SFGL- MHBM August 7 2017

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Warren R. Trazenfeld : The Attorney Who Sues Lawyers and Accountants

Also: The Business and Legal Impact of Medical Marijuana





Choosing the Right Professionals When you embark on a business endeavor, require ongoing service or find yourself caught up in a dispute, it's very important to have the right professionals on your side. A skilled lawyer, accountant or banker with experience in similar situations can help you navigate the complexities of the business and financial worlds. Fortunately, South Florida has many knowledgeable and learned practitioners in diverse fields of practice who can help you avoid pitfalls and achieve your goals. Since South Florida Legal Guide was founded more than 17 years ago, our publication has consistently focused on identifying the top lawyers and accountants in a wide range of disciplines to guide you in that search. If you are faced with a business, legal or financial challenge or an opportunity, we suggest that you contact the right professional. If you try to go it alone, the results

are likely to be less than ideal, and you may wind up spending more money than you expected. Yet, it is also a must for us, as clients, to be vigilant throughout the engagement. As our cover feature indicates, attorneys and accountants are not perfect. They make mistakes from time to time. Other problems occur when their interests might not be aligned with ours, or there is a serious misunderstanding or failure in the communication process. Thus, we must trust but verify. At the end of the day it is

to our own benefit that we work with our professional service provider to achieve our desired results. One of the most interesting changes to our business and legal landscape is the launch and implementation of the medical marijuana industry. For this issue, we reached out to attorneys and accountants in different fields to gather their perspectives on how medical marijuana will impact South Florida in areas like healthcare, real estate and business opportunities. It's a

South Florida has many knowledgeable and learned practitioners in diverse ďŹ elds of practice who can help you avoid pitfalls and achieve your goals. Since South Florida Legal Guide was founded more than 17 years ago, our publication has consistently focused on identifying the top lawyers and accountants in a wide range of disciplines to guide you in that search.

complex situation in many ways, because of the conflict between state law and federal criminal regulations. On another note, South Florida legal, accounting and financial professionals are constantly making news. Whether closing mega deals, settling major lawsuits or donating their time to important pro bono causes, these accomplishments are mostly shared inside professional circles. But we believe there is a great deal of value in informing the public in general about the achievements of professionals who may be able to help them in present and future situations. We will continue to highlight their work in our future monthly issues of South Florida Legal Guide.


Jacob Safdeye Publisher jacob@sflegalguide.com

PUBLISHER JACOB SAFDEYE EDITOR IN CHIEF RICHARD WESTLUND GUEST CONTRIBUTORS STANLEY I. FOODMAN DWIGHT HILL SOUTH FLORIDA LEGAL GUIDE - BM Volume 1, Number 4, 2017 This is an independent supplement by South Florida Legal Guide Mailing address P.O. Box 630428, Miami, FL 33163. All rights reserved. All titles registered and may not be used without permission. Reproduction in whole or in part of any text, photograph or illustration without written permission of the publisher is strictly prohibited. The South Florida Legal Guide makes no guarantee regarding the accuracy of information presented, results reported, or safety of products or activities described herein. The publisher notifies readers that the hiring of a professional is an important decision that should not be based solely on advertisements. Before you decide, ask the professional to send you free written information about qualifications and experience. Contact: info@sflegalguide.com or call: (786) 879-7638 • www.sflegalguide.com






Does Your Risk Tolerance Need a Realignment? BY DWIGHT HILL

Market volatility. A change in your time horizon. Different goals. All these things can affect the amount of risk you feel comfortable taking with your investments. Your ability to tolerate risk influences the investment choices you make and may have a significant impact on your success in achieving your financial objectives. Periodically revisiting your risk tolerance is an important step in the portfolio review process.

A MOVING TARGET Your feelings about risk may change depending

on what the markets are doing. During a prolonged period of market volatility, you may find your comfort level dropping, even if you previously thought you had a high tolerance for risk. If you’re a conservative investor, an extended market upswing may have the opposite effect, encouraging you to take on additional investment risk. In either case, basing investment decisions on market behavior instead of a well-thoughtout investing strategy isn’t the best plan. Instead, take time to reassess your feelings about risk. If they’ve truly

changed, adjust your strategy going forward to reflect the changes.

