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Legal Marijuana Business Sued for Racketeering

By Christopher Coble, Esq. | Last updated on

Just because your state legalized it doesn't mean it's going to be smooth sailing all the way to the bank for your cannabiz. First, there are the hundreds of pages of state rules and regulations for recreational pot sales. Then come the racketeering lawsuits.

Bloomberg reports that individuals, businesses, and even states frustrated with the teeming weed industry have turned to federal RICO statutes for help, including neighbors of a medical marijuana shop in Massachusetts.

The Mob and Marijuana

The Racketeer Influenced and Corrupt Organizations Act, or RICO, was passed in 1978 as a means for attacking organized crime. In order to convict someone under RICO it was no longer necessary to prove the person committed an illegal act. Instead, prosecutors must only prove that the defendant owns or manages an organization that regularly performs one or more specific illegal activities. RICO also provided private citizens a right of action if the commission of the crime harms plaintiff's property or business.

In this case, the defendant business would be Healthy Pharms Inc., a would-be medical marijuana dispensary. The illegal act would be selling marijuana, which, although legal under new Massachusetts statutes, remains a Schedule I narcotic banned under federal law. And the alleged harm would be "pungent odors," "undesirable visitors," higher crime rates, and lower property values, according to a RICO lawsuit filed by Healthy Pharms' potential neighbors on Harvard Square.

Pot Shots

"As long as federal law says what it says about marijuana, everybody who's involved in this industry has potential legal exposure," said Brian Barnes, who represents the neighbors suing Healthy Pharms and has filed other RICO suits in Colorado. The suit claims potential investors in Harvard Square properties have been turned off because of Healthy Pharms' possible presence, and that the value of the real estate has dropped.

The pot shop's owner says the same, just in reverse. Nathaniel Averill told Bloomberg it's become more difficult to persuade potential investors to put up cash for the dispensary. "The stakes are high, and not just for us."

To date, a private RICO suit against a legal marijuana business has yet to go to trial. There were settlements in one of the Colorado cases, and courts have disagreed on who has standing to bring a RICO claim against a business operating legally under state law. What is certain is that as state and federal laws continue to conflict, the possibility of RICO suits will persist.

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