ETH 2020-202
Formal Opinion No. 2020-202
California Ethics Opinion
The State Bar of California Standing Committee on Professional Responsibility and Conduct
2020
ISSUES:
May a lawyer provide advice and assistance to a client with
respect to conduct permitted by California's cannabis
laws, despite the fact that the client's conduct,
although lawful under California law, might violate federal
law?
DIGEST:
Under the Rules of Professional Conduct, a lawyer may
ethically advise a client concerning compliance with
California's cannabis laws and may assist the client in
conduct permitted by those laws, despite the fact that the
client's conduct may violate federal law. Such advice and
assistance may include the provision of legal services to the
client that facilitate the operation of a business that is
lawful under California law (e.g., incorporation of a
business, tax advice, employment advice, contractual
arrangements, and other actions necessary to the lawful
operation of the business under California law). However, a
lawyer may not advise a client to violate federal law or
provide advice or assistance in violating state or federal
law in a way that avoids detection or prosecution of such
violations. The lawyer must also inform the client of the
conflict between state and federal law, including the
potential for criminal liability and the penalties that could
be associated with a violation of federal law. Where
appropriate, the lawyer must also advise the client of other
potential impacts on the lawyer-client relationship,
including on the attorney-client privilege, that could result
from the fact that the client’s conduct may be
prohibited under federal law.
AUTHORITIES
INTERPRETED: Rules 1.1, 1.2.1, 1.4, 1.4.2, 1.6, 1.7, 1.13,
1.15, 4.1 and 8.4 of the Rules of Professional Conduct of the
State Bar of California.[1]
Business
and Professions Code sections 6068, 6101, 6102, 6103, and
6106.
Evidence
Code section 956.
California
has recently adopted a comprehensive and complex regulatory
scheme covering the use, production, and sale of
cannabis[2]
for both medicinal and adult recreational use. Many local
California communities also regulate cannabis businesses. At
the same time, possession, commercial production,
distribution, and sale of cannabis remain unlawful under
federal law, and violators are potentially subject to
criminal penalties and civil forfeitures. Those wishing to
engage in a cannabis business based in California need
compliance advice with respect to both state and federal law
and assistance in establishing and operating a business that
complies with state law. Lawyers wishing to provide such
services are understandably concerned that counseling or
assisting conduct that may violate federal criminal law will
subject them to discipline for professional misconduct.
Relying in significant part on recent changes to the
California Rules of Professional Conduct, this opinion aims
to address those concerns.
SCOPE
OF THE OPINION
The
conflict between state and federal law that gives rise to the
need for this opinion presents difficult questions concerning
the relationship between those two bodies of law. This
opinion, however, is limited to the issue of a lawyer’s
obligations—and susceptibility to professional
discipline—under the California Rules of Professional
Conduct and the State Bar Act when providing advice and
assistance with respect to conduct regulated under both state
and federal law. Because this opinion is based on California
law and policy, its conclusions are limited to California
lawyers counseling or assisting with respect to conduct
occurring in California. This opinion does not address: (1)
any issues of federal criminal law, except as assumed
background for its ethical analysis; (2) the likelihood of
criminal or civil proceedings stemming from alleged
violations of federal criminal law; (3) the effect of a
federal criminal conviction of a lawyer in a subsequent State
Bar disciplinary proceeding against the lawyer; or (4) the
lawyer’s obligation to self-report criminal proceedings
or convictions to the State Bar. See Business and Professions
Code sections 6101, 6102, and 6068 (o)(4)-(5). Finally, as
noted below, this Committee’s opinions are not binding
on entities charged with the discipline of California
lawyers; a fortiori they are not binding on federal law
enforcement authorities.
STATEMENT
OF FACTS
A
lawyer has been asked to advise and assist a client who plans
to conduct a business engaged in growing, distribution and/or
the sale of cannabis within the State of California. The
client seeks advice and assistance that will enable the
client to comply with California laws, which permit, regulate
and tax such activities, including obtaining any required
permits and dealing with state and local regulatory
authorities. The client would also like advice and assistance
with respect to related business activities, including
business formation, financing, supply chain contracts, real
estate, employment law, and taxation.
In
addition, the lawyer and the client have been discussing
several aspects of the proposed representation, including the
possibility that the lawyer will: (1) hold client funds in
excess of any amount required to cover legal fees in the
lawyer’s client trust account, as a “rainy
day” fund, against the possibility that federal
authorities might seize the client’s assets; (2) assist
the client in establishing offshore bank accounts into which
the proceeds of the business may be placed; and (3) be
compensated for the provision of legal services by acquiring
an interest in the client’s business in lieu of fees.
DISCUSSION
A.
Legal Background
As now
well known, federal law and California law differ in their
approach to the cultivation, possession, distribution and
sale of cannabis. Under the federal Controlled Substance Act
(CSA), it is illegal to manufacture, distribute or dispense a
controlled substance, including cannabis, or to possess a
controlled substance with intent to do any of those things.
(21 U.S.C. § 841(a)(1); 21 U.S.C. § 812, Schedules
I(c)(10) and (d)). Depending on the quantities involved and
other factors, penalties for violating those laws can range
from five years to life imprisonment. (21 U.S.C. §§
841(b)(1)(A)-(B), 960(b).) A person who “aids, abets,
counsels, commands, induces or procures” the commission
of a federal offense or who conspires in its commission is
punishable as a principal to the offense. (18 U.S.C. §
2(a); 18 U.S.C. § 371; 18 U.S.C. § 846.) It is also
illegal under federal law to possess cannabis even for
personal medicinal use. Id. §§ 812,
844(a). In certain circumstances, persons taking proceeds
from a cannabis business may also be charged under federal
money laundering statutes. (18 U.S.C. §§ 1956-57.)
In
addition to criminal prosecution, persons engaged in the
production, distribution or sale of cannabis in violation of
federal law are subject to forfeiture of both the assets used
in operating that business and the proceeds traceable to its
operation. (18 U.S.C. §§ 981, 983.) Such assets
could include bank accounts, investor profits, including
those already paid out to investors, land and buildings.
Notwithstanding
this federal prohibition, thirty-three states and the
District of Columbia have taken steps to legalize
cannabis.[3]
Thirty states and the District of Columbia have legalized
cannabis for medical use. Eleven states and the District of
Columbia have legalized cannabis for adult recreational use.
California has legalized both medical and adult recreational
use. The California approach to medical cannabis was
originally codified in the Compassionate Use Act of 1996
(CUA), Health and Safety Code section 11362.5, as
supplemented by the Medical Marijuana Program Act (MMPA),
addressing the prescription, possession and use of cannabis
for medicinal purposes. That statute has now been greatly
expanded and, in significant part, replaced by the Medicinal
and Adult-Use Cannabis Regulation and Safety Act of 2017
(MAUCRSA), which comprehensively regulates cultivation,
transport, distribution and sale of consequences “of
any proposed course of conduct,” including courses of
conduct that the lawyer knows are criminal or fraudulent.
Rule 1.2.1(b)(2) permits a lawyer to counsel or assist a
client to “make a good faith effort to determine the
validity, scope, meaning, or application of a law, rule or
ruling of a tribunal.” These provisions collectively
support the conclusion that “a lawyer is not...