A long period of either strong or weak market performance may convince you that the current trend will continue indefinitely. Perceived risk is how much risk you think an investment holds. However, your perception of an investment’s risk might not match its actual risk. In that case, you could be taking more or less risk than you should to remain within your comfort zone and still reach your goals.

Our team of highly respected and credentialed wealth management professionals can help you reassess your risk tolerance along with the level of risk in your portfolio. At Sabadell we believe that to develop and execute the most successful and well suited plan, it is critical to have an intimate understanding of a client's financial picture, lifestyle, long- and short-term objectives, preferences and interests. Once a plan is determined, we will apply our processes and resources to design

3. A website: Does the taxpayer transact business over the Internet? A taxpayer might have products, memberships or services sold via the internet. E-commerce activity must be reported as a source of income. 4. Business Ratio Analysis: IRS can compare a taxpayer’s business ratios to other similar businesses in the same industry. The comparison of financial ratios can indicate

if income is understated or expenses are overstated. 5. Information match: W-2s, 1099s, K-1s are forms that are sent to IRS, which in turn it enters into computer programs to match the information against the taxpayer’s tax return. There are circumstances that assist IRS in determining if there might be irregularities in a taxpayer’s income reporting: • Inability to balance a taxpayer’s financial status or financial differences that can’t be explained. • Taxpayer has irregular books and or weak internal controls. • Financial ratio percentages that are very high or very low for that business industry or that change significantly from one year to another.

sure you consider your risk capacity in your review.

A REALISTIC VIEW MORE THAN A FEELING How much money could you afford to lose if investment values dropped significantly? Your ability to accept risk also depends on your financial circumstances and your time horizon for tapping your assets. If investment losses would leave your finances in jeopardy and you have a relatively short time frame before you’ll need your money, your capacity for taking risk may be limited. Make


Methods of Proof: How IRS Can Prove That a Taxpayer Didn’t Report Income BY STANLEY I. FOODMAN

U.S. taxpayers must report their worldwide reportable income. In the event that a non-reporting non-compliant taxpayer is identified by IRS, it will initially determine the taxpayer’s taxable income. When documentary evidence is available to IRS, it can easily determine the amount of a non-compliant taxpayer's tax due. Without available direct evidence, IRS has to try to reconstruct a taxpayer’s financial portrait. There are different methods

available to IRS to reconstruct a taxpayer’s income. 1. A simple T-Account is the method most often used by IRS revenue agents when trying to determine if taxpayer income has been underreported or not reported. The sources of cash funds are noted on the left side of the T-Account and expenditures of cash funds on the right side. An “imbalance” of the assets minus liabilities is examined year over year and has to be explained by the taxpayer. If unexplained net worth increases year after

year, there is a presumption that the increase in net worth originated from unreported income. The T-Account method is also known as the Net Worth Method. It was the methodology used by the US Government to convict Al Capone. 2. Requesting copies of bank statements. There could be sources of income noted in bank deposits that are not reportable as income. Examples could be an inheritance, a gift or proceeds from life insurance or a mortgage.

a customized portfolio. Our wealth management offering includes objective and third-party manager solutions, traditional-equity and fixed-income management, and other sophisticated investment vehicles. Dwight Hill is President of Sabadell United Bank. Hill has over 35 years of financial advisory experi-


• Banks deposits without an explanation or made in cash. • Net worth increases that are not supported by reported income. • Non-existent books and records. The Methods of Proof will be used if IRS agents have a suspicion that a taxpayer is failing to report income — whether it is inadvertent or a willful evasion. Don’t be a victim of your own making. Taxpayers should not be in a position where an Internal Revenue agent reconstructs his financial landscape. Consult your tax specialist. Foodman CPAs and Advisors, 1201 Brickell Avenue, Suite 610, Miami, FL 33131, (305) 365-1111, www.foodmanpa.com, info@foodmanpa.com.





