Navigating the Legal Grey Areas of Cannabis w/ David from Michael Best & Friedrich LLP |HempList #62|

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In Summary

David DiGiacomo, Partner at Michael Best & Friedrich, LLP joins Chase Nobles, CEO/Founder of on this week’s HempList Podcast.

David and Chase discuss the legal world surrounding cannabis and hemp, including all the grey areas that can get a starting business mixed up! David’s been helping cannabis companies get a legal start in the industry since 2014, and now they work with everyone from new hemp startups to publicly traded operations. Then Chase asks David to dive into some of the grey areas of the cannabis industry like Minor Cannabinoids and seeking representation in prohibition states.

Michael Best is a multi-practice law firm with more than 250 attorneys in 12 offices nationwide, who work in collaborative, interdisciplinary teams. That means we’ve got you covered whether you’re looking to start, operate, grow, or invest in a cannabis business.

We represent clients in the industrial hemp and marijuana industry, including a variety of ancillary businesses, trade associations, universities and research organizations, and investors. We also have a long history of serving — and advocating for — clients in the agricultural sector. Our multiple offices, and experience with the legal issues surrounding this ever-changing field, allows us to better work with our clients to ensure compliance with the applicable laws in their jurisdictions.

We can help you plan for the future while navigating today’s shifting terrain of federal, state, and local regulations and enforcement. We have deep experience in regulatory compliance and defense, coupled with the capability to deliver a broad range of legal services.

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Transcript (Auto-Generated)

