocannabinoid system. “At present, conventional treatments for spasticity are unsatisfactory,” Dr. Petro wrote, in an article, Indications for Therapeutic Use of Cannabis. “Based on scientific evidence, cannabis is a safe and effective alternative when compared to conventional treatments.”

Physicians in Colorado can recommend marijuana and the Colorado Constitution legally protects them (Article XVII, Section 14). The Colorado Constitution gives physicians immunity for advising a patient about the risks and benefits of medical marijuana for a debilitating medical condition, and for recommending medical marijuana to a patient.

Moreover, physicians have a duty to care for their patients, and that includes considering medical marijuana if it would help that patient. Consequently, by understanding the health benefits and the particularized sources of liability, physicians can lend clarity to the medical marijuana industry.

While medical marijuana policy changes may lead to uncertainty, most questions about the marijuana industry, including the risks and its related legality, have answers. The problem is that health care providers and insurance companies do not know where to turn for this information.

I delivered a number of presentations concerning this topic to various provider and insurance-related entities across the country serving our health care system. It is evident that many of these health care related entities can move forward with a better understanding of the risk implications and devise better informed strategies to incorporate medical cannabis into their operational plans, whether for now or in the near future.

An understanding of the researched health benefits of medical marijuana is increasingly necessary for physicians and other members of our health care system. A conservative approach is certainly advisable, but it is more than just a good thing to learn about; it is a necessity in this day and age to remain relevant and informed. This needs to happen now. And the providers that take appropriate steps soon will be better positioned to deal with these issues as they become increasingly prevalent.

February 23, 2016

Marijuana Matters

Time to Litigate: The Defense That Helps the Client but Hurts the Industry

By David C. Kotler, Esq.

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From time to time, lawyers that service the cannabis industry find themselves representing a client with a litigation matter. By anecdotal evidence, it appears that there is an up-tick in cannabis related litigation over the past year and a half, mostly in circumstances where respective promises made have not been lived up to or those who have invested money are seeking its return. Perhaps a partnership formed within the last few years is simply becoming unraveled.

In the world of litigation, we see defenses, or what are known as affirmative defenses, may be filed in response to a particular lawsuit or claim. One such affirmative defense often utilized in litigation is that a particular contract or agreement may be void based on illegality or void as against public policy.

In fact, this particular grounds for dismissal was at issue in a case in Maricopa County, Arizona wherein a judge in April of 2011 dismissed a lawsuit seeking enforcement of a loan agreement where two Arizona business people loaned $250,000.00 each to a Colorado-based medical marijuana dispensary. The agreement in that case specifically stated that the loan was for “a retail medical marijuana sales and growth center.” Colorado had the foresight in 2013 to legislate against this type of defense when their general assembly passed a law indicating “a contract is not void or voidable as against public policy if it pertains to lawful activities authorized by” Colorado’s constitutional and statutory cannabis law.

The issue becomes germane in emerging states wherein the legislatures and courts have not been dealing with cannabis related matters for any length of time. This is particularly true and ripe for problems in states such as Illinois and Massachusetts that have recently moved forward with cannabis programs and experienced an influx of out of state consultants and companies looking to partner with and work with local residents for licensure purposes. In Florida alone, there have been at least three lawsuits in the past year dealing with cannabis related civil disputes.

To my knowledge, none of those disputes were defended upon, nor did the court address, the legality of the underlying subject matter. However, the question arises whether the lawyer’s obligation to their client necessitates raising this as a defense, for instance, to an action for non-payment of a promissory note for a loan to fund cannabis related business. If the lawyer practices and seeks clients in the industry and hopes to move the industry forward in a positive manner, is it incumbent upon the lawyer to assist the client by making the best legal argument or protect the industry and greater good? As an aside, the answer is to zealously represent the client. Potentially, an adverse ruling in a particular jurisdiction could ultimately affect enforceability of cannabis related agreements in that jurisdiction. It is possible that having a court ruling, even if it is a trial level court within the jurisdiction, at least provides some precedent and a basis for the industry moving forward in that particular jurisdiction. If the ruling is unfavorable like the Arizona precedent mentioned earlier, perhaps planning for jurisdiction and venue to be in more favorable environs is key to document drafting on the front end. For investors, knowing the enforceability of their agreements in a particular jurisdiction could mean the difference between investing in a venture in a particular state or not.