WARREN R. TRAZENFELD THE ATTORNEY WHO SUES LAWYERS AND ACCOUNTANTS Most South Florida lawyers and accountants do a good job in representing their clients’ interests, says Miami attorney Warren R. Trazenfeld. But when things go wrong due to a professional’s negligence or misconduct and you suffer a loss, filing a malpractice lawsuit can provide financial relief to the client. “Usually, the damages involve an underlying case or transaction that has been ruined or harmed by a professional’s errors,” said Trazenfeld, whose firm focuses on legal and accounting malpractice cases throughout Florida. For example, an attorney might miss a filing deadline, and your lawsuit gets tossed out of court. An accountant might prepare an inaccurate audit or make a serious mistake in providing tax advice. A native of Miami who graduated from the University of Florida School of Law in 1980, Trazenfeld is board certified in legal malpractice by The American Board of Professional Liability Attorneys. He is a co-author of “Florida Legal Malpractice and Attorney Ethics” and has spoken on the topic at numerous seminars and conferences. “Neither you nor your professional wants to wind up in a malpractice lawsuit,” Trazenfeld said. “So do your homework, choose the right attorney or ac-


countant, and stay in touch as your matter proceeds so there are no damaging surprises along the way.”

SELECTING THE RIGHT PROFESSIONAL Avoiding a legal or accounting malpractice lawsuit begins with establishing a clear and effective professional relationship right from the start, according to Trazenfeld. “Defining your relationship up front provides a solid foundation for handling a legal or financial matter.” Trazenfeld suggests asking the following questions when considering an attorney to handle your case. • What is the attorney’s background? An attorney who did a good job with your cousin’s real estate closing may not have the knowledge or skills to defend you against a criminal charge. • How often does the attorney handle your type of case? “A lawyer’s experience is important because you don’t want someone who is learning at your expense,” Trazenfeld said. • Do you feel “chemistry” with the attorney? Many lawyers view clients only as a source to fill up their required bucket of billable hours rather than acting as a legal counselor to assist in solving a legal issue. “If an attorney does not show an understanding and interest in your

matter, that’s probably not the right lawyer for you,” he said. • Does the attorney have malpractice insurance? Like most states, Florida does not require attorneys to carry malpractice insurance, nor do they have to disclose if they have a policy or not. Trazenfeld views this as an important issue and is critical of the Florida Bar for not protecting the consumer of legal services. “The only way to find out about insurance coverage is to ask the attorney up front,” Trazenfeld said. “You should understand the risk involved in retaining a lawyer who is not insured, because if something goes wrong, it can be very difficult for you to recover your losses.”

UNDERSTAND THE ENGAGEMENT After choosing a professional, both you and your attorney or accountant should have a clear understanding of your relationship. “Make sure that the lawyer spells out the scope of the services to avoid future misunderstandings,” Trazenfeld said. For instance, if you hire a real estate lawyer for a residential or commercial transaction, does the engagement focus only on researching the title to the property, or does it include zoning-related issues as well? “It’s also important that

both the client and the lawyer have realistic expectations about what can be achieved, particularly in a lawsuit,” he said. “Clients often have unrealistic expectations as to the value of their case. Far too many lawyers fail to properly manage those expectations. Prior to settlement discussions, the lawyer suddenly tells this client what the case is really worth, which creates great disharmony in the attorney client relationship.” You should also ask how an attorney or accountant charges for services and what the total fee is likely to be. For some matters, such as preparing a will, a professional should be able to provide you with a fixed fee for the service. Litigation costs are harder to predict, but an attorney should be able to provide an estimate. “Many clients are hesitant to ask about billing when meeting a lawyer or accountant for the first time,” Trazenfeld said. “That’s a mistake for both parties. You should talk about fees from the very beginning to avoid any surprises.” Finally, insist on receiving an engagement letter from the professional. Be sure that it accurately covers everything you have discussed, Trazenfeld said. “An attorney or accountant who is negligent in ful-

filling the responsibilities set out in the engagement letter may be subject to a malpractice suit if you have suffered a financial loss.”

BUILD A RELATIONSHIP Poor communication is one of the biggest causes of friction between attorneys, accountants and their clients. “Good attorneys are always busy, but a client should be able to talk with someone in the office who can provide regular updates on the matter,” Trazenfeld said. “Otherwise, the client can get frustrated with how the matter is being handled.” An attorney should also provide plenty of lead time when asking for documents such as tax returns, shareholders’ agreements or other legal materials. “Attorneys often call clients at the last minute before a deposition or a discovery deadline, rather than giving the client advance notice,” Trazenfeld said. “That doesn’t help the

relationship.” If you are not happy with your attorney or accountant, arrange a meeting as soon as possible and try to work things out. “In my experience, a bad professional relationship is unlikely to get better,” Trazenfeld said. “If you can’t resolve things, then fire the professional and find another one.” You should also get copies of the legal work performed by the lawyer. “Keep your own file of important documents,” he added. “If you need to change lawyers, having those documents will help bring your new lawyer up to speed on your matter and prevent battles with your former lawyer to get a copy of your file.” Finally, if you feel your attorney or accountant was negligent in handling your matter, you should explore filing a malpractice suit, Trazenfeld said. “It may be the only way you can recover your losses.”




