How Should High-Net-Worth Cannabis Investors Choose Their Law Firm?

By: Nick Richards, Esq.

High-net-worth investors face unique challenges in evaluating an investment in a cannabis business and protecting their overall portfolio from the risk that is inherent in the industry. When weighing a major investment in a cannabis business, due diligence must include verification of assets and value, a thorough understanding of the company’s tax compliance and revenue, its growth projections, and verification of all licenses and ownership. It is also critical that the high-net-worth investor understands the cannabis industry in general and specifically in the state(s) in which the business operates. However, one critical question shapes how much risk you carry: who will confirm that the licenses, ownership, and operations comply with federal and state law?

Start With the Federal Picture

Cannabis rules are changing, and investors need a guide who tracks each step. In April 2026, the U.S. Department of Justice moved FDA-approved marijuana products and marijuana covered by a state medical license to Schedule III of the Controlled Substances Act (“CSA”). Many companies have applied for a DEA approved license to dispense Schedule III cannabis and the DEA is conducting inspections and reviewing applicants for licensure.

The change of medical cannabis to Schedule III is critical and will impact any business’s growth model and its tax burden beginning in 2026. Cannabis businesses are subject to a “tax penalty” under IRS Code Section 280E. The penalty disallows the federal tax deductions of any business that traffics in a substance that is within the meaning of Schedule I or II of the CSA. There is pending litigation arguing that cannabis was no longer “within the meaning” of Schedule I or II prior to it actually being rescheduled. However, it should be true that for medical licensee costs, Section 280E no longer applies beginning in 2026. What are defined as “medical licensee costs” is still uncertain and subject to different interpretations.

For the growth model, consideration must now be given to the possibility of Schedule III licensing which could then allow for interstate and foreign commerce. That involves understanding state laws and limitations along with consumer demand for specific regional products. Some states are reviewing their regulations to determine whether they can be revised to comply with the new medical/adult use distinction and investors and operators should look for opportunities to shape the outcome.

For adult use, the DEA recently held hearings and received briefings on whether it should also be moved to Schedule III. Opponents mostly argued that schedule III would adversely impact their communities. Surprisingly, the DEA stated that the opponents’ arguments had no merit and there was no question – cannabis was schedule III and had to be moved. It appeared that the judge was prepared to rule until a GAO report critical of the general rescheduling process was released. The report was entered into the record and the proceedings were stayed to allow the parties to file briefs. The cannabis industry is no stranger to government delay.

The cannabis industry is new and constantly changing—legally, competitively, at the product and consumer level, and under federal law. Uncertainty is the only certainty and a deal model built on one assumed outcome carries risk. Strong counsel maps out several scenarios and explains how each affects tax treatment, access to banking, and exit options.

Five Qualifications to Look For in a Cannabis Attorney

1. Agency experience: Ask whether the cannabis attorneys have handled license applications, renewals, transfers, and enforcement matters before state cannabis regulators.
2. Multistate reach: Each state sets its own rules for ownership caps, residency requirements, vertical integration, testing, packaging, and advertising. An investor with holdings in two or three states needs a single team to coordinate them all.
3. Deal and securities skills: Cannabis investments involve securities laws, including Regulation D and state securities filings. Your counsel should draft and review the offering documents and the purchase agreement.
4. Tax knowledge: Section 280E of the Internal Revenue Code disallows deductions for adult use cannabis businesses but not for state legal medical cannabis—mixed use businesses must allocate expenses between 280E and deductible Sch. III costs. Rescheduling may change how it applies, so there are two scenarios to model before committing capital. 280E can also create audit exposure and flow through phantom income. Adding to the confusion—there are no regulations or IRS guidance. Your tax advisor must have experience representing cannabis taxpayers before the IRS to understand what is allowed under Section 280E.
5. Team depth: A single lawyer rarely covers licensing, real estate, tax, banking, and litigation. Ask who else will work on your matter.

Due Diligence Before You Invest

In addition to understanding the business assets, P&L, debt, day-to-day business activities, and projected growth, your attorney should verify the following before closing:

• Every license is active and in good standing, and each location has its local zoning approval.
• The ownership shown in state filings matches the real owners and the people who control the business.
• All state, local and federal taxes (excise taxes, sales taxes, income taxes, employment taxes, gross receipts tax, etc.) are filed and paid or are being managed through a payment plan or other process. If there are tax liabilities—understand the type, amount, year and if they include personal liability.
• Inspection reports, notices of violation, product recalls, and seed-to-sale tracking records are clean and complete.
• Lease terms, cash handling procedures, banking relationships, and tax filings meet legal requirements.
• Management agreements and loans do not confer hidden control on an outside party. Several states treat that kind of control as an ownership interest that needs regulator approval.

Common Pitfalls of Cannabis Investments

Ownership transfers cause many of the worst problems. Many states require regulator approval before a change in ownership takes effect, and many set disclosure thresholds that trigger background checks on investors. Closing before approval arrives can put the license at risk. Inventory tracking gaps also draw enforcement attention.

Moving cannabis across state lines remains a federal crime and any diversion of cannabis outside of the seed-to-sale tracking is a serious red flag. Advertising rules vary widely from state to state, and a social media campaign that is legal in one market can violate the rules in the next. Banking is generally available but it can be cumbersome and subject to cancellation.

How Counsel Protects Your Cannabis Investment

The right cannabis attorney does more than review paperwork. Your counsel can:

• Structure cannabis investments to comply with each state’s ownership and approval requirements.
• Negotiate representations, warranties, and indemnities that put compliance risk on the seller.
• Tie closing to regulator approvals so your funds stay protected until the transfer is complete.
• Build a compliance program for the post-closing period.
• Plan your exit, including a sale to a strategic buyer or a future public offering if federal law allows it.
• Structure your ownership to protect you from Section 280E audits and flow-through phantom income.

Questions to Ask Before You Hire Cannabis Attorneys

• Which states and agencies have you worked with on licensing and ownership approvals?
• Who on your team handles securities, tax, and real estate and what is their experience?
• How will you review the target company’s compliance records?
• How do you advise clients when federal policy shifts?
• Clear answers to these questions show you who has the depth to guide a significant investment.

Work With a Team Built for Multistate Cannabis Investments

Greenspoon Marder’s cannabis attorneys in Illinois, Colorado, and Florida advise investors, operators, and stakeholders on regulatory strategy, tax, due diligence, and transaction structure across a rapidly evolving legal landscape. They are widely recognized among the top attorneys in the cannabis industry. Backed by more than 215 attorneys and over 19 offices nationwide, Greenspoon Marder helps clients navigate complex legal and strategic decisions while pursuing opportunities in cannabis investments and transactions.

This publication is provided by Greenspoon Marder LLP is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.