Law and Business of Cannabis: Regulation, Taxation, and Banking

Episode Notes

Transcript

Planet Lex: The Northwestern Pritzker School of Law Podcast

Law and Business of Cannabis Regulation, Taxation, and Banking

09/20/2017

[Music]

Intro: Welcome to Planet Lex: The Podcast of Northwestern Pritzker School of Law, with your host Dean Daniel B. Rodriguez, bringing it to you from Chicago, Illinois. Take it away Dan.

[Music]

Daniel B. Rodriguez: Hello and welcome to Northwestern Law’s Planet Lex, podcasting from the Northwestern Pritzker School of Law in Chicago, Illinois. My name is Dan Rodriguez, your host. I have been looking forward to this panel for a while on cannabis and the law and joining me today to talk about the complicated legal issues surrounding the burgeoning cannabis industry are Charlie Bachtell, Founder and CEO of Cresco Labs and Dina Rollman, Chief Compliance Counsel at Green Thumb Industries.

Charlie is an attorney and corporate executive with expertise in regulatory compliance. Before he founded Cresco Labs he served as the Executive Vice President and General Counsel of Guaranteed Rate, the seventh largest mortgage bank in the nation. Cresco Labs operates three cannabis cultivation centers in Illinois, one in Puerto Rico; they will soon launch operations in the State of Washington and in Pennsylvania. He was the founding member of both the Illinois Cannabis Bar Association and the Medical Cannabis Alliance of Illinois and he teaches a course in our Master of Science and Law Program on Legal and Regulatory issues in Cannabis.

Before moving into this space, Dina Rollman was a Commercial Litigation Partner at Sperling & Slater representing individuals and businesses in a broad range of complex commercial disputes.

At Green Thumb Industries or GTI she monitors and ensures full compliance with state and federal laws pertaining to GTI’s multistate cultivation and dispensary operations. GTI operates cannabis cultivation centers in Illinois and Nevada and will be opening two more in Pennsylvania and Massachusetts. They also operate or will soon operate eight retail dispensaries in five states.

Dina is the Founder and President of Illinois Women in Cannabis and she graduated from Northwestern Law in 2000 and teaches a course on cannabis law at Chicago-Kent College of Law.

Charlie and Dina, thank you for joining me.

Let me begin, if I can, by asking you to describe in a nutshell these two fascinating companies that you are part of, Cresco Labs, why don’t you go first Charlie and then I would like to learn about GTI.

Charlie Bachtell: Yeah, absolutely. Thank you for having me today. Excited to be here. So a little bit about Cresco Labs, we founded the organization in 2013 when the law came to Illinois; a regulated medical cannabis program was passed here. So looked at the industry for the first time then, was immediately fascinated by it and knew that this was something that me and my partner’s prior skill sets would be well suited for and really bringing a new look to the way that medical cannabis programs ran, and we were fortunate enough to be successful in the licensing process here in Illinois and in additional states subsequently.

Dina Rollman: And I around the same time when the Illinois law went into effect was just fascinated by the idea that this statute that was passed by the legislature would overnight create a brand new industry in Illinois that had never existed before. And it was going to be highly regulated. I could see the role that lawyers were going to need to play to make sure that this was going to be done well and legally. And so I got involved with the principle founders of GTI back three years ago, helped them with their application process. They were successful and immediately just there was sort of an endless need for legal support as they ramped up operations in Illinois and then in other states.

Daniel B. Rodriguez: Were either or both of you involved in the political battle to bring medical use of cannabis here in Illinois?

Dina Rollman: I was not.

Charlie Bachtell: Not in Illinois, no.

Daniel B. Rodriguez: So it’s a new industry, cannabis industry by any measure, it’s been only two decades since California became the first state to legalize medical cannabis and at last count approximately half of the states in the United States, maybe more than half, have either license in regulated medical cannabis or in the case of a growing number of states cannabis for recreational use. So could you say a little bit about how those laws have come about and how they came to Illinois to give us a sense of the political landscape in this area?

Dina Rollman: Sure. Well, Illinois is a little bit unusual in that our entire program was legislatively created, whereas what you see on the West Coast and some other states are voter initiatives where it’s sort of the will of the people that decides that a state is going to have a regulated program.