hey everybody chase nobles here founder
of i’ve got a great show today
today for you guys this is a little bit
different than what we’ve done in the
past we’ve got david digiacomo from
michael best in friedrich llp he’s an
attorney at law and we’re excited to
have him on the show today to give a
little bit different perspective on the
industry than what you’ve been used to
david good morning how are you good yeah
thanks for having me um
yeah i’m super excited to join you and
obviously uh you know a fan of what you
guys are doing at kush uh excited to be
uh part of the texas hemp uh world this
year and um and joining all that so yeah
looking forward to it it’s been a hell
of a ride um you know and
being able to meet people like you at a
show like this is going to be so much
fun because of kind of just the legal
chaos that has taken over this space as
i’m sure you can imagine you know things
are constantly changing people always
have questions i can’t tell you how much
my legal bills are for just a sheer
situations that we come across on our
platform based on people asking is this
legal do we need to geofence this state
what’s going on with this product
category you know fda dea
it just on and on and on
yeah you know what got you into the
space what got you interested because i
can’t imagine that you just did this
you’re like
this sounds this massive headache sounds
like a ton of fun what like what led you
down to the path of dealing with these
types of problems which are
most of the time land in a gray area
yeah of course um no thanks for asking i
you know i started working with cannabis
entrepreneurs sort of out of the gate
but my background i was an entrepreneur
and fell in love with everything about
startups and growing businesses and
figuring out all the legal terms and
deal terms and as i learned about that
process as an entrepreneur and went
through the process of growing my own
company and selling it i had an organic
dog food company um
fell in love with it and went to law
school to help people do that
uh i was fortunate to go to university
of colorado law also you know right uh
before wreck marijuana was legalized
here in colorado and um you know had a
great opportunity to work on the
campaign for amendment 64 and get
involved sort of boots on the ground
right as um marijuana was becoming
rec legal here in colorado and just came
out and started diving in with clients
uh who were calling us with all kinds of
very interesting problems from you know
hey uh somebody showed up with a double
sack of cash and wants to rent my
warehouse for the next five years uh can
i do that deal is it legal what do i
have to think about
um and then you know connected with our
community here in colorado and started
growing a cannabis practice um you know
flash forward uh merged and joined with
michael best our small firm in boulder
colorado uh became part of michael best
about three and a half years ago and was
just super excited again to bring a
cannabis practice to a national law firm
to help um you know grow that here and
expand to the horsepower of you know 500
people who could help with cannabis
questions and all the nitty-gritty but
um you know i i love it every day
there’s a new challenge a new question
as you pointed out like you know uh dea
fda um
usda you know our clients constantly are
are navigating not just the world of
entrepreneurship and in building a new
business but also all these sort of
weird uh regulatory finance questions
right um can i take tax deductions for
my business so all of the fun ripples
that come from that um how do we get a
bank account right so um that’s that’s
kind of that’s that you you’re you’ve
hit on it twice now
and that’s the fusion of law with
accounting with you know um
the investor documents and the
fundraising side of it i imagine when
you get into startup law you’re going
okay term sheets convertible nodes
preferred shares you know that’s where
your mind is going and then somebody
shows up and they go hey i got a sack of
cash and you’re like oh well i might
need to get some help to figure out okay
one how do you account for that legally
and and make sure that you don’t set off
too many alarms right
because those alarm bells are there but
two you know
from a legal perspective cash carries a
lot of risk because cash can just
disappear right and there’s no record of
it so
expectations of what you were doing
versus the reality of what you ended up
doing where where was the what was the
the delta there how big of a difference
was that
yeah i mean i i often joke like if i had
known you know before i went to law
school that i was going to end up doing
you know i couldn’t have dreamed for a
more exciting more interesting uh
challenging legal career for sure um
i i feel so fortunate to get to work
with people in this space and to deal
with all those questions um
it’s definitely you know being a lawyer
and a bit of a nerd and doing business
law you know thinking about tax
questions and then putting in this
um you know it’s a funny thing that you
know i wouldn’t have expected to end up
here um but super happy that i did in a
lot of ways you know my background as a
entrepreneur in consumer packaged goods
and having that experience and then also
you know just ideally aligning with
everything that was happening with
legalization of cannabis like those two
things fit together really well and
um made me ideally suited to i think be
one of the people who dove in early and
said yeah let’s let’s tackle these fun
problems um
you know every day is a new challenge
and that’s that’s part of the fun
what year did you start your cannabis
yeah in literally in 2014 uh as we had
cannabis rack here in colorado so
and i’m smiling because
medical cannabis was rolled into
recreational cannabis pretty in-depth in
colorado although there were some
hiccups like there are anywhere but a
lot of the medical people rolling into
the recreational market had to be
interesting because
at that point it was drugs and guns and
you know there was a there was a process
that you know the state actually did a
really good job of how they
managed what was a fairly loose system
i can’t imagine
some of those early calls
and and now it’s gotten so much more
legitimized what that has shifted into
whether it’s a large enterprise account
or how to how to distribute nationally
things like that it it
that shift must be pretty grand as well
for sure that the difference in the in
the calls and the questions from day one
to today uh truly amazing i’m i’m super
excited about that right that um
you know any emerging industry has a
little bit of that kind of wild west
feel and then
you know as you get more stable and
things start to make sense like uh more
and more sophisticated business people
start to look at it and the deals and
the questions and who we work with on
all fronts just you know the rising tide
raises all boats in that scenario and
for me that’s fun like um you know our
practice at michael best in the cannabis
group includes everything from you know
two people on day one with a you know
hey we want to go after this and try to
get a license for
a dispensary to hemp extraction folks to
you know growers um to multi-state
operators who are you know a canadian
public company with uh us subsidiaries
and deals all over the country so um you
know seeing some of that next level
has been really fun to be a part of and
and get in on more sophisticated deals
you know
when we started there was there were
definitely no you know 100 million