Professional Perspectives on the Business and Legal Impact of Medical Marijuana on South Florida In June, Gov. Rick Scott signed legislation to implement the medical marijuana constitutional amendment approved by voters last November. It authorizes 10 additional treatment centers around the state, along with the seven licensees already operating. Now, Florida patients with epilepsy, chronic muscle spasms, cancer, HIV and AIDS, glaucoma, post-traumatic stress disorder, ALS, Crohn's disease, Parkinson's disease, multiple sclerosis and terminal conditions may qualify to receive medical cannabis products, such as edibles, vapes, oils, sprays or tinctures, but not smoking substances. Considering the large number of Floridians with these serious conditions, medical marijuana has the potential to be a growth industry throughout the state. In addition, some professionals believe medical marijuana could provide an alternative to opioid pain medications that often lead to addiction. However, the possession and sale of marijuana remains a federal crime, even though the U.S. Department of Justice has not been enforcing marijuana laws in the states that have approved marijuana for medical or recreational uses. To gain a better un-

derstanding of medical marijuana’s impact on the region, South Florida Legal Guide asked attorneys and accountants from different backgrounds to provide their professional perspectives on medical marijuana. Here are their responses.


MARGOT MOSS Growing support in the states; A Republican government that is pro-states' rights; A general acceptance that it has medicinal value; An overwhelming majority of Americans who favor legalization; One would think with all of this momentum, there would be more certainty about the status of marijuana. Attorney General Jeff Sessions, however, has stated that marijuana is "only slightly less awful" than heroin and that "good people don't smoke marijuana."

Sessions is reprioritizing the war on drugs, and has been quite outspoken about his belief that marijuana is a destructive drug. So although there is a growing support for the legalization of marijuana, possession and distribution of marijuana remains a federal crime. Sessions' view creates a lot of uncertainty for the eight states that have legalized marijuana for recreational use and the 22 that have some form of medical marijuana law, including Florida. Sessions could decide at any moment that DOJ is going to start cracking down on dispensaries and users and make arrests. This, of course, could deprive many people of their liberty, possessions, money, and futures, in states where the majority of people voted and approved of marijuana legalization. This seems doubtful in the near future — at least until September when the latest spending bill expires. When Congress passed the bill in April, it refused to grant money to Sessions to begin a get-tough-on-marijuana war. In the meantime, groups are advocating Congress to amend the federal marijuana law. This too is probably unlikely in such a short amount of time. After September, if Sessions opts to start a war on marijuana, he could choose to limit his crackdown to

recreational marijuana. Even Sessions' boss has publicly supported medical marijuana. And over 90 percent of the country, including 90 percent of Republicans, support the use of marijuana for medical purposes and leaving alone states that have already passed laws allowing its use. But this President is never predictable. Despite he and his staff previously backing medical marijuana, Trump included a signing statement with the April budget that noted his objection to a provision preventing DOJ from interfering with state medical marijuana programs. What does the signing statement mean? No one knows. If businesses, investors, and employees don't want to risk the possibility of federal arrests or losing money, better to wait until September to see what Congress does. If it continues to fail to provide Sessions with the money needed to go after marijuana businesses, they may be safe for a few months or a year. But nothing is ever for certain with this administration and nothing will be certain until the federal laws are fixed to align with the states.

