RICO Charges: Once reserved for the Mafia, now a familiar tactic of the anti-cannabis industry

Through Andrew Ward

Charges under the Racketeer Influenced and Corrupt Organizations (RICO) Act have long been a looming threat to the cannabis industry. The charges, which come from the civil, state and federal levels, have been used as a method to hinder cannabis operations, whether justified or not.

Introduced in 1970, the US RICO charges were originally intended to go after high-profile mob bosses, but today cover a range of offenses including gambling, money laundering, slavery, extortion and a host of other illegal business allegations.

To date, most cannabis RICO cases have been unsuccessful. Still, the process can cause immense damage to brands.

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While cannabis companies have at times turned the tables on RICO fees, the industry primarily remains in the crosshairs. In July, four operators in Arkansas saw complaints from three medical patients alleging excessive levels of THC.

Should the industry be concerned?

When asked whether the industry fears or should fear additional RICO fees, responses from operators and legal professionals varied.

Most agreed that the still federally illegal industry was at risk of RICO and other federal charges. However, opinion varied on who should be afraid, citing the importance of compliance and the largely failed track record of the RICO charges so far.

“All cannabis companies should fear the potential of federal organized crime charges,” said Guy Rocourt, CEO of Papa & Barkley, noting the ongoing federal laws against cannabis.

Meg Nash, an attorney for the law firm Vicente Sederberg, is also concerned about federal law.

“As long as cannabis remains illegal at the federal level, 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 added that RICO cases against cannabis companies have traditionally not gone well for the Feds “due to the many elements that make up the plea.”

Recent examples include a California federal judge who acquitted a cannabis company of moving product on a shared street in Santa Barbara County, with the judge finding the county failed to prove the damage sustained.

In May 2020, Orgeon’s 226 cannabis companies fought back blackmail allegations by a woman who claimed a cannabis processor next door harmed her in some way in 2018.

Even the victory of the prosecution has its price.

“The reality is that civil lawsuits under federal RICO law are very costly to initiate and prosecute and very difficult to win,” said Craig Small, senior attorney in Clark Hill’s Denver office. Small said most federal RICO civil lawsuits are dismissed with a small fraction, resulting in settlements or judgments against the defense.

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Despite the reported low success rate, RICO charges can harm acquitted individuals.

Clark Wu, Esq., an attorney for Bianchi & Brandt, said “cooker allegations” focusing on safety or harassment allegations such as alleged odors did not go down well in court.

Still, the cost of fighting charges can be enormous, making them a common tool of anti-cannabis movements and individuals. If a company loses its case, it can be on the hook for up to three times the damage. Win, and the company faces costly lawsuits.

Faced with expensive results, Wu pointed out that many cannabis brands choose to settle before going to court.

Mislabelled cannabis products

Wu said the Arkansas case follows similar allegations regarding the illegal status of cannabis operations. However, he said that “the lawsuit deviates from traditional angles to attack a trending issue: the inflation of THC claims in cannabis products.”

Mislabeling is an ongoing problem with various cannabinoids.

In recent years, the CBD space has been in the crosshairs of scathing studies:

• A 2017 Penn University analysis of CBD products sold online found that a full 70% were mislabeled.
• In 2022, Johns Hopkins Medicine researchers tested more than 100 OTC CBD products. Only 89 of the products listed the CBD potency on the label. Only 24% of products were correctly labeled, with in-store products containing an average of 21% more CBD than advertised.

From labs to store shelves, the willingness to misrepresent products seems to stem from a desire to engage customers and stay in business.

RELATED: Federal Lawsuit in Arkansas Considering RICO Act: Is This the End of Medical Marijuana in the State?

Roger Brown, President and Founder of ACS Laboratory, said the sources of mislabeled products are from growers and suppliers seeking labs willing to produce higher THC results. He reports that “significant business” is being lost as companies seek to partner with labs that provide the most favorable THC and cannabinoid profile results.

Brown pointed to certain state budgets that prevent adequate enforcement.

“Regulators look at the results, chromatograms and data, but not how the data is obtained or collected,” he said, adding that the status quo breeds disregard for the program’s rules and regulations.

Most professionals Benzaga spoke to said the RICO charges were extreme in cases like the four Arkansas operators. However, they believe some form of punishment is needed to deter any industry that has long struggled with mislabeled products.

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Brown anticipates that brands accused of knowingly misrepresenting products will face additional costs. Not everyone agreed.

Matthew Morgan, a cannabis industry consultant who has helped found several brands including Ignite International Brands Ltd and Green Axis Capital, sees Arkansas as a unique case.

“I think cannabis is very low on the federal government’s priority list,” Morgan said, noting that regulators “have much bigger concerns to resolve.”

Whatever the case, Vicente Sederberg’s Nash does not see much risk in the industry and notes broad industry-wide compliance with state and federal regulations.

“When it comes to cannabinoid misrepresentations in the cannabis space, this is the exception and not the rule,” Nash said.

This article originally appeared on Benzinga and has been republished with permission.