dollar transactions in
in cannabis and now there are a lot of
them right so um it’s just really fun
from the startup side
you know we’ve got this this behemoth of
cannabis becoming legal you know hemp
has become legal you know in the last
couple of years federally which has kind
of changed
the landscape quite a bit
um yeah cannabis to him
the corporate structure i i
i know that this isn’t necessarily an
advice podcast but one of the things
that i i i like to kind of dive into is
something that you’re great at
you know give us a couple of the
different corporate structures that you
would recommend for different people
looking to start their businesses
because a lot has a lot of
startups on it and i hate to say
some of them have no idea what they’re
getting into how how do you look at
corporate structure and kind of the
the the the
the bare rails that you need to ride on
in order to you know at least put your
best foot forward legally
honestly that’s a it’s a great question
right and um
i i hate to give you the like ultimate
lawyer answer which means oh no
it sounds like
what you’re doing um and so the you know
the answer is like you you probably need
to dive into details about you know are
you two people or are you 50 people are
you raising institutional capital are
you um providing ancillary services or
are you directly trying to license to
grow where are you trying to license
that uh you know um where where are your
customers so there’s a lot there the
general answer that i i will give to not
totally give you the lawyer answer all
the way through is
ask those questions of somebody who does
this work early they will um generally
you know we do that for a fixed fee
really transparent pricing so you can
call us and i’ll do the first call no
charge and just talk to you about what
you need and then we’ll tell you exactly
what it would cost to set up something
and what we think you need based on your
scenario um and you know
i always think like i’m not the expert
in anything right there’s a ton of
attorneys even at my firm who do ip work
who do um you know
uh litigation work like i don’t do any
of that and i wouldn’t pretend to start
to do that if i somebody called me and
said hey i gotta get a divorce i’d be
like cool call a divorce attorney
because they know how to do that for you
right so call somebody and that goes for
everybody like when you’re looking for
your bank or when you’re looking for
your cpa like get somebody who works in
this industry and ask them ask them the
questions if they’re really legit and
they’ve been doing it they’ll have good
answers to it and they’ll talk to you
and they’ll meet you and help you
through it but you know do it early the
to like finally finish though is you
know set up an llc set up a c
corporation depending on what it is what
you’re doing
and and set that up at day one because
the whole point and the whole reason we
have this body of corporate law is to
insulate you from personal liability
individual personal liability yeah
that’s kind of the big piece i was
getting after because i jump into this
as a sole proprietor and there’s no
you know corporate veil right there’s
there’s there’s nothing between them and
their business and it’s so much risk
yeah for sure and especially in a you
know emerging industry with all the
regulatory risk that we have like it’s a
no-brainer get a simple
insulation and the corporate bail is the
exact word that’s a lawyer term but put
up the wall between you and your
personal bank account between you and
what you do every day with your family
in your life and and the business that
you’re starting um and that that goes
for risk from like you know something
happened to your product that got wrong
that isn’t even related to all the you
know cannabis regulatory risk that we
think about right somebody sees you
because they’re mad about something you
did or uh claims that you stole their
brand there’s you know there’s a million
of those and that you would much rather
have that layer between you and the rest
of the world and to set that up it’s you
know um
not super hard but it has to be done
right and it has to be done um from day
one so there’s there’s i like to tell
you’re starting a business because you
think it can be successful right
the more success you get the more
success that you have
the higher the odds on a regular
interval that you’re going to deal with
something that if there was not that
corporate veil the stress would be so
much higher so do it early do it fast
make it happen
the number of ways i get calls that are
a year out and we do it all the time and
we fix it and we figure out a path and
we help people through so if you are a
year out don’t like kick yourself still
make that call and start making a plan
and make a path but
um you know
do it right if it’s me or if it’s
somebody else do it right on day one
because it’s so much easier to just set
it up from the start with the right plan
and let the dominoes fall from there
than to go and try to retroactively
it’s like accounting and retroactively
fixing your books to make them up to par
it’s like 10 times more work than
setting it up initially i’m sure david i
i gotta ask
having worked in this space it takes a
specialist in each region especially on
the cannabis side still so on the hemp
side it takes somebody that knows an
individual market’s legal
framework right so somebody
the legal framework in massachusetts is
going to be different than colorado it’s
going to be different than north
carolina and laws all of that right yeah
all these estates are emerging right now
and there’s a bunch of lawyers looking
at the market going okay what would i
need to do to actually
be a professional in this market you did
it you are that story that says i
started in 2014 in colorado it doesn’t
get much earlier than that unless you
want to go to the medical you know kind
of process which is a lot looser
what would you recommend for any um
attorneys looking at this space and
saying well i should probably you know
i’m getting too many of these questions
i should probably really focus in on
that how would you look at that
somebody trying to be a specialist in a
and build a brand around that
i mean i think
you’re spot on with some of it that like
there are
really distinct regions here that you
when we have a question for licensing
issues in massachusetts that’s not me i
actually have that person on my team but
i i’m not the one who answers that i’m
like okay let’s go get the regulatory
specialist who does that every day
you know and i would expect he doesn’t
answer when somebody’s like hey how do i
structure this investment finance
transaction we we
separate that and we work on it together
but differently so uh as attorneys think
about it you know
it’s it’s an emerging industry it’s a
heavily regulated industry there are
plenty of other examples of that where
you look at you know um alcohol or um
you know other um gaming is actually a
pretty similar analogy so um there are
other ways the answer is you may not
know all of it and know when you don’t
know it and know when you need to get
somebody on your team to help answer
that question um and then you know
otherwise focus on being really good at
what you do know and and helping the
people in that scenario so i think
that’s a very smart answer i mean again
it’s one of those things where
nobody can do it all right and so there
has to be kind of that that that line
it’s it’s nice that your practice has
something that specializes in you know