WILL DEMAND INCREASE FOR COMMERCIAL REAL ESTATE? Harold “Hal” Lewis, Co-managing Partner, Pathman Lewis, LLP

HAROLD 'HAL' LEWIS In terms of commercial real estate, medical marijuana could have an impact on South Florida’s agricultural, industrial and retail sectors. But I would expect the largest initial effect would be in the industrial market. Because medical marijuana is an industry tightly regulated by the state, the plants will need to be planted and harvested in a secure, well-controlled indoor setting. That is likely to create a demand for underutilized warehouse, manufacturing or distribution space that could be converted into large-scale “grow houses.” However, much of South Florida’s industrial market is already in use by the region’s international logistics and export-import businesses. Warehouse space in Doral, as well as the central and northwest Miami-Dade submarkets is in great demand with low vacancies and high rental rates. Most of Broward County’s indus-

trial market is also oriented toward the region’s airports and seaports. Therefore, the logical area for medical marijuana facilities would be in the Homestead/Florida City area, and along the U.S. 1 corridor south of Cutler Bay. This could add some needed vigor to south Miami-Dade’s lagging industrial market. The Homestead area already has an agricultural orientation, and adding grow houses could be a natural extension of that market. In addition, many types of ancillary service businesses, such as irrigation and fertilizer companies, are already located in south Miami-Dade. Turning to the retail sector, I don’t expect much of an impact in the near future. Medical marijuana will need to be dispensed through a doctor’s order, so there won’t be the walkin traffic you see in states like Colorado that have approved the recreational use of marijuana.

CAN MARIJUANA BUSINESSES GET INSURANCE COVERAGE? R. Hugh Lumpkin, Managing Shareholder, Ver Ploeg & Lumpkin Insurance coverage is an important consideration for medical marijuana licens-

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Professional Perspectives on the Business and Legal Impact of Medical Marijuana • CONTINUED FROM PAGE 5 ees, who face a wide range of risks. For example, medical marijuana is a cash business, which increases the dispensaries’ exposure to theft. The licensees will likely need crop insurance, as well as commercial property and

R. HUGH LUMPKIN casualty (P&C) and general liability policies. Growing marijuana indoors increases the risk of fire from the incandescent lights, and the risk of flood from a burst irrigation pipe. With their high humidity and bright lights, grow houses are an ideal environment for mold growth. However, most P&C policies have exclusions for mold so that damage might not be covered. It will be important for licensees to be sure that plants and shrubs are covered in the P&C polices. In some cases, the courts have ruled that public policy forbid payment of a claim because marijuana is illegal on the federal level. If marijuana is clearly underwritten in the policy, the courts are likely to be more lenient in that regard. Because Florida will be collecting confidential infor-


mation on medical marijuana patients, cyber insurance may be needed to protect against the unwarranted release of personal information. Other risks include lawsuits from consumers who may suffer an adverse reaction or those who claim the medical marijuana did not provide the advertised relief. One of the challenges for insurers is that they have no prior history with this business sector, making it difficult to determine premiums and coverage limits. In summary, a medical marijuana licensee will want all the insurance products of any mainstream American business. But they need to be very careful when purchasing policies to go through a specialized insurance broker, because of the proliferation of exclusions. There’s no point in buying insurance if a claim is unlikely to be paid.

WILL EMPLOYERS NEED TO UPDATE THEIR POLICIES? Robin Taylor Symons, Miami Co-managing Partner, Gordon & Rees Scully Mansukhani, LLP

ROBIN TAYLOR SYMONS With today’s borderless commerce, many South

Florida organizations have business operations in multiple states. A practical way to keep policies and procedures consistent under differing state laws is to incorporate rules that reflect federal law making it illegal to own, use or sell marijuana. In general, we are not recommending that any overhaul to employers’ employment policies and procedures focus exclusively on marijuana. Employment handbooks do need to be updated regularly, and refreshing those provisions is a good idea, even for small businesses. Typically, employers will need to review their policies on safety, smoke-free workplace, zero-tolerance (drug and alcohol-free workplace policies), and social media. These policies can address issues arising from workplace substance abuse of any kind, such as driving or operating equipment while impaired, which can endanger the employee and other people, whether or not the substance itself is legal to use. Another interesting issue is whether an employer can ask a job applicant about medical marijuana use during an interview. That line of questioning is unwise because it relates to an applicant’s medical condition, which the employer or interviewer should not ask about. While we do not advise employers to look at applicants’ and employees’ social media, job applicants may find it prudent to take a close look at their social media presence and delete photos and posts related to marijuana or situations that

might raise a red flag. A medical marijuana card does not convey the right to show up at work in an impaired condition.

