Michael Schwamm, Partner at Duane Morris LLP- Interview Series

One of the most significant indicators of cannabis normalization and the expanding scope of the industry is the increasing number of major law firms establishing dedicated departments to serve cannabis industry clients. With over 900 attorneys operating across the US and globally, Duane Morris is a preeminent business law firm with a history of representing enterprises in the world’s largest industries. Among its newer client groups are businesses within the cannabis sector.

To gain a deeper understanding of how a firm of this scale represents these emerging cannabis businesses, mycannabis.com had the pleasure of speaking with Michael Schwamm, Partner at Duane Morris LLP.

What were the main topics you studied at the University of Pennsylvania, and how did those studies influence you to attend law school?

I was a dual major in Economics and Political Science with a minor in Math. The decision to attend law school was a bit of a path of least resistance. When I was thinking about what I was going to do after graduating from college, I was considering law school, business school or getting a PhD in economics which one of his professors had suggested to me. Alternately, it seemed that going the law school route gave me the most options for a future career path and the ability to pivot from law into business at some point in the future.

What were the main fields of law that you focused on while attending Georgetown Law? How did serving as Editor of the Journal of Law and Policy in International Business increase your legal expertise?

After taking the necessary required courses almost all my electives focused on, I knew from the onset that business law was the area I wanted to pursue and really did not have much of an interest in being a litigator. Having the option to choose from several of the law journals that Georgetown, I selected LPIB as it seemed most closely aligned with my interests.

How would you describe your first years as a lawyer? What firms did you work with, and what were the most defining or otherwise important moments in your early career that helped you strengthen your expertise as a lawyer?

After spending the first two summers of law school at small New York law firms, I joined the firm of Shea & Gould after graduation, where I spent the 1st 11 years of my career and was there until that firm dissolved in 1994. Unlike in its peer group, Shea & Gould did not assign associates to specific practice areas within the corporate group, but rather took somewhat of an informal team approach where you would work primarily for a small group of partners and in particular would be staffed to particular clients. As a result, I was able to have a very broad scope of work doing capital markets with a number of small cap IPOs, mergers and acquisitions, commercial lending and a significant amount of sports and entertainment work representing several high profile sports teams in a variety of matters including TV and radio deals, appointment agreements, application for expansion franchises and the like.

From a legal standpoint and as someone who has served as an attorney in those matters, what all goes into initiating and completing a successful merger versus a successful acquisition? What are some common legal roadblocks or issues that your clients during the process?

I wouldn’t necessarily say that the path to successfully completing a merger is really any different than an acquisition other than some subtle differences that only lawyers would understand, with the biggest difference being whether or not you are legally required to assume all liabilities as would be in the case of a merger but not of an asset acquisition.

I would say that one of the most understated roadblocks that clients face in the M&A process is frankly the sheer amount of time that it can take to complete the process and being able to delegate sufficient amount of the necessary work so that the founders or senior executives don’t take their eye off the ball while running their business.

Inevitably, once the deal closes, my clients come back to me and say they wished they had listened to me and started to prepare for a potential sale well in advance.

Inevitably, once the deal closes, my clients come back to me and say they wished they had listened to me and started to prepare for a potential sale well in advance. There are the normal issues such as making sure that the diligence package is correct and complete, that the structure of the transaction is optimized from a tax perspective, and that any potential indemnity issues to the sellers are minimized.

As former general counsel of FiberCity Networks, Inc, what did that specific role entail? Given the mass expansion of the telecommunications business during your time with Duane Morris, I would imagine those duties became quite vast.

One of the things that attracted me to the role at FiberCity was the ability to expand my role beyond purely legal and a significant amount of my time was involved with business decisions. Whereas the sound telecom work after my departure from fibercity has been sporadic, although I was involved in several very large telecom transactions at the firm.

As someone who specializes in business law, what are the most notable ways in which both the legal needs of a company and your duties as their lawyer could change depending on the company’s size?

