Four Arkansas medical marijuana companies face lawsuits under federal racketeering laws after a group of medical cannabis patients filed a lawsuit against the companies last month. The lawsuit, filed in US court in Little Rock on July 12, alleges that Arkansas medical marijuana growers colluded with testing labs to artificially inflate THC potency test results. The lawsuit seeks an injunction to shut down the state’s medical cannabis industry under the federal Racketeer’s Affected and Corrupt Organizations Act.
Attorney Luther O. Sutter filed the lawsuit on behalf of three medical marijuana patients. The lawsuit accuses cannabis growers Bold Team LLC, Natural State Medicinal Cultivation and Osage Creek Cultivation LLC of fraud for selling cannabis with a lower THC potency than advertised.
Steep Hill Inc. of Berkeley, California, and Steep Hill Arkansas of Little Rock are also named as defendants and are accused of reporting artificially high levels of THC for cannabis sold to patients. The lawsuit also names Steep Hill Arkansas owners Brent Whittington and Brandon Thornton as defendants for colluding with growers to defraud patients by selling them marijuana with less THC than the test results indicate.
“The net effect is to cheat the plaintiff and the alleged clause by over-representing the amount of THC in bloom to the detriment of the plaintiff and the class so that Steep Hill, the growers and the dispensaries can make more money,” the plaintiffs claim. . in the lawsuit.
The lawsuit alleges that the medical marijuana industry in Arkansas is a criminal racketeering organization that defrauds the state’s medical marijuana patients and can get triple damages in the case. With the legal action, the plaintiffs demand an injunction to order all cannabis growers and dispensaries to cease sales. The filing also seeks certification as a class action for the named plaintiffs and other patients who have purchased cannabis.
Steep Hill and the cannabis growers have reportedly denied the fraud allegations against them. They also note that RICO’s previous lawsuits against marijuana companies have not been successful in other states that have legalized marijuana. Steep Hill Arkansas’ Thornton has released a statement calling the allegations in the lawsuit unfounded.
“We stand behind the quality, integrity and effectiveness of our lab, our employees and unbiased lab results,” he said.
RICO suits and legal cannabis
The lawsuit is not the first time the federal RICO statute has been used against cannabis companies that operate legally under state and local law. But the success of the lawsuits based on the illegality of marijuana under federal law has been mixed. Justin M. Brandt, founder of the law firm Bianchi & Brandt, notes that the RICO statute was initially used by federal prosecutors to deter criminal behavior by organized crime syndicates.
“Its use in civil lawsuits by private individuals is a recent evolution of statute, especially in the context of the cannabis industry,” Brandt writes in an email. “Historically, RICO cases brought against cannabis companies operating under state legal programs have been unsuccessful.”
“For this particular case, I believe there are other potentially meritorious claims that are better suited to address plaintiffs’ alleged damages, especially since the lawsuit is presented as a class action case,” he adds. “We usually see these matters falling under consumer protection laws rather than civil RICO.”
Brandt also believes that the plaintiff’s complicity in the alleged illegal activity diminishes the strength of their racketeering case.
“The circumstances of this case also raise threshold questions about the viability of plaintiffs’ civil RICO claims, as the individual plaintiffs appear to have knowingly purchased the marijuana in question, meaning that they technically participated in the alleged ‘illegal plan’ that serves as the basis for their RICO claim,” he writes. “It will be interesting to see how the court evaluates these issues, which I expect defendants to come up with at an early stage of the proceedings through dispositions.”
Brandt adds that the patients will likely struggle to prove a case of extortion.
“Plaintiffs have an uphill battle over their RICO civil claims, which will become even more challenging if enforced as a class action,” he writes.
How Cannabis Companies Can Avoid RICO Lawsuits
Attorney Laura A. Bianchi notes that due to the federal illegality of cannabis, there are no consistent nationally recognized testing standards or guidelines for cannabis companies to follow. But she says there are ways cannabis business owners and licensees can limit liability for problems with testing and quality control.
“First of all, it is natural to operate your facilities in a clean, compliant and transparent manner. This means that we refuse to cut corners on growing, manufacturing or producing products,” she explains. “Second, owners and licensees should do their due diligence when selecting a lab to work with. By seeking out a lab with the best qualifications, standards and experience, operators can feel confident in the results delivered, reducing liability.”
“Third, as with any business, perfection is impossible, so it is imperative that owners and licensees have (and maintain) the right amount of insurance coverage, including product liability insurance,” continues Bianchi. “Usually the mistakes made by the labs are accidental, but unfortunately there are instances where the producer and the labs are well aware that they are delivering bloated or inaccurate lab results.”
Meg Nash, counsel at cannabis law firm Vicente Sederberg, adds that cannabis companies can also avoid lawsuits simply by being good neighbors with residents who may be against having a marijuana operation nearby.
“Many RICO lawsuits essentially boil down to nuisance claims by ‘NIMBY’ litigants,” explains Nash. “With this in mind, the best way for cannabis companies to avoid RICO lawsuits is by proactively working with their neighbors and the community to solicit feedback and implement operational measures to reduce odor or other harm caused by individuals in the community. observed can be reduced.”