WHAT ARE THE ETHICAL IMPLICATIONS? H. Steven Vogel, Partner, Hinshaw & Culbertson

H. STEVEN VOGEL The landscape of the marijuana industry is changing rapidly and it has become a fast growing and lucrative business. Careful consideration must be given to the issues professionals face as they venture into this market where there is a conflict between federal and state law. Professionals, including CPAs, planning to undertake any professional services for a marijuana business should first consider the ethical implications in the state where they hold a license. Regulators of the accounting profession have issued guidance in a number of states. Consideration must be given to whether the State Board has issued guidance and/or defined "good moral character." In Florida, good moral character for CPAs means "a personal history of honesty, fairness and respect for the rights of others and

for the laws of this state and nation." Another issue is proper compliance with U.S. tax laws. The Internal Revenue Code requires taxpayers to report all income, regardless of whether it is obtained legally or illegally. Notwithstanding, the tax laws do not permit taxpayers to deduct expenses related to income obtained from an illegal business. Professionals are also advised to consider the background (and associates) of a prospective or existing business client. Given the Department of Justice’s clear position that marijuana remains a Schedule 1 controlled substance, professionals are advised to consider whether any ties exist with organizations that may be subject to scrutiny by law enforcement. In addition to the tax risks, a financial statement audit of a marijuana business presents many issues. Professionals should consider: (i) whether the CPA has a complete understanding of the business entity including the legal and regulatory environment of the industry (i.e. banking laws) and, (ii) whether the risks of a high cash business can be properly evaluated given the susceptibility to theft and fraud.

ARE THERE BUSINESS OPPORTUNITIES? Marshall R. Burack, Partner, Kopelowitz Ostrow Ferguson Weiselberg Gilbert The medical marijuana business is part of the healthcare industry, and partici-

pants in this business must be aware of the statutes and regulations that apply to financial arrangements among healthcare industry participants. There are prohibitions against fee splitting or otherwise paying for referrals, as well as prohibitions against fraud and abuse.

MARSHALL R. BURACK Complying with the applicable healthcare statutes and regulations is an important consideration in structuring marketing arrangements for a medical marijuana business, just as it is for a physician practice or a healthcare clinic. Because there are only a limited number of medical marijuana licensees, in the growing and dispensing business, the real business opportunity in this industry is in the ancillary sectors, providing products or services for the licensees. Many of these ancillary businesses are looking to attract patients who might benefit from medical marijuana and connect them with physicians who can write prescriptions for medical marijuana. These businesses are looking to contract with physicians who want to become


involved with the industry, and with dispensaries, who are looking to attract potential patients. A significant concern for all participants is that the dispensing of marijuana is still considered a federal crime. Therefore, it is advisable for parties to a contractual arrangement to incorporate some type of protective wording into their business agreements. A typical healthcare industry contract may include a clause providing that if a particular practice or arrangement is deemed to be illegal by a new regulation, court decision, or regulatory interpretation, the parties will seek to restructure their arrangements so as to comply with the law. The impact of such a provision in the context of medical marijuana is uncertain. It might be advisable to add a provision that says, “If there is federal enforcement of laws making the dispensing of medical marijuana illegal, the parties will seek to restructure this agreement.” At this point, the industry participants are those who have obtained licenses to grow and/or dispense medical marijuana, and those ancillary business looking to provided products and services for the licensees. In the future, as the industry develops, there may be opportunities for vertical integration by the licensees, as they seek to affiliate with prescribing physicians and to attract a broader patient base for their product.


SANDRA GREENBLATT A number of South Florida physicians are considering adding medical marijuana to their healthcare practices. To do so, they need to complete a continuing medical education (CME) course offered by the Florida Medical Association (for medical doctors) or the Florida Osteopath Association (for doctors of osteopathic medicine), along with an active and unrestricted professional license. Under the new state law, an M.D. or D.O. needs to examine the patient, determine the problem and certify that the patient has a qualifying medical condition. It is very important for the physician to document everything, especially since marijuana use is still illegal under federal law. Physicians cannot prescribe or dispense medical marijuana. The physician may certify that the patient qualifies for medical marijuana and the patient can take that certification to a state licensed medical marijuana treatment center

