Dear Pot Lawyer,

What’s going on with that cannabis racketeering lawsuit?

It’s a mixed bag. On June 7, the 10th Circuit Court of Appeals affirmed the dismissal of several cases seeking to invalidate Colorado’s marijuana laws. Those cases were spearheaded by the prohibition states of Nevada and Oklahoma. So that was great. But the court also reversed a decision against a Colorado ranch that sued a neighboring grow site, alleging noxious odors and a dent in property values. And that is really a shame.

The case now heads back to district court for consideration. More importantly, it opens up cannabis businesses and their affiliates to racketeering claims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO). I’ve explained here before that RICO is a controversial 1970s statute built to prosecute organized crime. It plays well on television, but courts seem to hate it. Still, RICO has been invoked in cases against disparate groups like the mafia, the Catholic Church, pro-life activists, and soccer syndicate FIFA. RICO allows affiliates of a criminal enterprise to be tried for crimes they themselves did not commit. 

Under a RICO pot lawsuit, a troublesome neighbor could sue not just a cannabis business, but any non-government actor who assists that business. Those parties may include: the landlord, the guy who sells fertilizer, the CPA who prepares tax returns, the newspaper or website that runs the pot company’s advertisements, and so on. In fact, the neighbor could even sue readers of the newspapers that run the ads, on an aiding and abetting theory.

Okay, I’m just kidding on that last part—you are safe from the RICO suit. But the point here is that RICO claims could chill the industry, and not the good kind of “chill.” In the cannabis context, a common plaintiffs’ strategy is to bleed the cannabis company dry by naming as many defendants as possible, and then agreeing to dismiss those defendants one by one if they promise to quit working with the cannabis business. Talk about a racket.

Going forward, we could see an uptick in these types of lawsuits. That would be a tough blow for the industry, because unlike normal “nuisance” lawsuits, plaintiffs have a lot of leverage in these cases: If they win, they can recover three times their damages, plus attorneys’ fees. And because RICO is a federal statute, state law defenses—like the fact that it’s legal to sell weed in Colorado, or Oregon—don’t apply.

Fortunately for pot businesses, there are thousands of operators out there nowadays, and most of them aren’t sited near terrible neighbors. Even if this RICO suit ultimately lands upside down, most cannabis operators can just keep their heads down and carry on, like always.

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Got a question? Email us at potlawyer@portlandmercury.com. And remember that if you have a legal problem, contact a lawyer! Our educational musings cannot be relied upon as specific legal advice.