Did California judges just rule all cannabis businesses illegal?

California Circuit Court of Appeals criminalized marijuana dealings under RICO law

Last Wednesday, a panel of judges in a California court ruled that running a cannabis business is considered a criminal offense.

As reported by the Courthouse News Service, the Ninth Circuit Court of Appeals, made up of a trio of respected judges, upheld an earlier decision barring a California-licensed cannabis grower from taking legal action against her former employees. The cannabis breeder claimed former employees were involved in a fraudulent scheme that led to the deterioration of her cannabis farm.

The ruling was based on the fact that Francine Shulman, a former apple farmer who shifted her focus to the cannabis industry, could not seek retaliation under the Racketeer Influenced and Corrupt Organizations Act (RICO). This is because such action would entitle them to take steps that are considered illegal under federal law.

According to US Judge Milan Smith Jr., a judge appointed by George W. Bush, investigating RICO made it clear that Congress had no intention of including “business or property” in relation to the cannabis trade. When RICO was formed, Congress specifically defined “extortion activity” as “the production, hiding, acquiring, selling, importing, or any other form of trafficking in cannabis.

What happened

Shulman, a California farmer, partnered with Todd Kaplan, founder and director of Vertical Cos., a legal cannabis company sold by seed, because she needed funds to expand her existing Iron Angel ranch . The ranch near Lompoc included 1,100 acres on which she had already grown medicinal marijuana. With the legalization of adult-use cannabis in the Golden State, Shulman took the opportunity to acquire new land and expand her farming operations. To this end, Shulman entered into lease and cultivation agreements with Kaplan and his associates.

However, Shulman alleged in a 2019 RICO lawsuit that Kaplan and his associates attempted to seize their property and grower licenses while failing to honor contract terms. She tried to seek damages – unfortunately under California state law. U.S. District Judge André Birotte Jr. dismissed her federal claims in October 2020. Shulman’s legal team was outraged by the judge’s ruling.

The circuit court’s stance is that those involved in the cannabis industry — or any other activity first legalized by states — lose the protections of federal law. This means that these individuals will never have the opportunity to seek damages in federal courts. As more states legalize the use and sale of cannabis, the industry has grown exponentially and will continue to do so. But if the district court decision is upheld, it could devastate the industry and its workforce.

Rico laws are closely related to the federal prohibition of cannabis.

For a long time, allegations related to the Racketeer Influenced and Corrupt Organizations (RICO) Act have been an ongoing threat to the cannabis industry. The charges brought by various sources, such as civil, state and federal, have been used to hinder cannabis operations, whether justified or not.

Introduced in 1970, the US RICO charges were originally intended to target notorious mafia leaders, but today cover a wide range of offenses including gambling, slavery, money laundering, extortion and many other allegations of illicit dealings. To date, the majority of cannabis RICO cases have been unsuccessful. Nevertheless, the process can cause significant damage to brands.

Although cannabis companies have occasionally used RICO fees to their advantage, the industry remains mostly in the firing line. In July, four Arkansas operators were sued by three medical patients who accused them of exaggerating THC levels.

The plaintiffs — Don Plumlee, Pete Edwards, and Jakie Hanan — alleged that they purchased medical marijuana with 25% less THC than advertised and filed a class action lawsuit.

In addition, plaintiffs argued that the cannabis business was liable under federal RICO law because the large-scale cultivation and sale of marijuana was prohibited under federal law. In the meantime, measures like this are gaining in importance as they stem from the fact that cannabis is still classified as a Schedule I drug under the Controlled Substances Act.

According to Vicente Sederberg’s legal counsel, Meg Nash, as long as cannabis remains illegal at the federal level, there is always a chance for offended parties to use the RICO statute as a basis for making claims against cannabis brands.

Should the cannabis industry be worried?

Responses from legal experts and operators to whether the industry fears or should fear more RICO charges have been mixed.

Many agreed that the cannabis industry is still a victim of RICO and other federal indictments. However, opinions varied as to who should be affected, emphasizing the importance of compliance and the generally unsuccessful history of RICO lawsuits to date.

“All cannabis companies should fear the potential of federal organized crime charges,” he said Guy Rocourtthe CEO of Papa & Barkley, noting the ongoing federal laws against cannabis.and NashLawyer for company Vicente Cederberg is also concerned about federal law. “As long as cannabis remains illegal federally, there is always some risk that harmed individuals will attempt to use the RICO statute as a basis for making claims against cannabis brands.”

Nash also explained that RICO cases against cannabis companies have historically not been successful for the government due to the multiple components that make up legal action. Recent examples include a California federal judge who dismissed charges against a cannabis company for transporting product on a shared road in Santa Barbara County. The judge found that the county could not prove the damage suffered.

In May 2020, 226 Oregon cannabis companies emerged victorious from charges brought against them by a woman who alleged that a neighboring cannabis processor harmed her in 2018.

Conclusion

In summary, as long as cannabis remains illegal at the federal level, the industry will continue to be at risk of RICO indictments. However, it is important 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. Even with the threat of RICO fees looming, the industry must move forward and work toward 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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