We always say we aren’t giving legal advice on this blog. Here’s some, though: don’t use or sign a contract given to you by a broker for a transaction, unless that broker is a real estate broker, and unless the form is a real estate purchase agreement. Even then, you almost certainly want lawyer eyes on it.
If a broker gives you an agreement to use or to consider using in a cannabis business transaction—even as a template; even with disclaimers—the broker is either a) unscrupulous, or b) naïve, and most definitely c) creating a hazard.
What’s the hazard? For the broker, it’s a somewhat typical penalty schedule here in Oregon: a fine of up to $600, or a stay of up to six months in county jail, or both. You can throw in possible professional discipline and/or a lawsuit by the damaged client. For the client, the parade of horribles may include transaction failure, loss of large sums of money, litigation, etc. Damages may also be more insidious, the likes of which the client may never fully appreciate.
In most (all?) states, a broker—or any non-lawyer—providing a contract for a party to use in commerce is too-often engaged in the “unlawful-” or “unauthorized practice of law” (“UPL”). States have consumer protection websites warning about UPL, which is the act of providing services that may only be provided by licensed attorneys. These websites typically say blunt, serious things, such as: “UPL is a crime” and “the State Bar [of California] works with law enforcement to investigate those who engage in UPL.”
Is there some nuance in the UPL consideration? Of course! But generally speaking, UPL statutes are broad because they are designed to protect consumers. Here in Oregon, for example, the State Bar advises that even someone who “drafts or selects legal documents” or “advises others of legal rights” engages in UPL.
What about that broker who is just trying to help you save costs, by giving you a “template form” for a transaction? A template with bold disclaimers, no less? Sorry, that is UPL. As the Oregon Supreme Court held in State ex rel Oregon State Bar v. Wright, 280 Or 713, 573 P2d 294 (1977):
Where defendant recommended particular legal forms to persons who were enrolled in his course in legal self-representation, defendant gave legal advice and was engaged in unauthorized practice of law.
Why am I writing this today? It’s not because we need the work. We have plenty, especially given all the cannabis lawyer attrition here in Oregon. I’d also wager that this post could cost my firm work, because some of what we have is cleaning up UPL messes (more on that below). Happy to lose that work.
I’m also not writing this because I want people to avoid brokers (I refer people to brokers frequently), or because deals need to be complex or unduly expensive. As I wrote last month:
Most business deals are not particularly complex. If they are, you may be doing it wrong. The longer I persist as a lawyer, the more I lean on clients to keep it simple. You want agreements that are strictly necessary, bespoke, not overbuilt, and totally bombproof— or as close as you can get.
And, I might add, you want agreements that are drafted or reviewed by a lawyer. Your lawyer. (PRO TIP: nine times out of ten, it will be cheaper and faster for the lawyer to generate the agreement from that lawyer’s library, and tailor it to you needs; as opposed to fighting with some template sourced by non-lawyer parties.)
I digress. Ultimately, the reason I’m writing this post is because we keep seeing cannabis clients and potential clients being exposed or damaged by business and real estate brokers engaged in UPL. Here are three specific examples from just the past few months:
- A broker drafted a real estate agreement with addenda for the sale of cannabis licenses and other assets, which failed to cover essential issues. Moreover, the seller didn’t own the land the broker arranged to be sold. Read that last sentence again. You can guess how messed up and expensive that situation became.
- A broker instructed a client to give over valuable, confidential information under a non-disclosure agreement that I think (?) was intended to protect the client, but did not include the client as a party… and would have been worthless even if it did.
- A broker gave a seller client a “template form” for use in a business sale that was weighted heavily toward a generic buyer on nearly all material terms, and contained processes and requirements that had been obviated by later regulations.
If I had the fortitude to go back several years, this list would be much longer. We’re interested in what comes next, though. I care about my clients and the industry I work in (and I am getting old and surly, and suffer fools poorly); so I have written or called all three cannabis brokers listed above. I don’t ascribe bad motivations to any of them, but I do resolve to clean this up one way or another in Oregon cannabis. And I believe I will succeed.
In the meantime, wherever you are, if a broker gives you a contract, or some other form of legal advice, stop. Remember that you would be following that advice, or using that form, at your very real peril. That is why the rules against UPL exist.
