Can a South Carolina lawyer own an interest in a cannabis business that is legal under some states' laws but illegal under federal law?

Plain-English summary

Two South Carolina lawyers wanted to buy an interest in a publicly traded corporation engaged in cannabis-related activities (infrastructure, construction, cultivation, production management, and distribution) serving operators in states where the industry is authorized under state law. They acknowledged the company's conduct is illegal under federal law and may carry criminal liability under the Controlled Substances Act and the money-laundering statutes. They asked whether a lawyer's ownership interest in such a business amounts to criminal conduct that reflects adversely on the lawyer's honesty, trustworthiness, or fitness, or constitutes a criminal act involving moral turpitude.

The Committee began by stating it does not express opinions on questions of law, including whether the contemplated ownership interest violates federal or state criminal statutes or exposes the lawyers to criminal liability as officers, directors, agents, or shareholders. It noted that under State v. Hill, officers and directors can be personally liable for their own criminal activity committed on behalf of an entity. The Committee directed any South Carolina attorney seeking such an interest to carefully review all applicable state and federal law to determine the legality of the activity and whether ownership constitutes a Rule 8.4 violation.

The Committee then set out the framework of Rule 8.4, which makes it professional misconduct to commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness (8.4(b)) or a criminal act involving moral turpitude (8.4(c), the South Carolina addition). It reviewed South Carolina Supreme Court disciplinary decisions involving marijuana: while the Court had earlier concluded marijuana possession is not a crime of moral turpitude, it found in Matter of Anonymous Member that possession by a lawyer reflects adversely on the public's view of the profession and shows unfitness to practice. Later cases (In re Newton, Matter of Neal, In re Farlow, Matter of Tedder) found possession, cultivation, importing, or distribution of marijuana to violate Rule 8.4 or its predecessor.

The Committee concluded by reiterating that any attorney seeking an ownership interest in a cannabis-related corporation should carefully review all applicable state and federal law to determine the legality of the activity, whether any criminal conduct constitutes a Rule 8.4 violation, and whether the particular form of ownership interest is itself a crime.

In practice

The Committee declined to decide the legal questions of whether the contemplated ownership is criminal or exposes the lawyers to liability, treating those as questions of law beyond its review. The opinion cautions that participation in conduct illegal under state or federal law may constitute a Rule 8.4 violation, and it directs an attorney considering an interest in a cannabis-related business to review all applicable state and federal law to determine the legality of the activity, whether any resulting criminal conduct violates Rule 8.4, and whether the form of ownership is itself a crime.

Common questions

Q: Did the Committee say whether a lawyer can own part of a cannabis business?

A: Not directly. The opinion states the Committee does not opine on questions of law, including whether the ownership interest is criminal, and instead cautions that illegal activity may violate Rule 8.4.

Q: Can owning a federally illegal cannabis business be professional misconduct under Rule 8.4?

A: Potentially. The opinion explains Rule 8.4 makes it misconduct to commit a criminal act reflecting adversely on fitness or involving moral turpitude, and it cites disciplinary cases treating marijuana offenses as Rule 8.4 violations.

Q: How have South Carolina courts treated marijuana offenses by lawyers?

A: The opinion notes that although marijuana possession was earlier deemed not a crime of moral turpitude, the Supreme Court found in Matter of Anonymous Member that it reflects adversely on the profession and shows unfitness, and later cases found possession, cultivation, and distribution to violate Rule 8.4.

Q: What does the Committee tell a lawyer to do before investing?

A: The opinion directs the attorney to carefully review all applicable state and federal law to determine the legality of the activity, whether any criminal conduct violates Rule 8.4, and whether the particular form of ownership interest is itself a crime.

Background and rules framework

The opinion interprets Rule 8.4 (misconduct), specifically 8.4(b) (a criminal act reflecting adversely on honesty, trustworthiness, or fitness) and 8.4(c) (the South Carolina provision on a criminal act involving moral turpitude). South Carolina's Rule 8.4 corresponds to ABA Model Rule 8.4, with the moral-turpitude clause as a state addition. The opinion situates the inquiry against federal criminal exposure under the Controlled Substances Act and the money-laundering statutes and against the Supreme Court's marijuana-related disciplinary precedents.

Citations and references

Rules of Professional Conduct:

• MR 8.4 / SC RPC 8.4 (misconduct; 8.4(b) criminal act and 8.4(c) moral turpitude)

Statutes:

• 18 U.S.C. § 2 (Controlled Substances Act-related liability, as cited)
• 18 U.S.C. §§ 1956, 1957 (money laundering)

Cases:

• State v. Hill, 286 S.C. 283, 333 S.E.2d 789 (Ct. App. 1985), personal liability of officers and directors for individual criminal activity.
• Matter of Anonymous Member of South Carolina Bar, 293 S.C. 329, 360 S.E.2d 322 (1987), marijuana possession reflects adversely on fitness.
• In re Newton, 361 S.C. 404, 605 S.E.2d 538 (2004), cultivation and possession of marijuana violated Rule 8.4(b).
• Matter of Neal, 418 S.C. 373, 793 S.E.2d 301 (2016), marijuana possession brought the profession into disrepute.
• In re Farlow, 380 S.C. 35, 668 S.E.2d 790 (2008), distribution of marijuana and possession of ecstasy.
• Matter of Tedder, 296 S.C. 500, 374 S.E.2d 294 (1988), conspiracy to import and distribute marijuana.

