Cannabis Law

Coppersmith Brockelman represents a diverse group of clients in the cannabis industry. We are well-versed in issues arising under Arizona’s medical marijuana statutes, which have been in place since 2011. More recently, members of our team were instrumental in Arizona’s legalization of adult use cannabis in 2020 through the Smart & Safe Arizona Act (Proposition 207) by both drafting the measure and defending it against a pre-election challenge in court. This experience gives us a unique understanding of the laws and regulations that apply to adult use cannabis. We’ve also dealt extensively with key legislators and regulators about Prop 207 and its implementation. Being involved on the “ground floor” of adult use cannabis in Arizona makes our team uniquely qualified to assist our cannabis clients in a wide array of legal and public policy issues.

Litigation

Over time, cannabis licenses have become extremely valuable. As a result, disputes can become complex, expensive, and time-consuming. Because disputes often involve issues under both medical and adult use statutes and regulations, our broad experience with state marijuana laws is invaluable in prosecuting and defending these disputes. Our goal is always to vigorously, creatively, and efficiently protect our clients’ interests, so that they may remain focused on their business success. Our team has handled a variety of cannabis-related litigation, including:

• Shareholder/Ownership Disputes
• Contract Disputes

Regulatory

Much of the operational detail for both Arizona medical and adult use marijuana is found in the regulations adopted by the Arizona Department of Health Services (ADHS) after voters approved both programs. Our team assisted in drafting the adult use regulations through the submission of comments to ADHS, including in-person meetings when requested by regulators. We’ve also represented clients in many other states in connection with regulatory review and interpretation.

Licensing/Renewals: We partner with our cannabis clients in obtaining and renewing dispensary, cultivation, manufacturing, and transportation licenses. Some states package those licenses under one license application and process, while others require separate licensure for various cannabis functions. Some states limit the number of licenses issued while others allow for free markets to govern the process. Understanding the details of specific licensing processes is key to successful and efficient licensing initiatives. We deploy our licensing/renewal experience and understanding of state-by-state licensing nuance to assist our clients with their expansion goals.

Administrative Proceedings:  Given the value of cannabis licenses, it is critically important to protect them from suspension, revocation, and other adverse regulatory action, such as packaging or marketing violations. In most states, including Arizona, regulators are subject to administrative procedures under which their adverse licensing decisions can be appealed. Our deep understanding of the Arizona Administrative Procedures Act, and our extensive knowledge of the applicable statutes and regulations and the personnel involved in enforcing them, collectively make us uniquely qualified to protect our clients’ rights in administrative proceedings.

Interaction with Regulators: In Arizona, as in many other states, existing regulators enforce both medical and adult use marijuana laws. Our team has regular interaction with key state cannabis regulators. While regulators are appropriately strict and take their enforcement authority very seriously, they frequently engage with our lawyers to ensure that statutory and regulatory interpretations are consistent and fair.  Such engagement allows us to build rapport and trust with regulators, which benefits our clients.

Corporate

Many states, including Arizona, initially passed medical marijuana laws that required licensed entities to be non-profit corporations. There were also strict limits on for-profit ownership and transfer of licenses that necessitated complicated management company structures. With the passage of adult use cannabis, many of these arcane corporate structures may now be cleaned up and streamlined to facilitate administrative, tax, and operational efficiencies and avoid duplication of corporate resources. Our team understands the historical legal issues and works with clients to establish corporate structures that best suit each client’s needs.

We also work with cannabis clients in the following areas:

Corporate Governance: Ongoing licensing and corporate restructuring can often pose challenges for proper corporate hygiene and governance. We routinely assist cannabis clients in developing shareholder and board minutes, annual meeting documentation and minutes, and other necessary governance documentation. We also prepare corporate forms providing the maximum protection for owners, shareholders, and partners while ensuring that proper documentation is in place  ahead of due diligence relating to merger or acquisition activity.

Corporate/Partnership & Operating Agreements: Cannabis licenses often include multiple owners. We have extensive experience drafting ownership documents designed to clearly delineate ownership rights and responsibilities. Clear, thoughtful, and detailed ownership and operating agreements are key to avoiding misunderstandings and expensive, time-consuming ownership disputes as the licenses and related business operations mature.