specific state laws because
you just have to right yeah
i mean and candidly we have resources on
our you know back end that our legal
research resources that are software
driven that can help answer that right
so even that regulatory attorney
leverages other platforms and i i won’t
advertise other platforms here but you
know um leverages other platforms to get
that information because you know we
don’t know it and we’re not going to
know all of it especially as the
industry grows and changes there are
plenty of tools to help answer that so
all right i want to put you kind of in
this in the hot seat just a little bit
how do you manage liabilities when
giving legal advice especially whenever
some of the advice or some of the you
things that you have to advise whether
they choose to do it or not fall in a
gray area how do you manage that
liability as an attorney when it comes
to giving your clients advice that
may change may or may not be you know
viewed the same way across enforcement
agencies to department of health to
things like that how do you manage that
yeah i mean there are a couple of things
one in colorado we fortunately the
colorado supreme court
reversed their initial decision uh
long ago saying that attorneys could
give advice in this space and that they
wanted us to uh give clients guidance so
we have some clear guidance from the
state supreme court who regulates my
practice of law that i can give advice
in the space that i can’t help clients
think about it so that’s step one and
hold on even like just thinking about
it may or may not be legal for you to
even give advice at all there are other
states in the country who have taken an
opposite approach and said that
attorneys licensed in that place cannot
advise businesses and people doing deals
in marijuana so yeah so we have we have
won a supreme court and and state bar
that have said no we we ought to have
legal professionals helping people think
through how they manage this how they
set up sophisticated businesses and i
think that was absolutely the right
choice i think we should have lawyers
helping people in this space
more than any other space of
entrepreneurship maybe i wouldn’t be a
good lawyer because i can’t imagine a
scenario where that wouldn’t be the
right choice but either way
back to the question how do you manage
the risk of liability
how do you think about that when giving
advice especially when the advice you
may be giving
it doesn’t have any
there is no precedent for it yeah and i
mean cbd is like a great example right
if you look at um
you know what what our federal
regulatory landscape is the fda has
clearly said that you know basically
they think this is not fit for human
consumption in a lot of ways and forms
right and then we still work with
clients who are selling cbd products
putting cbd into um you know different
forms of mixing it and beverages and
food and thinking about that the initial
risk question that you know they have as
the client have already taken the
decision on is i’m going to work in an
industry that does not have a clear
regulatory path through our federal
government to sell this product and um
you know we have to sort of lay that out
i’ve definitely had that conversation
with some clients who are just looking
at the industry and just new to it and
they’re like wait what you can’t even
tell me this is legal and the answer is
no there’s not a clear regulated path
right through the fda
um that said i think eventually we’ll
get to a path where they’ll they’ll come
out on that but um and and it has
in the last you know seven and a half
years taken a pretty good path towards
getting us more information but it’s
been an interesting ride the answer is
we generally start from a point of hey
we’re advising you on a gray area right
this is this is a tricky area if if you
think about marijuana you know on the
other side like marijuana clearly the
federal government has said it’s illegal
right it’s a schedule uncontrolled
let’s start from that premise and then
let’s think about how we manage risk
after that so all right i think that’s a
smart answer and you actually
the example you gave was the one that i
have in mind how do you think about the
and and and not how do you think about
it but
with all the innovation that’s happening
in this market
there being no clear way to you know get
stamp of approval from the federal
government but then you see products in
large national chains that you know are
typically fairly risk adverse what is
the like what is the status of that
right now and
law and policy and all you know
enforcement all those things are
different categories but how do you
think about that and what’s the current
status to anybody producing hip products
yeah i mean
on how you think about it i think you
have to accept that you’re in an
emerging market with some risk right and
that you’ve made the choice to take that
risk i think with that risk and there’s
lots of other risk in an emerging market
the stability of pricing for example
right of cbd and and hemp you know
biomass over the last two years has been
what a wild ride right so um
i think as you you think about that
that’s part of the risk in an emerging
market that you’ve decided to take is
hey i know i may not have a clear
regulatory path and we may have to
adjust we may get um letters from the
fda telling us to change course let’s
try not to be that the one who gets the
letter let’s try to comply and make a
really good product let’s try to make a
product that meets all the health code
standards that that really is a
top-notch thing and then um when when
and if guidance does come we’ll we’ll
make that pivot and shift and that’s
what we’re doing as as entrepreneurs and
i think we’ll give that answer
you know it’s it’s certainly sooner
rather than later right
hopefully sooner rather than later um
you know i think it’s it it’s tough to
say but it is the the industry you’ve
chosen and the risk you’ve chosen and uh
among all the other risks you’ve chosen
this is part of it you know there were
plenty of predecessors to this when you
look at nutraceuticals and other you
know supplement products i think
cbd we’ll see exactly how we land but
we’ll be somewhere in that realm and so
trying to navigate that is something you
just need to put on your radar you need
to get the right support again for so
yep your skin has to get pretty thick
pretty fast in order to operate in this
space i can tell you that from
that that experience said
everybody that writes in info
asking us a question because we get
so many of those many of those are
asking for legal advice or guidance is
this legal isn’t this legal look we have
lawyers to answer those questions for
but if you’re asking us
reach out to an attorney
michael best and friedrich llp is a
great firm where you’re going to be down
here at the texas hymn convention come
come meet david and learn what they’re
all about because they’ve had a huge
impact on the space they’ve been around
for the since the very beginning of
recreational cannabis and been a big
part of this turn towards him in cbd
from a federally legal standard so thank
you so much david i appreciate you being
a part of the show it’s super fun to
have have an attorney on for once and uh
get to pick your brain as well as you
know hear your story so thank you so
much yeah of course thank you it’s a
pleasure so look forward to seeing
everyone in texas alrighty we’ll see you
there all right cool

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