Smoke in our Eyes: Cannabis and Legal Services

by Duane Crone | February 15th, 2017 | 1 Comment »

Lawyer Professional Liability Insurance has been hard to locate for lawyers who serve businesses engaged in the legalized production, distribution and sale of recreational and medical cannabis. This begs the question; if the business is legal, why the insurance problem?

I have been asking myself just that. Mainstreet is located in WA where purchase and use of marijuana has been the law of the state for 3 years now. WA and CO were the first states to legalize both medical and recreational use of cannabis, AK and OR have recently followed and more states are poised to join the ranks in the near future.

So with the obvious momentum and direction, why are most lawyer malpractice insurers still stuck in “no way” mode? The obvious answer is a simple reluctance to accept the future; insurance companies are almost always last to react to social change. But I also suspected something a bit more subtle (and a lot more odious). I was starting to think the insurance industry was irrationally tainting legal practitioners with the negative stigma of weed itself. But why would they do that? We provide criminal defense lawyers with coverage all day, every day. We insure lawyers who provide transactional services to those in the liquor business. Why would underwriters take a “won’t touch this risk with a 10 foot pole” approach to legal cannabis?

To get some answers, I enrolled in a local PLUS (Professional Liability Underwriting Society) educational session on Cannabis and Insurance. What I learned changed my mind and I thought you might want some answers as well.

A man stands before a maze of green.

The path is still hazy with Cannabis Law

States that have legalized either medical or recreational marijuana (or both) are still in the process of creating new laws, new regulations, and new rules to oversee the path of trade from seed to consumer. Those who provide business advice on how to navigate this ever-changing labyrinth are in a bit of a trap, as none of it has yet settled out into what could be considered a credible standard of care. The right answer today could lead to dead ends or trap doors tomorrow, as the rules continue to change. This sets the business apart from liquor law, where a long history of regulation and subsequent litigation has created a much clearer guide for businesses and for the advisors to those businesses.

This insecurity in an area of heavy state regulation is giving underwriters pause.

And, of course, the relationship between the Federal authority to enforce controlled substances and states that have enacted cannabis utilization legislation is tenuous at best.

Faced with the blatant disagreement between Federal enforcement policy and recreational use legalized on a state level in WA and CO, the U.S. DOJ issued a missive known as the Cole Memorandum. It is this memorandum that creates a toleration space allowing states to continue with their plans to normalize use of and regulate cannabis use.

Here is the DOJ summary:

Department of Justice

Office of Public Affairs


Thursday, August 29, 2013

Justice Department Announces Update to Marijuana Enforcement Policy

Today, the U.S. Department of Justice announced an update to its federal marijuana enforcement policy in light of recent state ballot initiatives that legalize, under state law, the possession of small amounts of marijuana and provide for the regulation of marijuana production, processing, and sale.

In a new memorandum outlining the policy, the Department makes clear that marijuana remains an illegal drug under the Controlled Substances Act and that federal prosecutors will continue to aggressively enforce this statute. To this end, the Department identifies eight (8) enforcement areas that federal prosecutors should prioritize.  These are the same enforcement priorities that have traditionally driven the Department’s efforts in this area.

Outside of these enforcement priorities, however, the federal government has traditionally relied on state and local authorizes to address marijuana activity through enforcement of their own narcotics laws. This guidance continues that policy.

For states such as Colorado and Washington that have enacted laws to authorize the production, distribution and possession of marijuana, the Department expects these states to establish strict regulatory schemes that protect the eight federal interests identified in the Department’s guidance. These schemes must be tough in practice, not just on paper, and include strong, state-based enforcement efforts, backed by adequate funding. Based on assurances that those states will impose an appropriately strict regulatory system, the Department has informed the governors of both states that it is deferring its right to challenge their legalization laws at this time.  But if any of the stated harms do materialize—either despite a strict regulatory scheme or because of the lack of one—federal prosecutors will act aggressively to bring individual prosecutions focused on federal enforcement priorities and the Department may challenge the regulatory scheme themselves in these states.

A copy of the memorandum, sent to all United States Attorneys by Deputy Attorney General James M. Cole, is available below.

Related Materials:

DAG Memo 8-29-13


Even a casual perusal of this “understanding” leaves open the distinct possibility for a change of heart and a restatement of DOJ position on the subject. In effect, the states are putting together their individual rules and regulations with no firm understanding of what will eventually be required, tolerated or potentially deemed inadequate on the federal level.

In today’s business environment, no state remains an island. Investors, investment, corporate structure, protection of vested business interests via trademark or copyright, product quality control, access to capital, banking, taxes…there are legal services issues with each of these.

The one that concerns me most (perhaps because I see larger $’s involved) relates to the product itself. Cannabis is a drug with no pharmacological pedigree and no standard testing or national certification facility like the FDA. We don’t even know what we don’t know as far as its uses or the quality of the product itself. Pesticides? Potency? Latency? Product liability? We really have no idea at this early stage.

So yes, insurers are dragging their feet right now, but they’re simply waiting for the smoke to clear…so to speak.

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