to obtain the product. A patient is only authorized to receive three 70-day physician orders, so the physicians will have to re-evaluate their existing patients every 30 weeks before recertifying. The professional boards will be reviewing all physician certifications to analyze possible abuses, which can be grounds for discipline. One of the potential impacts of the Florida law is that it might reduce the number of prescriptions written by physicians for opioid pain relievers that are filled at traditional pharmacies. Some patients with chronic pain due to cancer or other specified conditions might opt for medical marijuana. At this point, it is not clear whether the patients will need to pay for medical marijuana out of pocket or if insurers might cover some or all of the costs as medically necessary. There is another important provision for healthcare providers: If they certify patients for medical marijuana, they are not permitted to be employed by a, or have any financial interest in a medical marijuana treatment center or marijuana testing laboratory. In other words, they can write the certifications or have a financial relationship with a treatment facility or testing laboratory, but not both. So, providers should think carefully about their options when evaluating opportunities under the new medical marijuana law and consult their health care attorneys.

WHAT ARE THE FINANCIAL IMPLICATIONS? Andrew Ittleman, Partner, Fuerst Ittleman David & Joseph, PL

ANDREW ITTLEMAN I have focused primarily on the financial side of the cannabis industry. On a national level, very few banks are willing to take on this business. It’s not just the growers and retailers – it’s everyone connected with the industry. Even nonprofit marijuana policy organizations and conference organizers have difficulties opening and maintaining bank accounts. All banks and credit unions are regulated by a multitude of federal agencies, including the Drug Enforcement Agency (DEA), and regardless of state-level cannabis initiatives, these agencies continue to treat cannabis as a Schedule I drug under the Controlled Substances Act. Consequently, these agencies continue to treat even licensed retail sales of cannabis as trafficking events, and the movement of cannabis-derived funds as money laundering transactions. Guidance published by the Financial Crimes Enforcement Network

(FinCEN) in 2014 has been somewhat helpful, but severe banking difficulties remain widespread even for fully licensed marijuana-related businesses. Today there is concern of increasing federal scrutiny of the marijuana industry by the Trump administration’s Justice Department, and there is little hope that the banking crisis will improve in the foreseeable future. In addition to a lack of access to basic checking accounts, most marijuana-related businesses also lack access to other financial products, including checks, debit and credit cards, and business loans. The industry is therefore cash-intensive throughout the country, and there have been many reports of serious security problems stemming from dispensaries being unable to deposit their cash. In Florida, regulators may be particularly concerned about our state’s history of financial crimes and money laundering, and business practices that might be acceptable in Colorado or Washington would likely not be tolerated here. Although Floridians passed a constitutional referendum last November, and the Legislature has written the statutes, the actual implementation of the marijuana industry is likely to take some time. It’s not just the concern about a high volume of cash transactions. The state Department of Health still has to write the rules for the licensees, and there will likely be further litigation over the rules themselves and the issuance of licenses.



Voters in numerous states, including Connecticut, Michigan and Hawaii, have also passed cannabis referendums, but many of the businesses in those states are forced to sit idly by hemorrhaging money due to seemingly endless delays in approvals from the regulatory agencies. With the amount of money at stake in Florida, and the wide variety of special interests having their voices heard in Tallahassee, it could take years before Florida’s Green Rush begins.

CAN FLORIDA LICENSEES CREATE THEIR OWN BRANDS? Jorge Espinosa, Founding Partner, Espinosa Martinez PL

JORGE ESPINOSA While marijuana has gradually become legal at the state level for medical and recreational purposes, it is still a banned substance at the federal level. That poses an interesting issue for brand names, trademarks and other forms of intellectual property. All states have their own trademark registries and you can register and defend your mark in states that allow me-

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Professional Perspectives on the Business and Legal Impact of Medical Marijuana • CONTINUED FROM PAGE 7 dicinal or recreational marijuana use. However, the U.S. Patent and Trademark office will not allow you to register a trademark for a marijuana product or service nationally since under federal law it is still a banned substance. Because most business eventually aim to sell in multiple states or even nationally, having a consistent national brand is important. The current state of the law regarding marijuana products is, instead, creating a patchwork of rights across the country. Therefore, you could wind up with one “Dr. Jones Marijuana Shop” in Miami, another in Denver and a third one in California. These would be three different companies with different quality products, standards and service. That could result in confusion for the consumer, who might think all three dispensaries were under the same ownership. From a branding perspective, the difference between state and federal regulations is laying a land mine for future disputes. In general, the first company to use a brand name or trademark has superior rights to the intellectual property, compared with other businesses that follow.