In Illinois it was actually a bipartisan bill, which is hard to picture these days, signed into law by Governor Quinn, by then Governor Quinn, and our law in Illinois is a product of a lot of political negotiation and compromise. In other states, again, the approach has really been different, where really all the decisions have to be hashed out and the compromise is made when they are deciding what the ballot initiative language will be, and that’s the really hard part. And then once you gave got your language ready to go, then you put it to the voters and at that point the politicians are out of it.

(00:05:01)

Daniel B. Rodriguez: So in Illinois specifically you mentioned Governor Quinn, but it was actually the current Governor, Governor Rauner, who awarded the first medical marijuana licenses and it’s such a new industry, it’s brand new in Illinois, as is the regulatory infrastructure that brings it about. So for both of you and your companies, how do you navigate and negotiate the regulators in Illinois, given how inexperienced they are in this industry?

Charlie Bachtell: So I think it’s an interesting dynamic that was created here in Illinois at inception and currently with the regulatory environment, it was, as Dina was mentioning, this law came about based on Illinois truly trying to create a very medicinally focused medical cannabis program, which unfortunately wasn’t the case in most of the pioneering markets that have been around for a lot longer.

So as is the case with a lot of industries that were relatively unregulated and then become regulated, it’s a matter of first impression, they are trying to solve as many of the perceived issues as they can. Oftentimes the pendulum can swing a little bit too far and I would say the experience in working with the regulators post-operation here in Illinois has been one of an incredible amount of cooperation, which has been great.

It’s new to them. It’s new to us. The operators here in Illinois, they did — I guess it’s a biased opinion being one of the — two of the successful groups. I think they did a wonderful job in picking very professional organizations who have the best outcome in mind for the patients of Illinois and were responsible and approach it with a very professional perspective. So we have a really good working professional relationship with the regulators, that’s very collaborative.

Daniel B. Rodriguez: Has there been much of a role in the origin of the law, but in particular in the implementation of the law in the medical industry and how is the medical industry we are talking about — medical marijuana or marijuana for medical use, right, so how has the medical industry been involved, if at all, in this?

Dina Rollman: Really very little unfortunately. The way the law was written and the way the initial doctor certification forms came out, doctors were being asked to sign a form saying that they in their professional opinion thought that the patient would benefit from the use of medical cannabis and that the benefits would outweigh any risks. And we have to all understand that doctors don’t study medical cannabis in medical school and so doctors initially were very hesitant to get involved and felt like they were being asked to put their professional reputation and license on the line without adequate education or support.

Daniel B. Rodriguez: And to be clear, none of the doctors — as I understand the legislation, none of the doctors were required to issue any of these licenses.

Dina Rollman: Absolutely, it’s completely elective, and so many doctors opted out initially, and it was only less than a year ago that the doctor certification form was changed. Governor Rauner did go along with this fortunately, where they deleted that language about the doctor’s professional opinion, and so now the doctor is just certifying whether or not the patient does in fact have a qualifying condition.

That has really increased doctor participation; however, there’s still a long way to go. There are a lot of doctors who still feel like they really don’t know enough about the program. They don’t know enough about medical cannabis. They are just not willing to take the risk. They are also concerned about the interaction of medical cannabis with other drugs a patient might be taking and they are risk-averse naturally and so some are still opting out until there’s more education and information available.

Daniel B. Rodriguez: This may be an unfair question to ask both of you, you are lawyers, not doctors, but even though this is a new industry, in many respects the other side of the coin is many states, California the first, but many other states have been at this for quite a while. So we have some experience in these various states, not only with respect to regulation, but a growing body of medical research. So what is the current sort of state of understanding in a couple of sentences about the benefits and the risks of medical cannabis?

Charlie Bachtell: I would say unfortunately it’s more limited than anybody would like, because while there’s a ton of anecdotal research and data that’s available from a FDA-approved double-blind placebo-controlled study perspective, very, very limited in the United States. It’s a Schedule 1 and it’s very difficult to do FDA-approved research on a Schedule 1 drug.

However, research from around the world; Israel has been at the forefront of this, other countries, United Kingdom, Spain, they have been doing research for a couple of decades and the research is compelling, and finally I would say even within the United States, not from a controlled study with again double-blind placebo-controlled study, but from a data perspective, finally enough data is being aggregated and the studies that are coming out on the data showing the correlations and causations between medical cannabis being in your state, particularly with the opiate issue that’s going around in America, a lot of data.

