Welcome back to Higher Law, our weekly briefing on all things cannabis. I'm Cheryl Miller, reporting for Law.com from Sacramento, where regulated cannabis backer Gavin Newsom became California's 40th governor this week.

Newsom, a self-described advocate of protecting “small cultivators, small farmers … small business” in the cannabis space will have his hands full in the coming year as consolidation and regulations continue to favor well-financed companies.

Meanwhile, in Colorado legalization champion Jared Polis took the oath of office as governor on Tuesday, signaling his support for the broader industry by printing his inauguration ceremony programs on hemp paper.

What's your outlook on 2019? What are the big issues we should be following? Drop me a line and let me know at [email protected] or you can call me at 916-448-2935. Follow me on Twitter at @capitalaccounts.

Big Law Digs Cannabis

Dentons is building a cannabis practice.

Writing that a few years ago would have been unthinkable. Even now it feels a little weird to say that about the sixth-highest grossing firm in the world.

Dentons announced this week that former Jones Day partner Eric Berlin has joined the firm to lead a team “representing clients in, and doing business with, the cannabis industry.”

The demand for legal and regulatory guidance about cannabis, particularly from sophisticated companies with complex operations, is growing, Berlin said.

And the firm isn't hiding its work.

“To be clear, while we of course will be selective with the clients we work with, we're handling all clients' needs across the board,” Berlin said.

Dentons' announcement follows revelations over the last year that Global 100 firms such as Sullivan & Cromwell; Wachtell, Lipton, Rosen & Katz; and Covington & Burling have advised clients in corporate cannabis-related transactions—sometimes only in Canada where marijuana is legal nationwide and sometimes only with clients that don't deal directly with pot plants.

>> But more firms are setting aside concerns about U.S. prohibition—and the stigma—to take on the business.

Joining Berlin in leading Denton's cannabis team will be Chicago-based Kathryn Ashton, chair of the firm's U.S. health care practice and San Francisco-based Kelly Fair, a senior managing associate.

“My vision was, and the firm shares this, is creating the go-to practice for clients, particularly sophisticated clients, impacted by the cannabis industry,” Berlin said.

A lawyer who has worked on cannabis issues for 10 years, Berlin helped craft the medical marijuana programs enacted by Illinois and Ohio. A decade ago, other lawyers warned him that he was “killing” his career and crazy for pushing regulated marijuana. Now, he said, he's just “crazy busy.”

“And occasionally that's overwhelming,” he said. “But I'm living the dream.”

A Thorn in the IRS' Side

Thorburn Walker, the Greenwood Village, Colorado, firm that's made a name for itself fighting the IRS on behalf of cannabis companies, is trying again to get the issue of marijuana and tax collection in front of the U.S. Supreme Court.

U.S. Supreme Court Justice Sonia Sotomayor recently gave the firm's lawyers more time to file a cert petition in Alpenglow Botanicals v. USA. The U.S. Court of Appeals for the 10th Circuit last year held in the case that the IRS has the power to determine if a taxpayer is trafficking drugs—even state-legal marijuana—so that the agency can deny ordinary business tax deductions. The U.S. Supreme Court declined last year to hear a similar 280E tax challenge by Thorburn Walker in The Green Solution Retail Inc. v. USA.

There are more challenges from the firm coming, one in the U.S. Tax Court and another in the 10th Circuit. To date, the courts have been unwilling to curtail the IRS' power over state-legal marijuana businesses. So I asked Thorburn Walker partner James Thorburn why the the firm continues to doggedly challenge 280E and the Tax Man.

“Because it implicates serious constitutional issues that transcend the question of how marijuana should be taxed,” Thorburn told me.

Thorburn said the 280E fight is similar to past battles over the government's civil tax power to investigate alleged criminal activity involving securities, gambling and firearms.

“The government seeks to solidify this power since civil tax investigation generally bypasses Fourth and Fifth Amendment protections,” he said. “The IRS can then investigate non-tax crime without the constitutional 'impediments' that law enforcement faces. However, without these constitutional protections, our country becomes little more than a police state with the IRS becoming the key investigative agency. We are fighting to keep this from happening.”

You Said It!

” … CA cannabis legalization was great 1st step, but we gotta get regulation/taxes/land use right. Otherwise illicit market will continue to thrive & legalization won't succeed. Let's stop w measure after measure (State/local) undermining cannabis & let's instead help it succeed.”

– State Sen. Scott Wiener tweeting in response to a New York Times story that California's legal marijuana sales, and tax revenues, are down while the black market thrives.

In the Weeds…

>>> New Florida Gov. Ron DeSantis has hinted that he may drop the state's fight to uphold a ban on smoking medical marijuana. But on Tuesday, the same day DeSantis was sworn into office, attorneys for the state argued before a three-judge appellate panel that smoking ban should remain. [Daily Business Review]

>>> Did you make the list? Business Insider put together a list of lawyers it said worked on the largest cannabis-related M&A in 2018. Spoiler alert: Not every mega-deal lawyer is from a mega-sized firm. [Business Insider]

>>> The new director of the agency that oversees Michigan's marijuana industry is married to an owner of a lobbying firm with a number of cannabis clients. Orlene Hawks, head of the Department of Licensing and Regulatory Affairs, told the Detroit Free Press that she “will rely on all civil service rules and protocols” to ensure her department acts fairly. Hawks is married to Michael Hawks, principal of Government Consultant Services, Inc. [Detroit Free Press]

>>> Regulate recreational marijuana like gambling. That's the message from New Jersey state Sen. Nicholas Scutari, who says the Garden State needs an independent five-member cannabis regulatory commission—akin to the Casino Control Commission—to set the number of licensed retailers and growers and to approve, deny and suspend those licenses. Scutari is an attorney who chairs the Senate Judiciary Committee. [NJ.com]

>>> A Delaware medical marijuana user can sue his employer after he was fired for failing a drug test. Superior Court Judge Noel Primos rejected Kraft Heinz' argument that an anti-discrimination provision in the state's medical marijuana law is preempted by the federal Controlled Substances Act. Primos also found that the state law includes an implied private right of action. [AP]

What's Next: The Calendar

Jan. 14 - The California Cannabis Industry Association hosts its annual membership meeting in Sacramento.

Jan. 23 – 24 - The fifth annual Cannabis Collaborative Conference will take place in Portland. Scheduled speakers include Cultiva Law attorney Ted Bernhard and Jennifer Clifton, general counsel at Orchid Essentials.