Ever since the passage of Proposition 215 in 1996, the legal status of marijuana in California might best be expressed as ambiguity and chaos. While some have sung the praises of this regime, others have characterized the results as a mixed bag. Even in the wake of last year’s vote adopting Proposition 64, which was intended to legalize the possession, cultivation, and sale of marijuana in California, the picture has remained murky, primarily due to the continued classification of marijuana as a Schedule I drug under federal law.
Over the last few years, I have written articles in this blog addressing some of the complications that have arisen for real estate investors as a result of this conflict between federal and state law. These have included an examination of the problems that can arise in leasing commercial space to marijuana-related businesses, as well as a review of a recent court case upholding a municipal zoning ban imposed against mobile medical marijuana dispensaries. As long as the federal government continues to make marijuana illegal, these clashes will continue to occur.
These issues surface regularly for consideration in my law practice as well, as I have encountered a variety of circumstances in which the property and business interests of my clients and others have been prejudiced as a result of the tangled state of California’s marijuana laws. For example, several bankers I know have lamented the fact that they cannot open accounts for companies involved in the cannabis industry, despite the lucrative business potential, due to the risks of running afoul of federal banking laws. The same types of problems exist for real estate investors: I have counseled owners of both industrial properties and agricultural land faced with high-reward propositions to permit marijuana-related enterprises to operate on their property about the legal perils associated with such activities.
For investors, attorneys and other professionals working in the commercial real estate field, there is a situation currently unfolding in Southern California that brings these dangers into stark focus. Jessica McElfresh, a criminal defense and marijuana industry lawyer, is being criminally prosecuted in San Diego County Superior Court on allegations of, inter alia, conspiracy to hide the evidence of a crime and other charges related to her representation of a medical marijuana dispensary business. Of particular note is the claim that McElfresh helped mislead city officials in an inspection of the site regarding allegedly unlawful actions being carried out there, as implied in an email she sent to her client that was seized in a search of the company last year.
Responding to protests that its use of information from such seized emails violates attorney-client privilege, the district attorney’s office has asserted that these emails are not privileged if they were written in furtherance of the commission of a crime, i.e., concealing the illegal nature of activities being conducted at the property. This position has been attacked by opponents of the prosecution as based on nothing more than the federal criminalization of marijuana. These critics also note that there is state legislation pending that would allow attorneys to counsel legal cannabis companies without either breaching their duties as officers of the court or violating attorney-client privilege. Regardless, these events should serve as a warning to attorneys and other advisors working with real estate investors to exercise extreme caution in counseling their clients on matters involving the cannabis industry.