Over my career, I had heard that the smaller companies with relatively small management teams tend to rely on their lawyer significantly more and view them as a strategic advisor. For many of my clients, they effectively view me as an extension of the management team and often use me as a sounding board for strategic decisions. Often and often I am acting as their de facto general counsel.

Obviously as companies grow larger in size and have both an in-house legal department and significant depth at the management level, there is less of this type of activity and my role is more targeted towards the specific transaction at hand.

When did you first begin to work with cannabis companies? Since you’re based in New York, did you have any experience working with cannabis operators before Governor Cuomo passed the legalization measure?

I brought on my first cannabis client about 10 years ago and most of my initial work was representing potential investors in the space as a result of having a significant number of single family office clients or contacts. Despite the fact that I am based in New York, to this day only a small portion of my work is for cannabis operators based in the state. As a law firm, we will only work with legally licensed operators and therefore fair to legalization in New York we would not have been permitted to represent any “legacy operators” in New York.

That being said, about 1/3 of my cannabis clients are capital sources, including both debt and equity funds, family offices and other high net worth individuals, a number of which are based in New York.

As someone who’s represented companies of all sizes and types, how do the legal needs of your cannabis clients differ from the legal needs of non-cannabis businesses?

There is a common misconception that we practice “cannabis law”. Much like entertainment law, any cannabis business needs a full range of legal services from corporate transactional, commercial contracts, real estate, IP, employment, tax etc. We tell our clients and prospects that you need a law firm that is well versed in the specific legal discipline (and ideally one firm that can handle all your potential legal needs) but equally important one that understands the nuances of cannabis given the fact that it is still federally illegal.

It is still surprising to me that companies hire law firms that either are well versed in a particular legal discipline, but have no real understanding of cannabis or position themselves as a “cannabis law firm” but have no real experience with the particular type of transaction or issue at hand.

While serving on The Cannabis Chamber of Commerce’s East Coast chapter, what were some of your regular duties? How are the issues that the East Coast operators are facing different from those of cannabis operators on the West Coast?

The Chamber is just that, a Chamber of Commerce that has attempted to help promote and advance the cannabis industry and the various jurisdictions in which it operates. My main focus while serving as the chair of the East Coast chapter was to help promote the chamber which at the point I had joined, did not have any reach outside of California.

As such, we tried to engage the cannabis community on the East Coast through monthly virtual networking sessions and in person meetups. Helping the cannabis industry across the country gives you insight into what will happen in the new markets. All we have to do is look at what has happened to the industry in the older markets such as Colorado and California and price compression, oversupply, business failures et cetera. And hope that we can learn from what happened there and be prepared for the trends that are likely to reoccur on the East Coast.

How will the rescheduling of cannabis change your duties as a lawyer who represents cannabis clients? Will the New York industry be greatly changed by the rescheduling?

What changes will happen as a result of rescheduling is the big unknown. I think the general consensus is that initially rescheduling, if and when it actually ever happens, (and so far we are over a month from Trump’s pronouncement and nothing has yet happened, and DOJ has not commented on when it will) is that it will eliminate the extreme tax burden on campus companies who are now paying close to an effective 70% tax as a result of the impact of 280E.

Beyond that, it’s unclear if it will open up access to more banking, increase the amount of available capital, or allow interstate commerce, which is the big wish list for many operators and other participants in the industry. Much might depend upon regulatory interpretation and enforcement, as a technical reading of rescheduling to Schedule III could imply that you now need a doctor’s prescription to purchase a cannabis product, which can then only be sold at a pharmacy.

While the general consensus is that the scheduling was intended to help the industry not restrict it, there might well need to be some type of “Cole Memo” to clarify what is permissible. However at this point, any pronouncement as to what will happen after rescheduling is really just guesswork. If it somehow leads to interstate commerce, one does have to wonder how East Coast high-cost indoor grow facilities or outdoor (that are limited to 1-2 harvests) can compete with lower-cost West Coast outdoor growth facilities that can have 3 or 4 harvests per year.

Thank you for joining us, Michael! For more information on Duane Morris and its services for cannabis companies, please visit its website.