Just before the new year, one of the Colorado RICO lawsuits filed with such fanfare in February of 2015 was quietly and voluntarily dismissed by the plaintiffs. While this might seem like good news for the cannabis industry, it is actually anything but.
The use of the federal Racketeer Influenced and Corrupt Organizations Act in lawsuits against marijuana businesses poses a significant threat not just to those licensed marijuana businesses sued, but to anyone who does business with them, from bankers to accountants, from lawyers to builders.
The suit, brought by a Frisco hotel owner, alleged that the planned opening of a nearby marijuana dispensary had caused the hotel to lose business. It was always a longshot; the possibility that the hotel would be able to trace actual business losses directly to the defendant’s proposed business seemed remote at best. I have argued since the lawsuits were filed that while they were unlikely to succeed on the merits, they nonetheless constituted a significant and costly nuisance for the marijuana industry.
The reason, as the dismissal of the Frisco lawsuit demonstrates, is that if the plaintiffs wish to disrupt the Colorado marijuana industry, they need not ultimately prevail in court in order to succeed.
Rather, the prospect of litigation, negative publicity and a drawn-out fight can cause at least as much damage as an outright legal win for the plaintiffs. Furthermore, the fact that the plaintiffs sued not only the proposed Frisco dispensary but also those who financed, insured or otherwise worked with it is a particularly dangerous development for Colorado’s still-nascent marijuana industry.
To see why, consider the path the Frisco lawsuit took. Bank of the West, one of the original defendants, was dismissed by the plaintiffs early on when the bank stated that it had not known it was financing a marijuana business, had severed its ties with that business and would not be working with the industry in the future. The dispensary’s bonding company and accounting firm reportedly reached cash settlements with the plaintiffs in exchange for being dropped from the lawsuit. In the end, the proposed dispensary never opened and the plaintiffs dismissed their case, stating that they had already recovered more in settlement than any damage they had suffered.
Although marijuana businesspeople are unlikely to be arrested and jailed, they are still violating federal law each and every day. This puts them in a precarious legal position: It is difficult for marijuana businesses to find even basic banking services; they have to pay taxes on particularly disadvantageous terms; they may have trouble finding a lawyer to represent them.
Suits like the one recently dismissed will only compound these problems. If non-marijuana businesses know that they can be subject to lawsuits and negative publicity for doing something as innocuous as providing accounting services to a marijuana business, the pressure to stay away from those businesses will only increase. If the goal of those bringing these lawsuits is to make life difficult for the industry, the suits are already a success.
Is there a way out of this conundrum? The short answer is that the Obama administration’s hands-off policy is little protection for those sued in these cases. Because marijuana remains illegal under federal law, those manufacturing, selling and distributing it are still criminals in the eyes of the law. Just as Brandon Coats could be fired by Dish Network for engaging in conduct that remained illegally federally, marijuana businesses are subject to these suits so long as the federal marijuana prohibition is in place.
As RICO is a creature of federal law, a change would have to come from Washington; either an exception could be carved out for those acting in compliance with state law or else the marijuana prohibition itself could be softened. Until then, the threat of suit will hang over anyone involved in the marijuana industry, both here and in the 22 other states who have passed marijuana law reform.