Ultimately, I believe that as advocates, we must do whatever is in our power to protect the client even if it means testing the legal bounds by making an argument that at first blush may hurt the industry. However, having courts develop precedent by which the industry can govern itself in business dealings is important and takes away uncertainty, which in turn allows for good decision-making on the front end. Hopefully, in the near future this will be moot as the federal government moves forward to take actions that provide more certainty and uniformity in dealings within the cannabis space.

January 19, 2016

Marijuana Matters

What Happens When the Attorney-Client Relationship Goes South

By David C. Kotler, Esq.

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Today I get to take a break from talking about what some lawyers, where ethically permissible, generally deal with in the cannabis space in terms of drafting leases, distribution agreements, licensing agreements, and/or application assistance. Within the cannabis industry, I personally serve as outside general counsel to entities to which I provide legal guidance and advice under retainer agreements, which comply, with my ethical obligations as a member of the Florida Bar. Over the last two years, I have spoken with individuals in other states and lawyers who practice in other states. As the cannabis industry has evolved, we continue to witness start-ups that need legal help and often take the most cost-effective route. In certain jurisdictions, I have heard of attorneys, particularly attorneys in Colorado, who have expanded into those jurisdictions and taken an equity stake of the start-up for their legal services. Whether or not this is true, and furthermore permissible, remains to be determined or even addressed by me, as this is a topic for another day.

But what happens when the lawyer-client relationship goes south?

It just so happens that in Florida a lawsuit is taking place between a well-known industry participant and its former lawyer. The names of the parties are omitted to protect them; however, perhaps more importantly, not to put myself in anyone’s cross hairs. This dispute was first reported in a reputable industry publication. Having had experience in media-worthy cases in the past, I am assuming that one party or the other reached out to self report the lawsuit for whatever advantage they thought they would garner. Upon review of the docket in preparation for writing this piece, I noted the docket’s length. For those who are unaware, a docket is essentially a listing of the dates and matters that have been filed during the pendency of a lawsuit.

The docket for the case begins between our anonymous parties, on October 26, 2015 with the filing of a complaint. Since October 26, 2015, there have been approximately 59 docket entries. In some cases, that number could encompass all of the docket entries over the life of a full litigation, short of trying a case, and probably gives the reader some idea as to the litigiousness between the parties. In part, this could be due to the personalities of both former counsel and new counsel representing the company in defense, but probably is not indicative of what would happen in every dispute between former counsel and a company. It is certainly a scary proposition considering the fees that may be incurred in defense of the action, aside from the sum that is allegedly owed to the plaintiff. Without getting into the minutia of the complaint, of note was a portion of the retainer agreement that served as the basis of the breach of contract claim, which granted the law firm incentive stock options pursuant to the company’s incentive stock program. It is imaginable that at the time of signing the retainer agreement, the company probably did not think too much about signing such an agreement; however, as time went on, this may have become problematic on a number of levels. Further review shows the parties airing out their dirty laundry in a public forum.

What example has this lawsuit shown us, and what can one take from it?

Well, this lawsuit is illustrative of what can go wrong for start-ups and newer companies in hiring counsel, either on a one-time basis or as outside general counsel. Giving stock options may not always be advisable as a means of deferring payment on the front end. Also realize that counsel who you hire will be privy to some very important and intimate details of how your company operates. In the cannabis industry, one might wish to be especially guarded, as the industry still has considerable exposure federally. The attorney-client privilege, which some readers may have heard about, can cover communications and work done on behalf of the company during the relationship and survive termination; however, that privilege may very well be waived if the services/fees of the attorney are being attacked or defended. Overall, like anything else, it is important to understand who you may be working with on the front end and memorialize any relationship properly and clearly in writing. Go into the professional lawyer-client relationship with reasonable expectations, reasonable demands, and pay reasonable compensation for the work being performed. As a business, don’t try to get something for nothing. And as an attorney, don’t expect the company to be your golden ticket.