One of the studies published by JAMA came out I believe a year-and-a-half ago or so showing a correlation between a reduction in opiate abuse in states that have active medical cannabis programs, and the data is compelling, 25% reduction on average. So that sort of information is starting to come out, but we are still lacking in that — in the laboratory and medical research perspective. Hopefully that will change, but it’s a scheduling issue.

(00:10:07)

Daniel B. Rodriguez: I will note that on the websites of both of your organizations there are some wonderful links to some of the research that’s been done and some of the values.

I also noticed, I mean this information comes out fast and furiously within the media and often with resort to scientific information. Just last week, as I understand it, there has been some attention drawn to the connection between medical cannabis and brain injuries in former athletes, which has also gained some notoriety.

Let me ask, sticking with the theme of this new regulatory infrastructure for these issues and the challenges it faces, Charlie, you were in the banking industry and so I am sure you know this from that perspective, and both of you know there’s a challenge with respect to banking, given the reliance on federal regulation and insurance and all of that.

I had a student do a paper for me in a class just this last semester that really illuminated for me the major, major challenges of dealing with the financial aspects of all of this given the fact that the banking industry and banks themselves are generally not prepared for all of this. So how is that unfolding in the State of Illinois?

Dina Rollman: Illinois is actually better situated than many states in that there are a few, and when I say a few, less than three banks willing to bank the industry. State chartered banks that understand the compliance hurdles are willing to take them on and sort of dedicate all the extra effort that they need to expand in order to stay in compliance having cannabis companies as customers.

Daniel B. Rodriguez: How do they deal with the insurance issues, right, that’s been a stumbling block, right, the ability to have FDIC provided insurance for their banking?

Charlie Bachtell: So that’s a — I wouldn’t say it’s a misnomer, it’s definitely a concern, but banks are allowed to do this. There has been guidance provided by FinCEN and the Department of Justice back in 2014, encouraging banks to do this.

While the idea of a cash business might sound fun to some people, it’s not, that’s not how business works. And in an industry especially dealing with this subject matter, the idea of having large amounts of cash being stored in retail storefronts or elsewhere is not good. So as we are moving forward —

Daniel B. Rodriguez: It’s not safe.

Charlie Bachtell: It’s not safe. So as we are moving forward with creating this regulated industry, this new industry, banking is critical to it. So there was advice, there was recommendations and direction provided by FinCEN a couple of years ago, but it still is a — it’s a lift to get especially any federally chartered publicly traded institutions to want to participate until that scheduling changes.

But to Dina’s point, especially in the newer states, what we consider sort of generation two of medical cannabis, highly regulated, super compliance-focused, you will find banks that are willing to participate in this, but it comes at a premium. There are additional costs and expenses and resources that they have to put into the compliance component to be compliant, and that cost gets passed on to the operators.

Daniel B. Rodriguez: Maybe this is an unfair question given your previous hat, but do you see any prospect that Guaranteed Rate will be in this business or you prefer not to comment?

Charlie Bachtell: It’s not a depository institution, so no.

Daniel B. Rodriguez: Good. Good.

Dina Rollman: And just to Charlie’s point, GTI and Cresco both just were awarded cultivation and processing licenses in the State of Pennsylvania, and we were awarded those in June and have until December to build and become operational with 50,000 square foot cultivation facilities, then you are going to start transporting product to dispensaries. As of right now there is not a bank that’s come forward in the State of Pennsylvania to bank the industry.

So this is something where in each state you have to solve the problem all over again. The regulators, they are very concerned about this. They see that there is going to be this overnight new industry, massive amounts of cash moving around the state and they are working in cooperation with us, keeping the lines of communication open, trying to see if anybody can find banks that will bank the industry.

Daniel B. Rodriguez: So another potential legal challenge you face beyond banking regards taxes. Marijuana companies can’t write off taxes in the same way as other businesses. There is Section 280E of the Tax Code, which as I understand forbids businesses from recording tax deductions or credits for income associated with Schedule 1 and Schedule 2 substances in the Controlled Substances Act, of which cannabis is a Section 1 substance. Could you say a bit about what the issue is and how, if at all, you surmount it?

Charlie Bachtell: Sure. So that provision in the tax code is a good example of another one of the unfortunate impacts on this industry due to the scheduling of cannabis as a Schedule 1, and the shelf that it sits on next to other drugs that have no medicinal value, which at this point I think is a pretty well-proven or at least accepted perspective that cannabis should not be sitting on that shelf.