Expense-Sharing Agreements: Cannabis licenses can include cultivation, marketing, dispensary, manufacturing, and transport components. As a result, cannabis ventures often have complex holding company structures where entities perform focused tasks on behalf of the licensee(s). We understand the complexity of these intra-corporate arrangements and have significant experience drafting cost/expense-sharing agreements to ensure proper mapping of expenses. Examples include:

• Management agreements
• Tax sharing agreements
• Real estate/lease agreements
• Cost-sharing agreements
• Other agreements that clearly identify the specific elements to be shared and the related cost/expense components

Management Agreements: To avoid duplication of effort, expense, and administrative burdens, cannabis holding companies often assign specific entities to manage functional areas of operation, such as real estate, intellectual property, employment, and benefits. Our team assists cannabis clients in identifying functions within the holding company structure that should be managed by a particular entity and developing detailed, clear management agreements. This can result in tax and operational savings. It also often results in economies of scale and the development of intra-company expertise in functional areas. Professionally developed, thorough management agreements also can facilitate streamlined regulatory reviews in connection with cannabis licensing.

Labor & Employment

Like other complex, multi-faceted businesses with sizeable workforces, cannabis clients have a variety of labor and employment needs. Our team has decades of experience in labor and employment matters. We understand that non-compliance with statutory and regulatory requirements can lead to fines, penalties, and potentially even the loss of valuable cannabis licenses, so we place a significant emphasis on counseling and compliance to help keep our clients out of costly investigations and disputes. Services we regularly provide include:

• Preparation of business protection agreements, including non-disclosure, non-solicitation, and non-compete provisions.
• Preparation of executive employment agreements and separation/severance agreements.
• Development and review of employee handbooks and workplace policies.
• Training of managers, supervisors, and frontline workers.
• Providing advice and risk analysis (including internal audits) related to compliance with the full gamut of federal and state workplace laws.
• Assistance in managing situations involving employee medical issues and leaves of absence.
• Conducting workplace investigations.

We also regularly guide clients through audits and investigations by federal and state regulators, including the U.S. Department of Labor, Equal Employment Opportunity Commission, Immigration and Customs Enforcement, National Labor Relations Board, Industrial Commission of Arizona, and Arizona Attorney General’s Office. And when disputes with employees or government agencies can’t be avoided or resolved, we represent cannabis clients in federal and state courts, privately administered arbitrations, and administrative proceedings.

Advocacy & Policy Representation

Government Relations & Advocacy

Because of our team’s relationships with ADHS, lawmakers, trade groups, and community groups, we can advocate on behalf of clients in a variety of settings to help them achieve their business goals.

Legislative & Regulatory Drafting

As a result of our involvement in drafting and defending Prop 207, we have dealt with a significant number of stakeholders/interested parties in getting adult use laws in place. This unique perspective allows our team to understand and share the perspectives of a broad coalition of interested parties. For this and other reasons, cannabis associations, clients, regulators, and others often look to our firm to assist in drafting cannabis regulations and legislation.

A significant number of cannabis-related laws were enacted via voter initiatives. As a result, subsequent legislative clean-up is often necessary to clearly align the laws with the will of the voters. We provide feedback to lawmakers, regulators, associations, and business clients to ensure that cannabis laws remain consistent.

IRS Section 280E Audits

Section 280E of the Internal Revenue Code prohibits the deduction of business expenses for any trade or business involved in the trafficking of controlled substances. Because cannabis is a Schedule I controlled substance, this provision applies to state-regulated businesses cultivating or dispensing cannabis products. However, relevant caselaw allows deductions attributable to a taxpayer’s separate and lawful trade or business.  The Cannabis Law Team offers detailed Internal Revenue Code Section 280E Audits. The purpose of such audits is to ensure that a cannabis licensee is clearly identifying and documenting separate trade or business expenses such that they can be properly deducted. Such audits, and the development of detailed and proper documentation, may result in significant tax savings for cannabis-related businesses.