See also

• NY State Bar Op. 1225: Counseling and Investing in Recreational Marijuana Businesses
• CA COPRAC Op. 2020-202: Cannabis Representation
• Ohio BPC Op. 2016-006: Ethical Implications of Ohio's Medical Marijuana Law

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-19-03/
• Original PDF: https://www.scbar.org/media/4tblmk0h/ethics_advisory_opinion_19-03.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER'S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

South Carolina Rules of Professional Conduct: 8.4

Factual Background: South Carolina lawyers A and B want to purchase an interest in a corporation engaged in cannabis-related undertakings—including infrastructure, construction, cultivation, production management, and distribution. This is an existing, publicly traded corporation that provides similar services to other cultivation and production operators in states where the cannabis industry is authorized under state law.

Lawyers A and B acknowledge the contemplated ownership interest is in a company whose conduct is illegal under federal law and may result in criminal liability under the Controlled Substances Act (18 U.S.C. §2) or money laundering (18 U.S.C. §§1956, 1957).

Question: Does a South Carolina lawyer's ownership interest in a cannabis-related business amount to criminal conduct that "reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer" or otherwise constitute "a criminal act involving moral turpitude"?

Summary: While we do not express opinions on questions of law, the Committee cautions South Carolina licensed attorneys from participating in activities that are illegal under state or federal law, as criminal activity may constitute a violation of Rule 8.4, RPC, Rule 407, SCACR.

Discussion: The Committee does not express opinions on questions of law, such as whether the ownership interest Lawyers A and B are seeking in the cannabis-related corporation constitutes a violation of federal or state criminal statutes or subjects them to criminal liability as officers, directors, agents, or shareholders for crimes committed by a corporation. See State v. Hill, 286 S.C. 283, 333 S.E.2d 789 (Ct. App. 1985) (officers and directors of corporations can be held personally liable for their individual criminal activity committed on behalf of the entity). Any South Carolina licensed attorney seeking an ownership interest or involvement in a corporation engaged in cannabis-related activity should carefully review all applicable state and federal law to determine the legality of the activity and whether ownership of a company engaged in that activity constitutes a violation of Rule 8.4, RPC, Rule 407, SCACR ("Rule 8.4").

Rule 8.4 provides, in relevant part:

It is professional misconduct for a lawyer to:

. . .

(b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects;

(c) commit a criminal act involving moral turpitude[.]

Comment

. . .

[2] Many kinds of illegal conduct reflect adversely on fitness to practice law, such as offenses involving fraud and the offense of willful failure to file an income tax return. Although a lawyer is personally answerable to the entire criminal law, a lawyer should be professionally answerable only for offenses that indicate lack of those characteristics relevant to law practice. Offenses involving violence, dishonesty, breach of trust, or serious interference with the administration of justice are in that category. The South Carolina version of this Rule also specifically includes criminal acts involving moral turpitude as professional misconduct. A pattern of repeated offenses, even ones of minor significance when considered separately, can indicate indifference to legal obligation.

Although previously concluding that possession of marijuana is not a crime of moral turpitude, the Supreme Court has found marijuana possession by a member of the Bar reflects adversely on the public's view of the legal profession, shows an unfitness to practice law, and has a tendency to bring the legal profession into disrepute. Matter of Anonymous Member of South Carolina Bar, 293 S.C. 329, 330, 360 S.E.2d 322, 323 (1987). The Court found the possession of marijuana by the lawyer in Anonymous violated DR 1-102(A)(6) (conduct that adversely reflects on a lawyer's fitness to practice law) and section 5D of the Rule on Disciplinary Procedure. Id.

In subsequent cases, the Court has found the possession and cultivation of marijuana to violate Rule 8.4. In In re Newton, 361 S.C. 404, 605 S.E.2d 538 (2004), the Court found that Newton's cultivation of marijuana plants and possession of marijuana violated Rule 8.4(b) and warranted suspension. In Matter of Neal, 418 S.C. 373, 793 S.E.2d 301 (2016), Neal pled guilty to disorderly conduct and furnishing alcohol to a person under twenty-one and pled "no-contest" to possession of marijuana. In his disciplinary proceedings, his conduct was determined to have violated Rule 8.4 by bringing the legal profession into disrepute.

In other cases, the Court has found importing or distributing marijuana and possessing marijuana with intent to distribute in violation of federal law to be among convictions that violate Rule 8.4 and its predecessor, DR 1-102. In re Farlow, 380 S.C. 35, 37, 668 S.E.2d 790, 791(2008) (Farlow pled guilty to accommodation distribution of marijuana without remuneration and possession of ecstasy); Matter of Tedder, 296 S.C. 500, 374 S.E.2d 294 (1988) (Tedder pled guilty to conspiracy to import marijuana, conspiracy to possess marijuana with intent to distribute; conspiracy to defraud the Department of the Treasury, and four counts of perjury).

Any South Carolina licensed attorney seeking an ownership interest or involvement in a corporation engaged in cannabis-related activity should carefully review all applicable state and federal law to determine the legality of the activity in which the corporation will engage and, if the corporation will engage in conduct criminal under either state or federal law, whether such criminal conduct constitutes a violation of Rule 8.4 and whether the particular form of ownership interest is itself a crime.