(00:14:46)

So you mentioned the IRC Code 280E, it does prevent you from being able to write off any business expense other than the cost of goods sold. So while it’s less of an issue for cultivation operators because the vast majority of our expenses are cost of goods sold; on the retail level, it definitely can impact the business I have heard, and by no means am I a tax expert, but I have heard it equate to an effective tax rate north of 70% compared to a traditional business.

So it’s one of the things along with banking that needs to get figured out if this is going to be the industry that this should be, it needs the support on a federal level with some direction on banking and taxation, it should be treated no differently than any other business.

Daniel B. Rodriguez: Is there proposed legislation currently now?

Dina Rollman: There is.

Charlie Bachtell: There regularly is. I mean, this is one of those issues that’s impacted this industry for a while, and unnecessarily.

Dina Rollman: The other tax implication is that probably most business owners don’t necessarily expect to be under IRS audit, whereas I think when you have a business in this industry, I mean we are still fairly young as a company, but you sort of go into the business expecting a fine-tooth comb through every aspect of your business by the IRS, which is just another burden on a business that non-cannabis businesses don’t have.

Daniel B. Rodriguez: Both of your companies and of course your own professional experiences come out of Illinois and I am intrigued by you mentioning your expansion into Pennsylvania. This is a state-by-state movement and barring unforeseen circumstances; in a couple of moments I will raise some of those unforeseen circumstances, namely the Federal Government, we can see this development expanding in other states or there is a prospect of it.

Are you equipped professionally or your companies equipped to really expand the scope of your work and enterprises throughout the United States or to many, many other states outside of Illinois and now Pennsylvania?

Dina Rollman: Yeah. I mean it’s a matter of you lose all the benefits that a normal company would have, where you could have headquarters and then transport product across state lines, scale your operation in one central place and open up satellites. Instead you really have to recreate your business in each state and have again like a cultivation facility built from the ground-up in each state, and dispensaries in each state, get that banking relationship, get the insurance, staff your employees, find local counsel, you are sort of really reinventing the wheel.

Daniel B. Rodriguez: And that’s just, if I may, that’s unique to cannabis because of its status, right. I mean in any other aspect of — let’s say agriculture, you don’t have to worry about that, right, there is interstate movement of goods, it’s not like one state says only tomatoes in our state and you can’t grow it in any other or distribute it in any other state.

Dina Rollman: Absolutely, and it really hits you when you have a facility that’s right on the border of another state and if you wanted to expand your operations into that state, you literally would have to recreate everything and start from scratch all over again. You cannot transport cannabis across state lines.

Charlie Bachtell: I would say that dynamic is one of the issues that makes it very difficult for any company to really have a multistate national footprint objective, and that’s why you will only find a few companies that are actually able to do it so far. So I think GTI and ourselves are — it was part of the plan, it was part of the plan from the beginning.

Daniel B. Rodriguez: Now, the other side of the coin is again taking a state like California that has relatively speaking a fairly mature industry, I noticed that neither of your companies do business in California, right, is that because of that point, is there mature industries and businesses that do it or is there something else?

Charlie Bachtell: No, I think California might appear mature just because of the length of time that they have had a law on the books, but from a regulated cannabis perspective it’s not even born yet. January 1st of 2018 will be when the true regulations finally come into California. So it’s interesting, a lot of the more pioneering states out there had a different initial approach to medical cannabis, generation one. So it’s different than what you have seen in generation two and they are having to play a little bit of catch up.

Illinois did a great job of sort of changing the game and changing the way that states thought about regulation and setting up really true industries that are able to be regulated, a format or structure that’s able to be regulated, and now you are seeing some of those states out west have to catch up and implement some of the structure that Illinois was one of the first, if not the first, state to create.

Dina Rollman: One of the keys to being able to regulate this industry is eliminating the amount of licenses. Regulators are state employees, they have to oversee a certain number of cultivation and dispensary facilities in a given day, and if you have got a state like California that’s massive with an unlimited number of licenses or Colorado, where we see there are now more dispensaries than there are Starbucks, that’s very challenging for a state regulator to really feel like they understand what’s happening at that business. Is the security system working? Is there any diversion happening, et cetera?

Whereas in Illinois what they purposely did was they said, okay, we have 21 police districts in this state, we are going to have one cultivation facility per police district, that way no particular police district is overwhelmed by trying to keep an eye on what’s happening at this facility. For the regulators, 21 licenses to oversee statewide. They have shown they can handle that, it’s not overwhelming them.