However, the various laws and regional restrictions are creating a proliferation of different owners using the same mark in different parts of the country who would dispute first uses in other states. If the federal law changes we are likely to see legal disputes arise over use of marks. It is likely that until there is a change in federal law, you will see a move toward consolidating local and regional businesses so as to get the broadest brand coverage possible. You will also see trademarks registered federally for associated side businesses, such as supplement sales, that can later be converted to cannabis use. Regardless of your view on the merits or propriety of marijuana use, creating clear national branding rights almost always serves

the interests of the consumer and regulator.

WHAT ABOUT REGULATORY AND COMPLIANCE ISSUES? Marta Alfonso, CPA, Principal, Miami Office; Edward Blum, CPA, Boulder Office, Morrison, Brown Morrison, Brown, Argiz & Farra, LLC

MARTA ALFONSO Businesses that operate in the cannabis industry confront significant operating,

financial, and compliance issues as a state-regulated, cash-intensive operation. As of March 31, the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, reported that only 368 of U.S. depository institutions provided banking services to marijuana-related businesses. Thus, the restricted banking environment for licensed cannabis businesses necessitates that owners adopt and maintain effective internal controls relating to the receipt, disbursement, accounting, secure storing, and secure transfer of cash. In addition, federal reporting requirements are also in place for certain cash transactions. Cannabis-related businesses must report to FinCEN if they receive cash payments over

State requirements mandate that a cannabis enterprise track the progeny of cannabis being grown and sold, and retain evidence of sales to qualified customers. As a result, cannabis owners must adopt rigorous inventory accounting and documentary procedures on a per transaction purchase and sale basis to comply with state requirements and income tax record keeping.

$10,000 as a result of a single transaction or two or more related transactions. As with other businesses, but more so with a cannabis enterprise, owners should adopt and maintain internal controls that avoid the commingling of its operating cash with the personal cash requirements of an owner or manager, or the cash requirements relating to other owner permitted business ventures. Additional financial complexities arise in complying with federal income tax law and state operating requirements for cannabis-related enterprises. Under the Internal Revenue Code (IRC) Section 280E, and pursuant to IRS interpretation, cannabis businesses may only deduct from gross income the cost of the controlled substances sold. Therefore, no other costs are deductible by a cannabis enterprise, such as rent, telephone, or administrative salaries. A tax court case related to the application of IRC Section 280E in a cannabis enterprise with more than one business activity held that the nature of the enterprise expenditures must be examined and that allocations be made between

the cannabis related and the non-cannabis related expenditures. Based on this judicial precedent, proper compliance necessitates that an owner establish and maintain a detailed chart of accounts and appropriate cost accounting procedures that distinguish and maintain necessary documentary support for costs that are incurred in connection with the cannabis related activities from other income and costs derived from permitted non-cannabis activities at the same location. Other important income tax considerations involve selection of the appropriate tax filing entity and ensuring compliance with state requirements related to the residency of cannabis-related enterprise investors. State requirements also mandate that a cannabis enterprise track the progeny of cannabis being grown and sold, and retain evidence of sales to qualified customers. As a result, cannabis owners must adopt rigorous inventory accounting and documentary procedures on a per transaction purchase and sale basis to comply with state requirements and income tax record keeping.

Does Your Risk Tolerance Need a Realignment? • CONTINUED FROM PAGE 3 ence and will continue to strategically position the bank for future Florida growth while maintaining connection with the historical


business of the bank and its values. Hill can be reached at dwight.hill@sabadellbank.com or 305.808.2223. Sabadell United Bank is expected to merge with and into IBERIABANK on July 31,

2017 and will continue to operate under the Sabadell United Bank name until the fall of 2017. IBERIABANK is a United States-based bank that will be approximately $27 billion in assets following this merger. The name

IBERIABANK is derived from the city in which it was founded in 1887 – New Iberia, Louisiana. Company stock is traded under the symbol IBKC. For more information about IBERIABANK, visit www.iberiabank.com.