Every year, the United States spends an estimated $58 billion in the war on drugs, according to the Drug Policy Alliance. In 2017, more than 1.6 million arrests were made in the United States, 85.4 percent of which were only for possession. More than 600,000 were arrested for cannabis law violations, and 90.8 percent were for possession. It is not surprising that the United States has had the highest incarceration population in the world. But cannabis laws have been changing for the better. More than 30 states allow medical use, and ten have legalized recreational use of cannabis, namely, Alaska, California, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and the District of Columbia.
This progress would not be possible without the hard work of those in the legal sector. Bob Hoban says that over the past ten years, many attorneys and law firms have dedicated themselves toward practicing cannabis law. When asked whether there is a shortage of legal resources available to the industry, he says there really are not. “There is absolutely a shortage of education and understanding of the law in our court system, however, which creates an uphill battle for cannabis industry owners who find themselves in court for what would otherwise be a routine business dispute. This is especially true regarding federal court.”
As a result, many end up behind bars because of insufficient knowledge. Ignorance of the law, however, cannot be easily excused. It’s up to the individual to understand the legal implications of starting up a cannabis business or using cannabis medically or recreationally.
Bob Hoban did not start out as a cannabis attorney. He had been steadily developing his practice in civil litigation. It was around the time that Colorado legalized medical cannabis that he changed his focus. Part of this change was also based on his personal experience.
“I knew from my own experience caring for my late mother, who suffered from cancer, that medical cannabis truly could help people. I wanted to bring legitimacy to a system that primarily involved black market operators and criminal defense attorneys,” Bob said.
The Hoban Law Group started out in 2008 as Hoban & Feola in 2008 with a subspecialty in eminent domain law, helping property owners defend their rights against government takings. Bob recalled, “Eventually, a dispensary owner in the Denver metro area had a takings case of their own and found our firm because of that need. We won that case, and word spread quickly that dispensary owners could work with experienced business attorneys and litigators, not just criminal defense attorneys. After ‘adult use’ became legal in Colorado in 2012, our firm re-branded and decided to focus full-time on cannabis clients, including marijuana and industrial hemp.”
The Hoban Law Group is a full-service business law firm with a complete range of services in litigation, intellectual property, tax, corporate governance and financing, regulatory compliance and licensing. The firm made the news when Bob spearheaded a case against the Drug Enforcement Administration (DEA).
When the DEA published a final ruling in December of 2016, declaring CBD oil an illegal Schedule 1 substance, because it is derived from marijuana or hemp, the Hoban Law Group knew that the industry had to hold them accountable. Petitioners in the lawsuit against the DEA included the Hemp Industries Association, RMH Holdings, LLC and Centuria Natural Foods, Inc. The suit was filed in January 2017 and went before the U.S. Court of Appeals for the Ninth Circuit for oral argument in February 2018. The essence of the lawsuit was the way the DEA defines cannabinoids and how they are sourced. On its face, the agency’s ruling seemed like a benign act, but Bob believed it was not. The Hoban Law Group saw two major problems with the DEA’s definition of cannabis, both referring to how the Controlled Substance Act treats it.
First, not every part of a cannabis plant is illegal. As the Ninth Circuit found in 2003 and 2004, there are certain parts of the plant that are specifically exempted from the Controlled Substances Act, and thus from the DEA’s rulemaking authority.
Second, the DEA often improperly treats all cannabinoids the same. Although THC is illegal under the Controlled Substances Act, other cannabinoids, including CBD, should not be subject to the same treatment, particularly when sourced lawfully.
Bob further explained, “These misunderstandings around cannabis—specifically, the difference between marijuana and hemp—underpin one of the biggest difficulties in our practice. There is much work and education that remains to be done for legislators, law enforcement and rulemaking authorities.”
Starting a cannabis business is relatively complicated at first glance if you’re not educated about the regulations and how to maintain compliance once in operation. Since cannabis regulations can sometimes be inconsistent, it is not uncommon for cannabis business owners to encounter complicated legal issues. Bob offers a three-point recommendation:
- Don’t just hire an attorney, take your attorney’s advice! It’s hard to count the number of times we’ve consulted with clients who chose to ignore the advice we gave them because they didn’t like it, only to end up back in our office six months later in hot water. Hire an attorney you trust, and follow their advice.
- Decide your level of risk tolerance early on. Some of our clients are comfortable being provocative with their labeling or marketing, for example. That can be an effective part of a marketing strategy as long as you’re prepared for the legal challenges that you may invite. Others are understandably fearful of attracting the attention of any regulators or law enforcement authorities. Factoring in your risk tolerance will be very important as you work with your attorneys and team members to develop a business plan.
- Document everything, even if you’re in business with people you believe you can trust. It’s unfortunate, but we’ve handled a lot of business divorces for people, oftentimes family members, who didn’t properly paper their investments, operating agreements or corporate documents. When deals go south, it’s then impossible to avoid litigation that leaves everybody a little worse off. This pitfall can be easily avoided with proper diligence at the outset.
When asked about the major factors that hinder the progress of the cannabis industry, Bob says banking is a major daily struggle. Access to a bank account is only part of the problem. Challenges include lending, raising capital and the risk-averse position of financial institutions. The firm also expects a wave of legal claims to hit the industry, such as from consumers claiming they were harmed or sickened by the products they used. It is best to prepare by self-imposing best practice standards and ensuring FDA compliance with labeling and marketing, including adherence to other legal guidelines. Bob sees a positive future for the cannabis industry. We need self-education, compliance and smart and lawful decision making.
“Hemp! Hemp! Hemp!” Bob emphasized. “In many ways, the question of the regulated cannabis marketplace is settled. As new states continue to come online (welcome, Michigan, Utah and Missouri!) they can look to states like Colorado, Washington and Oregon for successful regulatory models as well as cautionary tales. But the parallels between the industrial hemp industry at present and in 2008 cannot be ignored. There are still many opportunities for individuals to invest into the nascent hemp industry before it becomes the focal point of an agricultural revival in the United States.”