So California, it’s the Wild West in so many respects that I don’t think most companies that are really comfortable now operating in a highly regulated market, I think are actually really uncomfortable operating in such an unregulated market.

(00:20:09)

Daniel B. Rodriguez: Well, let me press that point. One of the reasons why there’s that’s the Wild West in many respects and the example that you use about more dispensaries in Starbucks is there is so much money in it. So, I guess the question for you for Illinois, and I guess Pennsylvania is, is that cap or limit sustainable in a marketplace in which folks really press for licenses, and of course, would have to press for changes in the legislation because they’re leaving money on the table. In other words, do you encounter folks who are saying, no fair, these guys got in and got these valuable licenses. They are so valuable, we’ve got to open it up.

Charlie Bachtell: I think when you’re dealing with this subject matter and you have the dynamic between Federal and State law, ensuring a controlled, regulated environment is a wonderful counter I guess to the position of, this needs to be open, this needs to be more accessible, it needs to be controlled and it needs to be incredibly highly regulated.

In order to stay in compliance with the guidance that the federal government has given similar to the FinCEN Memo that I mentioned earlier, the Department of Justice came out with guidance back in 2013 with regard to states that were going to implement any type of program; medical or adult use related to cannabis. And eight priorities that the Federal government identified and said, if a State is willing to come up with a regulatory framework that addresses our Federal government’s eight priorities, and they put the money where their mouth is and they enforce our eight priorities, we’ll defer to the states to enforce our eight priorities. We have bigger and better things to worry about.

If the State can’t ensure that they’re complying and enforcing the eight priorities of the Federal government that would put the entire program in any State law at jeopardy for federal intervention.

Daniel B. Rodriguez: So let me throw out a provocative question. Is there a possible built on what you said in the relative acquiescence on the part of the Federal government? Is there a real potential wedge between the medical cannabis industry, which again by and large has enjoyed acquiescence by the feds and recreational marijuana, in which what we read and what we learn and indeed what we know on the part the current Department of Justice is, it may be Wild West, but you guys are at risk. The feds might in fact step in and they’re sure as heck not going to pass laws that put an imprimatur on the use of recreational marijuana.

So you have two industries, they are both cannabis, but one is recreational marijuana, highly disfavored by the current administration; and there’s medical cannabis, which is a different story. How do you navigate that divide if at all?

Dina Rollman: Well, one of the interesting concepts sitting here in the law school that comes up again and again now in this industry is federalism, and it’s really interesting to see the way that some of the more conservative viewpoints in our country generally tend to favor states’ rights, except when it comes to something like this and then suddenly, they don’t want to respect what the states have done.

We’re in a situation now whereas you said, more than half of the states have voted on this, the people have spoken. When you’ve got a State the size of Colorado with a population like that legalizing adult use, there’s not a lot of political momentum to support the Federal government stepping in and overruling what voters in more than half of the states or — and legislators and more than half of the states have voted for.

So that’s I think one arrow that the industry feels it has is that at this point, there is no political mandate to turn back the clock on this. There’s an evolution happening. Medical, as you said, is so widely supported at this point. I think it’s really just not even controversial anymore. You’re even seeing like really conservative southern states, look at this now and pass even — it might be a limited medical program but they’re giving some type of medical cannabis access to their residents.

Daniel B. Rodriguez: Well, let me if I may just press that in some of the states, you mentioned the southern states and others that have really embraced, in a bipartisan way, the use of medical marijuana. For many of those political officials, whether for ideological reasons or otherwise, they said this is not recreational use, and we’re going to be very, very wary of expanding that scope.

So I guess you’d agree that in some ways the medical cannabis debate is just really a separate debate from these sorts of issues. Let me be clear, from the issues that arise in connection with the potential attack on recreational marijuana.

Charlie Bachtell: I think you could — and you don’t even have to infer it. I think you’ve seen the actual distinction be drawn by members of the current administration on a Federal level. Support for medical, not necessarily support for adult use. So the distinction, it’s there.

Daniel B. Rodriguez: Come back to the point about what we don’t know given the state of research. Could sort of the winds of support change if we do come to learn a lot more about, for example, to channel General Sessions that may be marijuana as a gateway drug to the opioid epidemic, right, in the connection between marijuana, even medical cannabis and the opioid epidemic or how states regulate intoxication in driving, which implicates not only folks with recreational use but medical use.

