Photo provided by the firm.
Growth in any segment of the economy is typically accompanied by a growth in law practices serving that industry, and such is the case with cannabis farming and distribution following the decision by some states to legalize marijuana. But both entrepreneurs and lawyers should tread carefully, says attorney Anne van Leynseele, founder of Seattle-based 7 Point Law, which focuses exclusively on cannabis clients. By her count, the industry touches on 23 areas of law in addition to a host of evolving regulatory issues – a complex stew requiring expert legal guidance for anyone who wants to enter and succeed in the business. A former healthcare lawyer in private practice and the Obama administration, van Leynseele has enjoyed playing a role in the maturation of the industry by helping her clients stick to the same standards of excellence practiced by her team.
Lawdragon: Where were you in your professional career when you decided to pursue a law degree? Did you know you wanted to enter the healthcare field?
Anne van Leynseele: After I spent some time living in Australia doing business management consulting in the Pacific Rim, I returned to the United States and realized that the part of my prior career that I enjoyed most was drafting and negotiating contracts. This realization spurred me to do an informational interview with an attorney I knew at Preston, Gates, & Ellis (now K&L Gates) to consider law school and a future in law. That lawyer gave me some sage advice and an opportunity to work as a clerk to see first-hand what the practice of law really looks like on a daily basis. What I experienced inspired me to apply to law school and some health issue drove me to work at K&L, where I had health insurance, and attended the night program at Seattle University School of Law.
Having to make that sort of decision — between my health and my education — infuriated me, and it inspired me to take a position as an attorney advisor with the Obama Administration. I did not initially know that I wanted to practice in healthcare law, but the experience was a dream job straight out of law school
LD: How did that experience prepare you for developing your current practice?
AVL: Working in the highly regulated healthcare industry gave me in-depth and irreplaceable insight into how government agencies inform the day-to-day operations of businesses and individuals. The complexities of intersecting law, regulations, policy, and the how those are implemented is a demanding blend of intellectual and practical skills. The seemingly strange mix of my past careers in corporate communications, media, business management consulting, and analysis of laws is vital to our clients. It was obvious to apply these lessons to my current practice. The cannabis industry is highly regulated and evolves at a fervent pace, and my knowledge of how government agencies operate is critical to our firm’s unique offering.
LD: Can you discuss what your motivation was for moving into this area of law?
AVL: After my four years in Washington D.C., I returned to Washington State and looked for a healthcare lawyer position with large firms in Seattle. Frustrated with the big-firm partners statements after interviews that I was “intense and too assertive,” I considered opening my own practice in healthcare law. I had begun to form a business plan, when I saw a small article in Time Magazine about the Bureau of Reclamation denying water rights to legal marijuana growers in Washington and Colorado — it was federalism run amok. I reached out to the cannabis community in Seattle and found a group of serious entrepreneurs that wanted to conform and comply with the complex and evolving matrix of laws, regulations, and policy that were being created around the legal cannabis industry. Some further research uncovered that most of the attorneys practicing in cannabis law were criminal lawyers, and I realized that what these startup companies needed most was a corporate lawyer dedicated to their industry.
LD: What do you find exciting or rewarding about your practice?
AVL: Reforming outlaws.
LD: What was the greatest need that clients had when you started out?
AVL: In the beginning, educating clients, who are inherently adverse to lawyers, about what I could do was the greatest hurtle. I spent a lot of time, both one-on-one and in group teaching sessions, working with some of the 43 cannabis organizations that quickly formed in Washington State. I spoke about business formation and startup basics; how to operate within the regulations; what the current banking situation was and what the various tax codes meant; and insurance issues, partnership, investors, and risk factors. In these early days, counties were passing emergency ordinances banning cannabis businesses, the then Liquor Control Board (now named Liquor and Cannabis Board) was struggling to implement the massive licensure process that it had designed, and the lottery winners chosen to apply for the limited licenses were battling weekly changes to the LCB’s regulations. It was a massive amount of information to process, analyze, and present to clients.
LD: How have the needs of your clients evolved? Do you see one aspect of the firm’s practice becoming much busier in the years ahead?
AVL: The industry has predictably matured. There is an expansion of employee and employment issues, business litigation, and tax concerns which eclipse the demands of formation, licensing, compliance, and partnership disputes. As the industry continues to advance, we see progress surrounding the profitability of cannabis companies. We advise businesses on how to deal with tax burdens, depreciation of assets, and managing early debt. Also, because of the limitations on federal trademarks with any marijuana references, companies are forced to register their trademarks state-by-state. I know that similar brands in each state will be a major source of mark defense work and litigation as these companies discover the duplications and fight to establish first use ownership rights on trade names and branding.
Companies and business owners face new challenges in operations, economic forces, and financial refinements to make them more profitable. The remarkable thing is that there is a plethora of news articles out there that say anyone can make quick millions in the cannabis industry. What they fail to mention is that legal marijuana is an industry where the government takes a gross amount of taxes from the industry at every level; the supply chain still offers a large amount of purchasing choices for legally grown cannabis that is driving prices down on raw material; and over-capitalization or miss-management in the early days of a company can cripple the company’s ability to show a profit. Because of these barriers to profitability, as well as the lack of federal support (E.g. no bankruptcy rights and the savage tax system under Section 280E of the IRS Code, among others), it is essential that we guide our clients on a regular basis to evolve their strategic plan and to ensure sustainability.
