RICO – Cannabis Industry

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.

On December 27, 2018, the Northern District of California dismissed a civil RICO claim brought against the owners and operators of a Sonoma County cannabis growing operation and the operation’s landlord. See Bokaie v. Green Earth Coffee LLC, 3:18-cv-05244-JST, 2018 WL 6813212 (N.D. Calif. Dec. 27, 2018). The lawsuit was filed by neighbors who alleged that the operation’s “skunk-like stench” interfered with the enjoyment of their property and drove down their property values. The Bokaie court found that such alleged harms did not constitute a “RICO injury,” and thus dismissed plaintiffs’ claim (albeit without prejudice, allowing 30 days to amend).

The Bokaie case is part of a growing trend of RICO lawsuits filed in legalized states—to date, roughly a dozen have been filed in California, Colorado, Massachusetts and Oregon—that seek to exploit the tension between state law and the federal Controlled Substances Act (CSA). RICO defines “racketeering activity” to include CSA violations, and a civil lawsuit can proceed upon allegations that an enterprise’s pattern of racketeering activity caused damage to the plaintiffs’ business or property. 18 U.S.C. §§ 1961(1), 1962(c), 1964(c). RICO’s civil remedy provision awards prevailing plaintiffs triple damages and attorneys’ fees, id. § 1964(c), thus giving “not in my backyard” plaintiffs and their attorneys a powerful tool against their neighbors. By alleging that the smell of cannabis interferes with the enjoyment of their property and drives down their property value, plaintiffs in these cases are effectively elevating common law nuisance claims into federal RICO lawsuits.

Read the full Duane Morris Alert.

Tag: RICO

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