I mean, the series of issues, we learn a lot more about the damaging effects of marijuana. Do you think the winds of politics would change around?

(00:25:02)

I think the inverse of that is the reality of it. I think we’ve lived in a state where for decades where that’s the assumed research and the research that’s come out in the last five to ten years is reversing the position. So I think the inverse is true that the research that’s coming out is showing that cannabis is not the gateway drug and the alternative it’s — it’s actually — it tends to be prescription drugs that are the gateway drug to the opiate abuse in America now. So I think we’ve lived for decades and generations with the idea of that being the issue and now the research is disproving it.

Dina Rollman: The other thing I think would be relevant for this adult youth conversation is taxes, I think that’s sort of it’s not even the relevant in the room, it’s one of the primary drivers where states — they might be holding their nose and they might not like adult use, but when they see the tax revenue that a State like Colorado is enjoying and you’ve got a broke State like Illinois or many other states that are really struggling, can they hold their nose and say it’s worth it, it’s going to help us, build infrastructure, fund our schools and do things like that that are really good for the people of our State. If alcohol is legal, can we hold our nose and legalize adult use?

Daniel B. Rodriguez: Well, I have a wacky theory and your last comment allows me to have the listeners indulge in, and that is, even in some red states what that extraordinary access to tax revenue might do is give a fact or promise that the State could get rid of the income tax, could significantly low at their tax burden, so it’s not only providing more social services but reduce all these bad, nasty taxes they have been campaigning against for all these years.

Dina Rollman: Seems possible and again that’s where there’s just a real nice synergy with. A lot of states that are the sort of more red states that believe in states’ rights, and if that’s their choice to do that, even if they are fans of Jeff Sessions, do they really want somebody sitting in Washington, DC telling them how to manage their State.

Charlie Bachtell: I think you could take the discussion even a step further to the tax revenue is sort of the shiny object in the room, but it turns out that it’s really the tip of the iceberg when it comes to the economic impact of a more progressive or accessible view on cannabis. Revenue generation is one thing, cost elimination is another, social justice, impact is another.

So, like I mentioned that study earlier that shows an average of 25% reduction and opiate abuse in states that have access to medical cannabis. If you take a look at Medicaid expense related to prescription opiates that are then abused if you could reduce that 25%. If you look at the criminal justice expense associated with prosecuting opiate abuse in the State and you can reduce that by 25%.

Daniel B. Rodriguez: Not to mention that the impact on mass incarceration —

Charlie Bachtell: Mass incarceration the — sort of disproportionate that impact on certain communities within a State when it comes to mass incarceration, you start seeing that the tip of the iceberg is the tax revenue, there’s a lot more underneath it.

Daniel B. Rodriguez: So here’s what I’m curious about. So we’re talking about marijuana, are there unique and special issues of security, I mean, in your work you are surrounded by marijuana?

Dina Rollman: Well, just to clarify, so Charlie and I both are in our corporate offices, there’s no marijuana around anywhere.

Daniel B. Rodriguez: Thank you for clarifying that.

Dina Rollman: And if the regulators are listening, please know, there’s no cannabis there, but in the facilities where we cultivate it, for both of our companies, it’s outside of Chicago, these are sort of in more remote parts of the State.

Daniel B. Rodriguez: We won’t give the listeners the benefit of the addresses.

Dina Rollman: Good idea, good idea. What I like to say is, picture a Costco facility. Everyone has been to a Costco store, but inside that Costco store are different production areas, so there’s rooms where the plants are growing, there’s rooms where the plant is taken from its plant state and cut up and processed into the sort of small little bits of smokeable flower that people use, and then there’s a laboratory in the facility that that’s where they’re transforming that plant matter into the different edibles you might have or oils or tinctures or patches, and sort of a limitless iteration of products.

Everything that is happening in that facility, 24 hours a day, seven days a week, is under camera surveillance, and when I say, “It’s under camera surveillance”, I mean that there are cameras in every single part of that facility except for the locker rooms and the bathrooms, and not only do we as the employer have access to, a bank of screens to show everything happening in the facility, every nook and cranny of that facility at all times, but also the Illinois State Police have a login, and so they also at any time that they want can log in and see exactly what’s happening in our facility.

So that is a key point that we make to new employees when we hire them and it’s an ongoing point that is emphasized in employee training and it’s really built into the culture that while it may be tempting to some to be in a facility surrounded by medical cannabis, if that’s why you think you want to work in a facility you are sorely mistaken, because the most likely scenario if you were ever tempted to take any medical cannabis out of the facility is not just that you would lose your job, but you’d also have the Illinois State Police at your door shortly thereafter.

