A few years ago, a trend began to emerge — driven by the anti-cannabis lobby — of civil claims being asserted against state-licensed cannabis operators under the Racketeer Influenced and Corrupt Organizations Act.
The suits were brought in an attempt to curtail operators’ state-legal cannabis activities based on the allegation that such activities violated the federal Controlled Substances Act and thereby satisfied the predicate act requirement under RICO.
In all such cannabis-related RICO cases, the plaintiffs’ bid for a civil judgment failed, and the trend of civil RICO claims against cannabis operators seemed to vanish as quickly as it appeared.
Recently, a putative class action, Plumlee v. Steep Hill Inc., was filed in the U.S. District Court for the Eastern District of Arkansas against four state-licensed cannabis operators, asserting civil RICO claims arising out of allegations that the operators falsified the amount of THC in their cannabis products.
To read the full text of this article by Duane Morris attorneys Ethan Feldman and Seth Goldberg, please visit the firm website.
FarmaceuticalRX LLC, licensed to process cannabis in Pennsylvania and Ohio, describes itself as “bringing healthcare, science, and innovation to the medical marijuana sector.” FarmaceuticalRX LLC boasts a “world-class research and development team” tasked with studying the effects of the cannabinoid in the treatment of opioid addiction, to lung cancer, and tumor cell remediation.
A lawsuit was filed in the USDC for the WDPA by former FarmaceuticalRX LLC delivery drivers, classified as independent contractors, seeking lost wages for overtime pay under the FLSA and PA Minimum Wage Act resulting from a misclassification as independent contractors rather than employees. According to the Complaint, the drivers attempted on several occasions to raise this misclassification, but the issue was never fixed. And one at least one occasion, the drivers were told that changing the classification mid-year may raise red flags with the IRS. The Complaint further alleges that the defendants controlled the work schedule and provided the drivers company cars. The defendants put out an advertisement looking for replacement workers about a month before the plaintiffs were fired.
This is just another example of lawsuits that cannabis operators and those in the industry may face. As previously reported, products liability and class action suits resulting from alleged mislabeling were filed earlier this year. Additionally, RICO and consumer fraud claims have also been filed. In addition to plaintiffs seeking monetary compensation, cannabis businesses and operators are open to virtually any kind of litigation, such as landlord-tenant disputes and patent infringement claims. These lawsuits continue to highlight the importance of remaining vigilant in all aspects of business. As the industry continues to expand, it is likely that lawsuits will as well.
Healthcare insurers are used to dealing with claims for reimbursement by hospitals, providers, and patients. Medical marijuana treatment provides another vehicle for such claims.
New Mexico passed the Behavioral Health Services Equity Act (BHSEA) last April, effective January of 2022, which mandates that health insurance must cover in full the cost of services or medication used to treat behavioral health services. In February, New Mexico Top Organics – Ultra Health sent a letter to several insurers and the Office of the Superintendent of Insurance seeking affirmation that the insurers will provide coverage as prescribed by the act for the 74,000+ patients currently enrolled in the medical marijuana program as a result of PTSD. The request was denied. Now, several New Mexico health insurance companies are defending against a class action lawsuit filed by New Mexico Top Organics – Ultra Health, and six medical marijuana patients, seeking “recovery for themselves, and for every other similarly situated behavioral or mental health patient unlawfully subjected to paying for the entire cost of medically necessary cannabis in violation of state law” for failing to pay for the cost of medical marijuana as provided under the act.
Other legislatures are discussing similar laws that provide for insurance coverage of medical marijuana programs. For example, New York has pending legislation that if passed, would define medical marijuana as a “prescription drug,” “covered drug,” or “health care service” that would qualify for coverage under public programs. The United States Supreme Court recently denied certiorari for a pair of cases concerning workers’ compensation for medical marijuana, an issue that has not been decided uniformly amongst the states. For example, Minnesota and Maine have determined that the Federal Controlled Substance Act preempts the state law requiring reimbursement for medical marijuana due to a work-related injury, while New Hampshire and New Jersey have ruled in favor of reimbursement regardless of federal preemption.
The passage of New Mexico’s Act mandating behavioral health coverage in full and subsequent lawsuit brings a new wrinkle into cannabis litigation, with broad implications across the healthcare industry. Indeed, early clinical reports and case studies have shown positive results from the use of medical marijuana to treat PTSD, a disorder that effects an estimated 12 million Americans, and with medical marijuana available in 37 states, the class action lawsuit seeking reimbursement under the BHSEA may serve as a preview of a type of cannabis-related litigation that may be brought against healthcare insurers.
Last week, my colleague Seth Goldberg and I published a client alert highlighting a series of cases filed in Oregon federal court against Curaleaf for allegedly mislabeling THC products as containing only CBD, which allegedly caused consumers of those products to experience and unwanted “high” resulting from ingestion of the products. A consumer class action lawsuit seeking $200 for each consumer who purchased the products was filed by the same Plaintiffs’ counsel. This class action lawsuit further highlights the fact that cannabis manufacturers need to ensure that proper SOPS, protocols, and measures of compliance are in place to ensure the safety of their products, and it demonstrates the types of claims that can be asserted when cannabis product safety issues, such as labeling discrepancies, arise. Class action claims, given the number of potential class members who may potentially recover, raise the stakes of litigation resulting from product safety issues. In addition, there also may be regulatory action taken and statutory fines imposed.
The Oregon Liquor and Cannabis Commission (OLCC) is conducting an ongoing investigation into Curaleaf regarding an alleged mislabeling of a nonpsychoactive cannabidiol (CBD) product, which actually contained psychoactive delta-9 tetrahydracannabinol (THC). Curaleaf operates 101 retail cannabis dispensaries in 16 states. The OLCC investigation revealed that the alleged mislabeling resulted from an employee’s confusing the CBD bottles with the THC bottles in preparing the Curaleaf cannabis products at issue. The incident caused consumers ingesting those products to have experienced a “high” they did not anticipate, and ultimately led to the recall of approximately 500 bottles of tincture from the Oregon market. At least three of those consumers went to the emergency room due to the high, one consumer was hospitalized and one consumer’s estate brought a claim for wrongful death.
To read the full text of this Duane Morris Alert, please visit the firm website.
Seth Goldberg is a Team Lead of Duane Morris’s Cannabis Industry Group, a cannabis business advisor, and a trial attorney with experience in products liability and consumer fraud claims. Ethan Feldman is an associate in the firm’s Trial department, with experience in products liability and consumer fraud.