Tips on how to Minimize Claims Risks in Marijuana Law

Lawpro (Law Society of Ontario Insurers) recently published the following article that we believe beneficial to send to our insured members.

New and exciting opportunities – and claims risks: Marijuana law

As recreational marijuana makes its way onto Ontario store shelves, lawyers are gearing up for the new market. From producers to retailers, and everything in between – retail stores, physicians, banks, transportation companies, accountants, you name it – clients will come from all segments of industry. Here we take a look at some of the opportunities and give some tips to minimize claims risks.

New producers, distributors, and retailers may seek advice from corporate lawyers to establish their businesses. This can include incorporation, drafting and negotiating contracts such as equipment purchases, and keeping up with reporting requirements. While many tasks will fall into ordinary “bread and butter” legal work, we note that inadequate investigation has been a growing area of malpractice claims. Investigation can range from corporate searches to asking all the relevant questions in a client interview. Using one practice area example: what might be unique about acting for the landlord or tenant with respect to a pot dispensary lease? Are there additional risks associated with mould, fire hazards or the need for increased security that may impact insurance eligibility or availability? How might these sorts of considerations be addressed in an offer to lease?

Even in a limited scope representation, where a lawyer is approached to complete a small legal task such as drafting an article of amendment or giving summary advice on the wisdom of incorporating, it remains important to fully draw out the facts from the client. As always, document all meetings and what was discussed, along with recommendations and instructions.

While most clients may be well-intentioned, reports in the media are already stating that the demand for recreational marijuana may not be fully met by legal providers, leaving a black market to fill in the gap. Remember that under the Rules of Professional Conduct, lawyers must not “knowingly assist in or encourage any dishonesty, fraud, crime, or illegal conduct.” Corporate lawyers should, as with any incorporation, inquire as to the purpose of incorporation and stay on the right side of the law. Omitting to ask probing questions – purpose, place, people involved, and so on – can put a lawyer at risk if the client is involved in illegal conduct. Don’t become an unwitting tool for mischief. Alternatively, you may have a client who in good faith adamantly believes that the law now allows for something it simply does not. Since this is an emerging area of law, you cannot rely on well-read clients to know the law better than you do, or you both may pay the price.

Given the market opportunity, the temptation may arise to go beyond your practice area and service a client in need. But we caution against this – don’t dabble. While we give this advice generally to all lawyers, this is doubly important in marijuana law. Like a fish out of water, a lawyer dabbling in an area may run afoul of the law in any uncharted practice area, particularly marijuana law. The changing legal landscape, new as it is, may contain traps even for the experienced practitioner, let alone the dabbler. What are the tax implications of a certain course of action? What are the record-keeping requirements? Licensing requirements? Reporting requirements? Myriad obligations can arise from various governing legislation, and the dabbler is at risk of missing these. While expanding your market is good business, so is staying within your capabilities.

With new businesses finding new partners, real estate and corporate lawyers may also find that the fruits of their investigations into their business clients may be relied upon by others. Could a bank require a lawyer to sign off on the legal status of a cannabis producer or distributor? Anti-laundering laws may be onerous. Could a landlord or lender require a lawyer to state that a property is being used legally, or that required licences and permits have been obtained? To the extent the law may require, lawyers should be cognizant of their duties to clients and, if any, to regulators and third parties where relevant.

Lawyers may find that legalizing marijuana is having an impact on them, even if they don’t intend to act on client matters directly linked to it. As recreational drug use may increase, workplaces may be affected when employees take part. Employers, including law firms, may need to determine when the duty to accommodate is triggered, which typically applies to medically prescribed drugs. Ethical or moral judgments seem to be changing with the times, and the law will likely evolve with them. What policies should law firms have? What should employers and employees do in terms of reporting and disclosure? Could this impact a law firm’s health benefits program?

Enterprising lawyers wishing to trumpet their successes in this new practice area on social media may wish to be careful. The duty of confidentiality prevails, and advertising a client’s success on a blog or Twitter may end up backfiring if the client can be identified and does not wish to be. Permission to broadcast success about a client can in some cases be easily obtained, and it is wise to have such consent documented. Legal advice on a blog should also be limited. “Ghost clients” may end up haunting the lawyer should legal advice be provided on social media, however fleeting. A Snapchat may disappear after 30 seconds, but the screenshot does not, and neither, necessarily, does a cached tweet or blog post.

Undoubtedly clients will enter the market and require legal work. Taking advantage of the opportunity, lawyers should ensure clients are kept abreast of the law where relevant, and that costs, timelines, possible outcomes and risks involved are discussed and documented. The changes in marijuana law may well affect lawyers across the board, from law firm management to client management. Keep up good practice habits, avoid dabbling, and stay abreast of new developments. (PracticePro Avoid a Claim Blog, Posted: 17 Oct 2018 11:38 AM PDT)