(00:30:00)

Daniel B. Rodriguez: So any potential employee who has a nostalgic notion of growing some pot in their dorm room closet, that might not be the best job for them?

Charlie Bachtell: This is different.

Dina Rollman: I mean, those of us in the industry think it’s a little over the top and that it almost feels like you’re working like a nuclear waste facility, for how highly regulated it is, and it’s treated with such seriousness, where yeah, people from sort of a different outlook or different experience in other states like California where they have outdoor grows in Humboldt County, they really can’t fathom the level of security that we have in these facilities.

Daniel B. Rodriguez: Thanks. Thank you. It’s very interesting. So here’s a question for the both of you, you didn’t come from this background, by this background, I mean, in cannabis law, obviously there wasn’t that area of law in Illinois, but both of you got in on the ground floor as it were, in a highly restricted, highly regulated open marketplace for licenses. You had the good judgment to be able to advance forward and get these licenses early on. What did you know that other folks with your training, your background, your skill level, your smarts didn’t know to be able to get in truly on the ground floor?

Dina Rollman: I didn’t know anything about cannabis and I had never done an RFP, but what I had learned to do over the course of 10 years at a litigation firm was learn how to put together a compelling story in a brief, put together summary judgment briefs where you’ve got a million exhibits. You are making your case, learning to put together that package that stands for your position and why you should win, and I just felt like somehow I could translate that skill to the application until the GTI story, I could get all the subject matter expertise I needed from our Colorado partner who actually was operating cultivation and dispensary facilities.

So I didn’t need to know that, I just needed that content and then how to shape the story and shape sort of the cell of why we win.

Daniel B. Rodriguez: So you’re not telling me that a Northwestern law professor at some point said, “If medical cannabis ever becomes legal in Illinois, here’s how you should make an argument in favor of a life”.

Dina Rollman: Not at all, not at all, but I think what I have — I was an English major in college and I feel like even now as a cannabis lawyer a lot of what I do is writing, and I think if you can build that skill of learning to write well and persuasively, it translates to everything.

Daniel B. Rodriguez: And Charlie?

Charlie Bachtell: Yeah, I think it’s not a different story than Dina’s being in the mortgage banking space before this transactional and regulatory focused. To me this process, well, one, when we first came across it when the law was passed here, it was I think within 48 hours I realized this was the most fascinating thing that I ever looked into.

I didn’t know what to expect my preconceived notion of what medical cannabis was. Venice Beach popped into my head, and then reading the law here, when it was passed, was dynamically different, and a lot more in line with things that I was currently doing in my current profession.

So then when it came to the application writing time, similar to Dina, it was putting the pieces together. You looked at it like a summary judgment brief, I looked at it like an audit, and I think at the time that I did the application here in Illinois I was probably one of less than 10 attorneys in the country that had been through two CFPB audits with no faults.

So for me it was very similar to being audited by a State or being audited by the Federal government at my prior place of employment, and for perspective, those were 60,000 pages of documents that we were turning over where is this application while it was still large, was 4500.

So very familiar with that process, and you mentioned the persuasive component of it, messaging is big in anything you do when you’re trying to persuade anybody whether it’s in the legal field or you’re in sales or really any industry, understanding who your audience is, drafting the message and that relates best to the audience, it’s critical component to success.

Daniel B. Rodriguez: And having had that success there’s no question that you had — both you had a huge leg up when Pennsylvania was issuing those licenses, right? You had that experience in Illinois. I assume that carried you forward in Pennsylvania.

Charlie Bachtell: The unique component of it now is the experience to go along with it, so not only are we attorneys in the industry, but we’ve got two plus years of operating experience under our belt too, so the message gets stronger.

Daniel B. Rodriguez: Well, let’s you cultivate, you will pardon the expression an image as a carpetbagger when you go into Pennsylvania, you might want to leave your Bears and Cubs and White Sox jerseys at home.

Dina Rollman: Good point, thanks.

Daniel B. Rodriguez: In the short time we have remaining, let me shift the focus if I may to the day to day and the week to week professional life that a lawyer would have in this industry. So both of you made mid-career adjustments or early career adjustments as it were in that direction, many of your students that you’re teaching at law schools and others might say, I would like to go into that line of business. What opportunities are there for young lawyers and those schooled in law who may not be lawyers to go into this business?