LD: On the competition front for you practice, we’ve seen a few news releases from law firms about opening cannabis practices. Is this still a very niche practice, or are you seeing bigger firms trying to make a serious play here?
AVL: Cannabis law has been, and will continue to be, a niche area of law. One of the biggest problems is many lawyers and those big firms overlook that cannabis law touches on some 23 different areas of law. It evolves so quickly, in fact, that it can be difficult even for attorneys who exclusively practice cannabis law to keep up. What I find alarming is a number of lawyers that think they can practice cannabis law simply because they have done business law in other industries. That sort of perspective can be harmful to the clients, because they fall into familiar routines that work in other industries, but are insufficient in the cannabis industry. Overlooking secondary and tertiary effects of actions in this industry can cost a client their license. When I encounter these “new to the industry” lawyers, I generally will spend much of the negotiations teaching them about all the issues they have overlooked. Foresight and comprehensive legal counsel is where our firm excels; we look at the whole business and all of the potential risk factors for the owners.
LD: Do clients operate under a lingering threat of federal prosecution in terms of the future — is there always planning or discussion about what might happen, particularly with the change of administrations?
AVL: Yes, clients absolutely operate under the lingering threat of federal prosecution. I remind them of this in our first meeting, it is in our fee agreement, and stated in many of our routine contracts. I am hopeful that President Trump and his cabinet will leave cannabis regulation to the states for the one simple reason I often state, “Legalization turned the war on drugs into an economic equation.” Cannabis should be treated similar to the current federal position on DOMA.
The “War on Drugs” has failed; evidence does not suggest that the War on Drugs reduced drug use or dependency rates, and really only leads to the incarceration of hundreds of thousands, mostly minorities. On the other hands, the legalized marijuana markets in Washington and Colorado have demonstrated convincing evidence that legalizing reduces general crime levels, particularly violent crime and driving while intoxicated, all while generating millions in tax revenue for each state. Washington State generated approximately four hundred, twenty-seven million dollars ($427,083,527.00) in tax revenue to date, according to Weekly Marijuana Report. [Weekly Marijuana Report Washington State Liquor and Cannabis Board, http:/lcb.wa.gov/marj/dashboard (last visited Feb 1, 2017)]. Legalization is a better way than the War on Drugs, both morally and financially — I think even the Trump Administration will have a difficult time turning away from these facts, despite ideological concerns.
LD: How do you decide what clients to take on, and are there some common reasons why you turn away clients?
AVL: The beauty of a midsized cannabis exclusive law firm is that we have the luxury of declining to represent people whom we assess to not have the intention of complying with all the regulatory standards. Our client intake process involves a free initial conversation where we make it clear that we fully expect all of our clients to engage in the best practices of the industry. Our contribution to this brand new area of law is an ethical and above-reproach practice, and that initial meeting is a chance for us, as well as the client, to decide if they fit with the overall quality of our client base. We disengage clients if we notice a pattern of doing things that do not comply with these expectations. The majority of our clients are coachable, and are eager to do the right thing. This standard of excellence is what keeps our team going at the frenetic pace that this industry demands.
LD: For people who are thinking of getting into the cannabis growth or retail business, are there a few core pieces of advice you generally give?
AVL: Communicate with your partners, choose your investors carefully, do not overcapitalize, have a cannabis savvy CPA, and hire a great law firm.
LD: What about businesses that are seeking to expand and really take their businesses to the next level — are there common mistakes you see during this phase?
AVL: I love this question because the most fascinating part of this industry right now is, “How do we get around the Commerce Clause?” We are finding innovative strategies for companies that want to do business in multiple states. 7 Point Law is excited to be able to facilitate our clients in their business ventures across Washington, Oregon, and California — three of the hottest markets in cannabis.
Another area that I am excited about is research. We are working with several clients applying for federal and state research licenses. The United States is so far behind the rest of the world in establishing quality research around cannabis, and these research licenses will help relax some of the existing stigma around cannabis, may change or remove the tax implications under 280E, and possibly solve the federal scheduling problem. Having directed and undirected research following universal standards is a critical step for this industry.
LD: What advice would you give law students who are interested in having a career in this area of law?
AVL: Go to cannabis industry events to learn about the legal marijuana culture, take Administrative Law and Corporate Law courses, and understand the difference between transactional law and litigation. Finally, and this is just practical advice to any law student or first year attorney, strive to match pace with your firm. That does not mean rush your work, but if your boss jogs to and from meetings to make it on time, the expectation is that you will do the same.
LD: Can you talk about how you unwind when you are away from the office?
AVL: I used to do triathlons, but I do not have enough time to train for those anymore. I do dabble in boxing, love to cook and entertain at home, and remotely manage my avocado and chocolate farm on the big island of Hawaii. I hope to retire there one day to be a Pro Tem Judge, and who knows, I may be the first sitting judge who grows legal marijuana.