A Discussion of the Medical Marijuana Act

June 20, 2016

NOTHING IN THIS DOCUMENT IS INTENDED OR SHALL BE CONSTRUED AS ADVICE TO PARTICIPATE IN, OR COUNSEL WITH RESPECT TO, CRIMINAL OR FRAUDULENT ACTIVITIES.  POSSESSION, DISTRIBUTION AND SALE OF MARIJUANA IS A SERIOUS CRIME UNDER FEDERAL LAW, AND NOTHING HEREIN SHALL BE CONSTRUED AS ADVICE TO VIOLATE THAT LAW.

Last week, I listened to a group of lawyers[1] discuss Pennsylvania’s new Medical Marijuana Act.[2]  There was a lot to discuss.  Whether you are concerned that the MMA is a gateway law to general reefer madness, or are proud that Pennsylvania is in the middle of the pack in addressing an unfounded prejudice that has been baked into the federal Controlled Substances Act (“CSA”), the MMA will impact many Pennsylvanians and their lawyers.

The MMA creates a new, highly regulated, market in the Commonwealth.  On the demand side, patients with certain conditions[3] who have been licensed by the Department of Health can obtain “recommendations” from medical professionals who have taken a class and been certified by the Department of Health that the patients would benefit from medical marijuana. Card-carrying patients will be able to purchase medical marijuana from licensed dispensaries. On the supply side, the Department of Health can license up to 25 growers/processors, who will produce medical marijuana in the forms allowed under the MMA (excluding, for now, smokeable leaves and flowers) and sell it to licensed distributors, of which 50 will be licensed for up to three locations each.  Distributors will sell only to card carrying patients.  For those counting, this is four permits or licenses already.  There is also a requirement that growers contract with quality control laboratories that are certified (presumably by the Department of Health), as well as provisions for permitted research by universities or “vertically integrated healthcare systems.”

All of the participants in the market are regulated.  Patients can only obtain a 30-day supply of medical marijuana at one time, and must renew their state license annually.  Physicians cannot advertise that they have been certified to “recommend” medical marijuana and face penalties for violating this and other provisions of the MMA.  Growers and distributors must account for medical marijuana “from seed to sale”.  The Commonwealth takes 5% of growers’ revenues (on top of other applicable taxes).

On the face of it, it is a mug’s game.  The limited market created by the MMA might seem too small to attract more than a few investors, given the expensive application fees, capital requirements and technology and security infrastructure requirements required for growers and dispensaries under the MMA.  The MMA is drawing attention, one speculates, because of the expectation that eventually, and sooner rather than later, marijuana will no longer be a Schedule I drug under the CSA.  In fact, the MMA anticipates some of the effects should that occur.

You would think that this all would be a bonanza for lawyers.  The MMA implicates (at least)  land use law, state and federal securities law, corporate and tax law, employment law, and administrative law and procedure.  Investors seeking to participate in the industry, physicians trying to understand their risks, parents seeking help for an untreatable child, all of these will demand and deserve counsel.

But wait.  There are two important issues to consider first.  The first problem is the aforementioned CSA.  As a Schedule I drug, marijuana (medical or not) is not prescribable (hence, “recommendations”), and possession, distribution and sale of the stuff are federal crimes, as is aiding and abetting those activities.  Under the current Administration, Federal enforcement authorities are leaving alone regulated marijuana market participants who color inside the lines.  On January 20, 2017, we get a new Chief Executive and enforcement priorities may change.

But that is not all.  Pennsylvania lawyers may have restrictions on what they can talk with clients about.  Rule 1.2(d) of our Rules of Professional Conduct provide that “a lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent,” although the lawyer may discuss the legal consequences of any proposed course of conduct with a client, and may assist a client in making a good-faith determination of the validity, scope, meaning or application of the law. This might give pause to an attorney asked to assist a grower at a zoning hearing or structure an investment in the industry.

The Disciplinary Board of the Supreme Court has proposed an amendment to the Rules of Professional Conduct that would permit a Pennsylvania lawyer to counsel a client about conduct that is legal where it occurs, as long as the lawyer advises as to the effect of other laws.  In proposing this amendment, the Disciplinary Board stated that “once a jurisdiction makes the policy decision to authorize some form of marijuana-related activity, those who choose to engage in such activity are better served if the legal profession is able to advise clients engaged in such activities without fear of professional discipline”.[4]  Adoption of this amendment would allow Pennsylvania clients to be advised on the details of compliance by the MMA in the context of real businesses and real locations, by counsel who appreciate the “fear of professional discipline” and carefully evaluate their own and their clients’ risks.  Risks there are aplenty, at least until marijuana is re-Scheduled or de-Scheduled under the CSA.  That is why I’ll be working on a good disclaimer like the one that tops this essay, suitable for inclusion in engagement letters, prospectuses and opinions, once I’m allowed to show one to a client.

SMGG intends to stay at the forefront of legal developments in this area.  For questions, please contact David L. Pollack or Erica L. Laughlin of Strassburger McKenna Gutnick & Gefsky at dpollack@smgglaw.com; elaughlin@smgglaw.com or (412) 281-5423.

 

[1] Participants in the PBI presentation A New Reality:  Pennsylvania’s Medical Marijuana Act.  PBI Online Case #9512, presented June 8, 2016.  The panel provided a cogent overview of a complicated and uncertain topic and raised important ethical issues alluded to below.  This essay reports one business lawyer’s impressions.

[2] Codified at 35 P.S. §§ 10231.106 et seq.

[3] Cancer, HIV/AIDS, ALS, Parkinson’s disease, Multiple sclerosis, Damage to the nervous tissue of the spinal cord with objective neurological indication of intractable spasticity, Epilepsy, Inflammatory bowel disease, Neuropathies, Huntington’s disease, Crohn’s disease, PTSD, Intractable seizures, Glaucoma, Sickle cell anemia, Severe chronic or intractable pain of neuropathic origin or severe chronic or intractable pain in which conventional therapeutic intervention and opiate therapy is contraindicated or ineffective, and Autism.

[4] Proposed Amendments to the Rules of Professional Conduct Relating to Scope of Representation and Allocation of Authority between Client and Lawyer, 46 Pa.B. 2274, May 7, 2016