Top Ten Marijuana Industry Red Flags

We’ve been marijuana business lawyers for a long time now and in multiple states, and being on the front lines of this industry means that we have seen a lot of good and bad actors. In this post, we share the Top Ten Marijuana Industry Red Flags so that you know what to look for to protect yourself as you go forth with your marijuana business:

1. Marijuana real estate agents. It is the rare “marijuana realtor” who can be trusted. Let’s be honest, really successful real estate agents are generally not that interested in having to spend the extra time required to handle cannabis properties. Most of the time, the allegedly “marijuana expert” realtors know little to nothing about the state marijuana laws relevant to using a property for cannabis, let alone the local laws, but this virtually never stops them from claiming that they do. We also see too many cannabis realtors who claim to side with the marijuana business, but whose sole goal is to assist landlords in gouging marijuana tenants for above-premium rates.

In vetting your realtor, be sure he or she knows both the state laws as they relate to real estate and any local land use and zoning regulations. Better yet, consider using your own lawyer for this. For our clients, we like having realtors sign non-disclosure agreements so as to minimize the chances of their exposing our clients’ operations for their own benefit. Just by way of one example: you do not want to clue your realtor in on a great property for marijuana and then have him or her tell your competitors about it.

2. Anyone who claims they’re the “next big thing” in the marijuana industry. The “green rush” has given rise to many people who will do anything to make a dollar. You need to be weary of anyone whose goal is to sell you on his or her ability to make it big in this industry or based on some guarantee that they can get you a license.

We stay away from those who are “overly desperate” to be part of “big marijuana,” and you should too, whether it’s a security company, a marijuana licensing consultant, a software company, or even/especially an investment banker. You know the type: they will promise you everything but get really vague when you ask them to explain how it is that they work their magic. Our favorites are the companies that brag about the number of licenses they were able to secure for companies in the states where the licensing process is completely random. Be on particular guard for these people because they like to charge premium prices even before (actually especially before) the licensing process in their state has even become clear.

3. Holding companies. We know how difficult it is to operate a business when banks and credit unions refuse to take you on as a client. Eventually though, things will change for the better. How do we know this? Because we represent financial institutions that are planning to take on marijuana clients soon. In the meantime though, what we can tell you is that running your cannabis money through a holding company and then using that holding company to get a bank account is a very bad way to go about getting a bank account. (Note that this “idea” is a favorite among the very group of people described in paragraph 2 above).

Using a holding company to set up your bank account will attract the attention of both the bank and federal law enforcement and you could be charged with laundering “drug money” and with violating federal law for lying to a a bank. Do not waste your money (or your freedom) on the holding company.

Be honest with the bank and be patient. Please.

4. Ragged and rampant trade organizations. New marijuana trade organizations are popping up as legalization increases. Problem is that most of these new organizations are inert and unorganized and some are flat out corrupt. Many of these groups have been formed with the primary goal of leeching fees from members without any meaningful action. Don’t get us wrong, trade organizations are amazing tools for policy, progress, and protection. But some of the marijuana trade groups we’ve seen lately are incapable of doing anything but wasting people’s money. The most troublesome ones are those set up by lawyers simply to collect legal fees for bringing class action lawsuits that make no legal sense at all.

You need to vet your trade groups thoroughly. Who is really in charge? What’s the goal? What will you really get for your membership dues? What’s the group’s track record on achieving its goals? How loud will your voice be in the group? If you can’t get these questions answered, you should probably decline that membership invite. We have found the best groups to be the really big ones with a national presence and the small local ones that were formed organically by its marijuana business members to achieve particular and well-defined goals.

5. Publicly traded marijuana companies. We blogged about the issues with these companies in Publicly Traded Cannabis Stocks. Watch OutPublicly Traded Cannabis Stocks. Be Careful Out There and again just last week in Publicly Traded Pot Stocks. Watch Out, but we cannot resist again emphasizing how careful you need to be when contemplating investing in a publicly traded marijuana company. Virtually none of the publicly traded companies are anywhere near to being profitable and it seems like every week the media comes out with a new revelation about the sordid background of a company founder. Be doubly suspect of any publicly traded company that provides licensing consulting.

6. Anyone who doesn’t know what the “Cole memo” is. There are certain things that instantly tell us as cannabis business lawyers that we are dealing with people unfamiliar with this industry, and having no clue about the Cole memo is one of those things. The Cole memo gives critical insight into the federal government’s marijuana enforcement strategies and for someone not to know this is usually quite telling. Even more so if they do not even realize that marijuana is still illegal under federal law. These people usually talk about doing business between states as though the federal government is irrelevant. It isn’t.

7. Marijuana airport seminars, consultants, and “colleges.” We previously wrote about pot colleges in Buyer Beware: Pot College and Canna Consultants and we mention them again because they seem to be proliferating out of control, especially in those states (like Florida) believed to soon go legal. We constantly hear horror stories from people who attend these and we have a hard time respecting any lawyer connected to one. We refuse to speak at any of these because we do not have time to vet them and because we suspect about 90 percent of them are a joke at best.

We spend at least twenty percent of our time with new clients cleaning up the messes these companies were told to create by these colleges and consultants. Having run a pot delivery service in California or having worked at a dispensary in Colorado does not make you an expert in anything or everything related to pot in Florida or in Oregon. Please think twice before hiring an allegedly “expert” consultant or acquiring a “degree” from fill-in-the-blank Marijuana University.

8. Anyone who claims they can get you a “regional trademark.” Your brand is often your company’s most valuable asset and usually the best way to protect your brand is by securing a trademark for it. But because the federal government does not usually allow federal trademarks for marijuana related products, trademarks — which are complicated enough — become more so.

There are two ways to get around this federal prohibition. One is to secure a federal trademark for something other than cannabis, which works well in some circumstances and horribly in others. The other is to secure a state law trademark, which works well in some circumstances and horribly in others.

We leave trademarks to one of our attorneys who has been doing almost nothing but trademark law for more than a decade, but far too many former criminal lawyers (who now call themselves cannabis lawyers) are talking about trademark law without having any clue at all. And lately many of these criminal lawyers are pitching talking about “regional trademarks” and wrongly claiming that a trademark in one state will protect you in other states in the same region. This is just not correct; if you want to be assured of protection in any given state, you should either register for a federal trademark or register for a state trademark in each state that you operate in.

If you want a real trademark (one that will actually work), use a real trademark lawyer. It is that simple.

For more on the importance of protecting your cannabis brand by doing your cannabis trademark correctly check out the following:

9. Criminal defense lawyers turning into business lawyers overnight. Would you have your business lawyer argue your DUI case? Of course not, which is why our law firm does not handle criminal cases. Using a criminal defense lawyer to do your business work is equally absurd. Criminal law and business law have a completely different set of laws and one is done in court (criminal) and the other is done in an office (business).

Good criminal lawyers are still valuable in this industry (unfortunately) but as criminal lawyers, not as newly minted business lawyers who are seeing their bread and butter practice of defending marijuana defendants evaporating. Call a criminal lawyer if you are raided by the feds, but for something like your company formations, your trademarks, your real estate transactions, your employee contracts, or your safety compliance, use a business lawyer.

10. The federal government. The federal government is THE big red flag because despite the progress being made by the states, the Feds loom large as marijuana remains a federal crime. Avoid those who tell you not to worry about federal laws because the Feds are inactive or unwilling to enforce, as this is just flat out wrong. Marijuana remains a Schedule I drug and possessing or selling it is still a federal crime and if you do not comply with all state and local laws, your risk of being raided, arrested, and convicted in a federal court will go way up. It is a mistake for you not to be ever mindful of this.