Marijuana Businesses Deemed Criminal Offense By California Court of Appeals Citing RICO Act
Last Wednesday, a panel of judges in a California court declared that running a cannabis enterprise is deemed a criminal offence.
As reported by Courthouse News Service, the Ninth Circuit Court of Appeals, consisting of a trio of esteemed judges, upheld a previous decision that barred a California-approved cannabis cultivator from taking legal action against her former associates. The cannabis cultivator claimed former associates were involved in a deceitful scheme that resulted in the deterioration of her cannabis farm.
The judgement was based on the fact that Francine Shulman, a previous apple farmer who shifted her focus to the cannabis industry, couldn't seek retribution under the Racketeer Influenced and Corrupt Organizations Act (RICO). This is because such action would authorize her to undertake steps viewed as illegal under federal law.
According to U.S. Circuit Judge Milan Smith Jr., an appointee of George W. Bush, when examining RICO, it is evident that Congress had no intention of including 'business or property' in relation to cannabis-related trade. When RICO was established, Congress explicitly defined 'racketeering activity' as 'the production, hiding, acquisition, selling, importation, or any other form of cannabis dealing.
What Transpired
Shulman, a farmer from California, partnered with Todd Kaplan, the creator and head of Vertical Cos., a seed-to-sale legal cannabis enterprise, as she required funding to broaden her existing Iron Angel ranch. The ranch near Lompoc covered 1,100 acres, where she had already grown medical marijuana. With the legalization of adult-use cannabis in the Golden State, Shulman took advantage of the opportunity, procured new land and broadened her farming operations. For this purpose, Shulman entered into lease and cultivation agreements with Kaplan and his associates.
However, Shulman claimed in a legal action filed under the RICO Act in 2019 that Kaplan and his associates attempted to seize her property and grower licenses while failing to comply with the contractual terms. She sought to recover damages—unfortunately, California state law. U.S. District Judge André Birotte Jr., in October 2020, discarded her federal lawsuit claims. Shulman's legal team was incensed by the judge's ruling.
The district court's stance is that those involved in the cannabis industry - or any other activity that was first legalized by states - lose the protections provided by federal laws. This means such individuals will never have the chance to claim damages in federal court. As more states legalize cannabis use and sales, the industry has grown exponentially and will continue to do so. But if the district court's decision is upheld, it could devastate the industry and its workforce.
Rico Laws are Closely Tied to the Federal Ban on Cannabis.
For long, accusations stemming from the Racketeer Influenced and Corrupt Organizations (RICO) Act have been a persistent threat to the cannabis industry. Issued from various sources, such as civil, state and federal levels, the charges have been employed to hinder cannabis operations, whether justifiable or not.
Created in 1970, US RICO charges were initially intended to target notorious mafia leaders but now encompass a variety of offences, including gambling, slavery, money laundering, racketeering and many other illicit business accusations. To date, the majority of cannabis RICO cases have been unsuccessful. Nevertheless, the proceedings can cause significant harm to brands.
Although cannabis companies have occasionally used RICO charges to their advantage, the industry remains mainly in the line of fire. In July, four Arkansas operators faced charges filed by three medical patients who accused them of exaggerating THC potencies.
The plaintiffs - Don Plumlee, Pete Edwards, and Jakie Hanan - claimed that they purchased medical marijuana with 25% less THC than advertised and filed a class-action lawsuit.
Furthermore, the plaintiffs argued that the cannabis business is liable under the federal RICO Act since large-scale marijuana sale cultivation and sale is prohibited under the federal statute. In the meantime, actions like these tend to gain traction as they stem from the fact that cannabis is still classified as a Schedule I drug under the Controlled Substances Act.
According to the legal advisor for Vicente Sederberg, Meg Nash, as long as cannabis remains illegal on the federal level, there is always the possibility that offended parties will use the RICO statute as grounds for asserting claims against cannabis brands.
Should The Cannabis Industry Be Worried?
Reactions from legal experts and operators were mixed when asked if the industry should fear or worry about further RICO charges.
Many concurred that the cannabis industry is still a victim of RICO and other federal charges. However, opinions varied on who should be concerned, stressing the significance of compliance and the generally unsuccessful history of RICO charges up until now.
"All cannabis companies should fear the potential of federal organized crime-type charges," said Guy Rocourt, the CEO of Papa & Barkley, noting the ongoing federal laws against cannabis.Meg Nash, counsel for firm Vicente Sederberg is also concerned about federal law. "As long as cannabis remains federally illegal, there is always some risk that aggrieved individuals will seek to use the RICO statute as a basis for asserting claims against cannabis brands."
Nash also explained that RICO cases against cannabis businesses have historically not been successful for the government due to the numerous components that make up the legal action. Recent examples include a California federal judge dismissing charges against a cannabis company for transporting products on a shared road in Santa Barbara County. The judge stated that the county failed to prove the harm it sustained.
In May 2020, 226 cannabis businesses in Oregon emerged victorious in racketeering charges brought against them by a woman who alleged that a neighbouring cannabis processor had caused her harm in 2018.
Conclusion
In summary, as long as cannabis remains illegal at the federal level, the industry will continue to face the risk of RICO charges. However, it is essential to note that these cases have historically failed the government. It is crucial for cannabis companies to ensure compliance with all laws and regulations and to be aware of the potential risks. While the threat of RICO charges may loom, the industry must continue to push forward and advocate for full legalization. With the growing acceptance and legalization of cannabis, the industry will continue to thrive and evolve. Despite the challenges, the future of cannabis looks bright and promising.
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