San Jose Inside
One of Silicon Valley’s foremost experts on cannabis law never set foot in a collective until after the state legalized recreational pot sales.
“I was immediately impressed with the beauty of the location, the friendliness of the people, how educated and engaged they were,” Mark Heyl, 52, says of his Jan. 10 visit to Caliva. “Even though it was my first time and I had all these questions, it seemed like they had all the time in the world.”
The retail side may have seemed foreign to him at the time, but Heyl already possessed a firm grasp of the regulatory complexities involved in the budding legal market. As a member of the fledgling cannabis practice at Hopkins & Carley—one of the South Bay’s most buttoned-up law firms—he’d already spent months poring over books, talking to industry experts and studying up on the dissident interplay between federal and state marijuana policy.
“When Prop. 64 passed, we started recognizing the opportunity and the need for sophisticated legal practice in the industry,” says Heyl, a 25-year attorney who previously led his firm’s corporate practice and mergers-and-acquisition group. “So with legalization on the horizon, we began preparing ourselves for the eventuality.”
Since venturing into the newly expanded legal market, Hopkins & Carley’s pot practice has taken on about a half-dozen clients seeking counsel on issues inherent to any other business—branding, intellectual property, contracts, taxes, land-use, mergers—but with the added risk of operating in a legal gray zone.
“The difference is that they have this additional overlay, to one degree or another, of marijuana-related regulations,” Heyl says.
Lawyers in the burgeoning business take on some of the same risks as their clients. The feds classify cannabis in the same class as heroin, and even in 420-friendly California there’s an underlying fear that missteps could lead to prosecution for money laundering, conspiracy or aiding and abetting drug dealers. In San Diego County, the district attorney is still pursuing a case against criminal defense lawyer Jessica McElfresh, who’s accused of conspiring with a client to hide evidence of an illegal hash oil operation.
Although according to the National Cannabis Bar Association, attorney conduct is more or less protected in California. And despite U.S. Attorney General Jeff Sessions’ hard-line stance on marijuana, the Trump administration last week agreed to let states decide how to regulate it. Meanwhile, that California’s positioned itself as the heart of the resistance, has been enough to embolden every stodgy profession imaginable—insurance agents, accountants, real estate brokers, financial managers—to join the green rush.
Veteran pot lobbyist Sean Kali-Rai, 48, who’s helped his clients adapt to San Jose’s strict licensing standards in the past few years, founded what’s basically a marijuana chamber of commerce to ease some of those unlikely newcomers into a field that’s still battling stigma from decades of criminalization. His multi-county Silicon Valley Cannabis Alliance launched last year to link dispensaries, growers and distributors with lab techs, investors, inventors, software developers, policymakers and anyone else whose line of work might intersect with the marijuana market.
“The industry is just starting to gel,” he says. “It used to be very independent. Everybody was kind of siloed. You had a grower here, a dispensary there and you didn’t really connect without people because of the complete lack of trust.”
Kali-Rai says he modeled the cannabis alliance after the Silicon Valley Leadership Group and Joint Venture Silicon Valley, which emerged as powerful lobbies for the tech sector by forging strategic alliances. “I see Silicon Valley at the cusp of this massive opportunity,” he says. “Because San Jose put in really strong enforcement and regulatory practices we’re ahead of the game. And now we have Santa Clara County looking at creating a cannabis ordinance, along with mountain View and Milpitas. … I mean, I really do think that Silicon Valley is going to become Cannabis Valley.”
So many of the veteran pot pros cut their teeth in the black and gray markets before entering into the the all-but-federally-legal multi-billion-dollar marijuana sector, which makes for a tough transition without the right guidance. While the region’s nascent Cannabis Alliance plays matchmaker between white-collar professionals and their green-collar counterparts, blue-chip law firms like Hopkins & Carley aim to keep everyone aboveboard amid a shifting legal landscape.
“This is certainly a rapidly evolving field,” Heyl says. “There are very few firms in our position to do what we’re doing, which is really trying to bring order to the chaos.”
That means, among other things, reconciling local laws with state mandates, working around federal restrictions that keep cannabis a cash-only business and undergoing the formidable task of restructuring nonprofit collectives into commercial corporations.
“There’s such a desperate need for quality legal services,” Heyl explains, “because of the fact that you have this coming-together of a backroom handshake kind of culture with Silicon Valley business acumen and money.”
His colleague Chuck Reed, 69, remembers those backroom-handshake days all too well. As mayor of San Jose from 2006 to 2014, the proliferation of as many as 120 pot shops forced him into a yearslong battle to rein them in. But as the industry matured from scofflaw to sanctioned, clandestine to corporate, Reed’s views evolved with it.
“Initially, my stance was that it’s illegal,” he says flatly.
The feds banned marijuana and the state severely curtailed it.
“To me, that made it pretty straightforward,” Reed says. “As a city, we don’t need to regulate it because it’s already illegal. That was my position about eight years ago.”
Now, the straightlaced barrister makes a living off an industry he once wanted to stamp out. The issue he tried so hard to ignore ultimately defined his mayoral legacy to a greater degree than his signature cause of reducing pension costs.
But Reed’s was a gradual change of heart, unlike the abrupt conversion of ex-House Speaker John Boehner. The Ohio Republican, who not long ago said he was “unalterably opposed” to legalization, announced last week that he plans to profit off the cash crop. Former California Attorney General Bill Lockyer made a similar about-face as soon as the state authorized commercial cannabis sales. The state’s former top cop, who spent decades enforcing prohibitionist laws, launched a firm earlier this year that distributes cannabis concentrates and edibles to stores in SoCal.
Lockyer and Boehner went from cracking down to cashing in. Reed’s foray into the field, at least, seems to have followed a more logical progression. As a prohibitionist Reed says he just wanted people to follow the law. When he realized its inadequacies, he helped to rewrite it. Now, as a cannabis lawyer, he’s helping the industry do what he always hoped it would: to operate as legally as possible.
“We want to get everybody into legal compliance,” he says, “to help people follow the law, and in a way that protects their interests.”
That’s what Reed says he was trying to do in elected office.
“As mayor I was trying to figure out how to move forward when voters want one thing, the state says you have to do it a certain way and the feds say you can’t do it at all,” he says. “Even today, those same issues keep coming back. There are many, many angles that intersect with cannabis business, so our traditional clients in real estate, corporate and finance that have dealings with the industry have a lot of questions.
“And that’s really good for attorneys.”