Dina Rollman: I think there are so many opportunities that’s part of why I was so excited to teach a law course on this topic.

Charlie Bachtell: Limitless.

Dina Rollman: Really, I mean, it’s sort of cannabis and fill in the blank.

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So if you are a real estate attorney you’re absolutely going to encounter a situation where your client owns commercial property and wants to consider leasing it to a dispensary or cultivation facility and wants to understand the implications of that. If you’re an employment attorney, you need to be able to counsel employers and how they should adjust their policies to take into account the fact that some of their employees undoubtedly are going to be or already are medical cannabis patients. If your transactional attorney get involved, start helping these companies do their — offering memoranda, operating agreements, licensing agreements, mergers, acquisitions, there’s all of that activity happening in the industry, and go from there it’s just endless and not to mention my background, which was litigation, I think we’re just in the very early days of this industry and we’re not seeing a huge amount of litigation, but I think that’s always an inevitable consequence of having a new industry like this, and especially when it’s so largely funded by private money, and so you’re seeing a lot of investor groups that are friends and family and everybody thinks everything’s going to go well and everyone’s going to get rich, and sure enough, not everybody’s going to. There’s going to be a lot of litigation down the road.

Daniel B. Rodriguez: So do you envision law firms, maybe small/medium-sized and even large law firms having areas of the firm devoted to practice in the cannabis industry?

Dina Rollman: Well, it’s happening already for sure. There are entire law firms that build themselves as marijuana law firms and then even in Chicago we’re seeing small and mid-sized firms starting to build those practices, and wanting to build that cross-state expertise because they understand that it’s not enough to know how to represent cannabis clients in one state. Inevitably one-state operation is going to bleed into other states and so law firms that have multiple offices across the country are developing cross-office practice groups to service clients.

Charlie Bachtell: I think a good way to understand it the way that I describe it to people when I’m explaining the industry and that’s so interesting, it’s so new. At the end of the day it’s sort of an aggregation of a lot of traditional industries just in a slightly different package. I mean, it’s commercial agriculture, it’s manufacturing, it’s product formulation, it’s packaging, it’s logistics, it’s HR, it’s accounting, it’s legal, all of the things that are associated with normal industries, this is just a new industry that incorporates all of those different pieces.

So if there’s a legal need for any entity, cannabis company is needed to go website merchandising, all of those things.

Daniel B. Rodriguez: It’s a new industry but it’s pot, so how do you in yourselves and with the students you counsel convince them to resist the stoner jokes and their reputation and the snickers from folks who would say, “Wow. these guys are dope lawyers.”

Charlie Bachtell: I think there’s probably more of an issue three years ago than it is today. Whenever I have a conversation, whenever I’m engaged in any sort of conversation or discussion with anybody about the industry, it’s met with a lot more openness and receptiveness to grant it. There’s always the initial joke that I’m surprised that nobody asked if we brought these samples today. That seems to be the one that you still get regularly.

Daniel B. Rodriguez: I want to say on behalf of the University that you have done that. I would segue away, but I heard a rumor.

Dina Rollman: Uh-oh.

Daniel B. Rodriguez: I heard a rumor that —

Charlie Bachtell: He is looking at you, D.

Dina Rollman: Yeah.

Daniel B. Rodriguez: — well maybe I didn’t hear the rumor about you, Dina, but I’m pointing my finger at Charlie, and you may not want to comment on this, is that you do not encourage your employees to be active users of cannabis that actually there are some rules and regulations in your own companies about that. You may care to comment about it but —

Charlie Bachtell: Sure, no — I mean, again, recreational use isn’t legal in Illinois.

Daniel B. Rodriguez: Right, that’s really what I’m talking about, yeah.

Charlie Bachtell: And without a doubt when you are operating under — in any industry when you are under a microscope, it’s very important to be beyond reproach, and so I’m not a consumer myself, I’m not a patient in the program. If we do have patients that work in our organization, but for the most part, again, I go back to this is commercial agriculture manufacturing, product formulation, et cetera, it’s a traditional business with a different subject matter.

Daniel B. Rodriguez: That’s our show for today. I want to thank Dina and Charlie for joining me here this afternoon.

Dina Rollman: Thank you so much for having us.

Daniel B. Rodriguez: Thank you for listening, I’m Dan Rodriguez, signing off from Northwestern Pritzker School of Law.

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