Law firms are beginning to find a niche representing investors and other clients in cannabis ventures even though pot is still illegal under federal law.
A treacherous business to a large segment of Big Law, the growing recreational and medicinal cannabis industry has caught the eye of firms who see opportunity and the chance to build a new base of clients.
Christopher Barry, who co-chairs Dorsey & Whitney’s growing cannabis practice, said he didn’t initially seek out the work. A client found him.
“A large foreign investor from Asia called me up and said they wanted to make a big U.S. investment, and their usual Wall Street firm politely but firmly declined to have anything to do with it because it involved cannabis,” Barry told Bloomberg Law.
“Our firm looked at it pretty hard before we decided to do it,” said Barry. “The issue of federal illegality is a serious issue, and you have to be comfortable with going forward in advising clients in doing something that is in violation of federal law.”
Medical marijuana is legal in 31 states,Puerto Rico and the District of Columbia, and a number of others permit recreational use.
While cannabis-related trading is just getting started on Wall Street, the legal business has gotten the attention of investor networking groups, overseas interests, and some big-name stakeholders, like Peter Thiel.
Law Firms Dig In
With approximately 25 lawyers working on cannabis-related matters full time, Dorsey handles general corporate work for U.S.-based cannabis companies, investments from abroad, and other work for Canadian and other non-U.S. companies.
In May, Dorsey helped Los Angeles based-MedMen Enterprises go public on the Canadian Securities Exchange. The company has 800 employees, 18 licensed facilities, and was valued at $1.65 billion, Bloomberg reported
Duane Morris created an interdisciplinary cannabis practice group in early 2017.
“We’ve had clients who said they want to use a larger, full service law firm because they’re having to go to different firms on a piecemeal basis,” said partner Seth A. Goldberg. “At smaller law firms that are highly cannabis-focused, those lawyers might not specialize in IP or taxation or venture capital or complex commercial transactions.”
Today, Duane Morris has approximately 30 to 50 lawyers working on cannabis matters in some capacity, according to Goldberg. They cover matters that range from real estate to IP and corporate structure.
Fox Rothschild launched its cannabis practice less than two years ago. Today, it has about 20 lawyers working for cannabis clients full-time, according to practice co-chair Joshua Horn.
“I have a client in the private finance space who specifically came to me because his go-to firm said no,” said Horn.
“Once we rolled out the group, we’ve been very heavily marketing our practice,” he said. “It’s almost the same reason why a lot of states are getting into the cannabis space. You can only raise revenue so many ways.”
‘More Wall Street than Haight Ashbury’
Although large U.S. institutions may not be able to invest in cannabis growing and distribution companies, individuals and foreign investors often can.
“I’m aware of a number of instances where cannabis companies have gone to see large, well-known institutions, and the people sitting around the table representing the institutions say, ‘Oh no, our fund could never do such a thing.’ And then they’ve reached into their pockets and invested personally,” said Barry, who added that he receives “several calls a week” from people looking to invest in the industry.
Horn and other lawyers working in a cannabis practice said they only expect their work to grow, particularly if federal laws banning the substance are overturned.
“One place I was in, think of the biggest WalMart you’ve ever been in, and then double that. That’s the scale of the operation,” said Horn. “In this one facility, they had pallets of pre-packaged ounces of cannabis floor to ceiling”
“I think what most people don’t realize is the state-legal cannabis industry is more Wall Street than Haight Ashbury,” said Goldberg.