Cannabis Attorney Malpractice Defense: Claim Dismissed at Summary Judgment

The Challenge

A Colorado cannabis attorney — experienced in state regulatory matters but not in federal cannabis tax law — was sued for legal malpractice by a former client who had acquired a cannabis dispensary. The plaintiff alleged that the attorney had failed to advise the client that the acquired business would be subject to §280E of the Internal Revenue Code, resulting in a first-year federal tax liability that was $820,000 higher than the client had projected based on standard business income tax assumptions.

The attorney retained Hoban Law Group for expert consultation and potential expert testimony. The defense theory: the attorney's engagement was limited to Colorado state regulatory compliance, not federal tax advice; the engagement letter expressly excluded tax counsel; and the client had retained a separate CPA for financial due diligence who bore independent responsibility for flagging §280E.

Our Approach

Engagement Scope Analysis. Bob Hoban reviewed the engagement letter, the attorney's file notes, and the client's communications. The engagement letter's scope language ("state regulatory compliance and license transfer") was narrow but not unambiguous — plaintiffs' counsel would argue that "license transfer" counsel includes a duty to flag material federal tax consequences.

Expert Report. Hoban Law Group prepared a 22-page expert report addressing the applicable standard of care for a Colorado cannabis attorney in 2022 with the following conclusions: (1) the standard of care for a Colorado state cannabis regulatory attorney does not, as of 2022, require proactive federal income tax analysis unless the engagement scope expressly includes it; (2) §280E was sufficiently publicly known in the cannabis industry by 2022 that a sophisticated buyer engaged in a multi-million dollar acquisition bore an independent duty to conduct federal tax diligence; (3) the client's own CPA's failure to flag §280E is the proximate cause of the tax shortfall, not the attorney's alleged omission.

CPA Apportionment. We prepared a comparative fault analysis allocating responsibility among the attorney, the CPA, and the plaintiff (sophisticated buyer self-representing on diligence), supporting the attorney's motion to apportion fault and a third-party claim against the CPA.

The Outcome

The Colorado district court granted summary judgment in favor of the defendant attorney on the basis that no genuine dispute of material fact existed regarding the standard of care. The court's order specifically cited Hoban Law Group's expert report and its analysis of the bifurcated nature of cannabis counsel (state regulatory versus federal tax) as controlling on the duty question.

The malpractice claim was dismissed with prejudice. The attorney's professional liability carrier recovered the defense costs from the plaintiff under the fee-shifting provision of Colorado's frivolous-claim statute.