The State of Play for RICO and the Cannabis Industry

The State of Play for RICO and the Cannabis Industry

It was one of the greatest courtroom dramas the weed industry has seen so far. Parker Walton, a Colorado marijuana grower, was sued by owners of a neighboring ranch over what they claimed were “pungent, foul odors” from his property. They claimed it harmed them by reducing their enjoyment of their land, near Pueblo, where they liked to go horseback riding, and soak up views of Pikes Peak.

What could have been an ordinary spat between neighbors, however, was augmented by the messy legal status of the drug. Although recreational marijuana use is permitted in Canada and a growing number of US states, it continues to be classified as an illegal substance at the federal level. What that meant for Walton was that the ranch owners, Hope and Michael Reilly, could claim the skunky smell was part of a racketeering conspiracy.

The U.S. Racketeer Influenced and Corrupt Organizations Act, better known as RICO, has been used to bring down mob families, crime syndicates and other shady groups. A potent, multi-faceted weapon, it allows for both criminal and civil penalties for a wide range of activities seen as being for the advancement of a “criminal enterprise.” A prosecutor can use RICO to indict participants in a criminal scheme. An angry neighbor can use it, too – at least the civil sections in a lawsuit.

Like a number of other weed businesses that have faced RICO suits, Walton was in a sticky spot.

Although his recreational marijuana cultivation business was legitimate in Colorado, and not illegal at the state level, RICO is a federal law. In the eyes of a federal court, under federal law, he was committing a crime. Moreover, on appeal, the 10th Circuit found that the Reillys likely experienced harm in the form of lower property values from having a pot grower next door, and therefore had a right to sue.

“It is reasonable to infer that a potential buyer would be less inclined to purchase land abutting an openly operating criminal enterprise than she would be if that adjacent land were empty or occupied by a lawfully-operating retailer,” the appeals court said. “Based on the Reillys’ assertion that the marijuana growers’ operation is anything but clandestine, the Reillys’ land plausibly is worth less now than it was before those operations began.”

The ruling was a huge blow to growers and others in the legal marijuana trade.

In September, the typically more liberal Ninth Circuit Court of Appeals, which covers West Coast states including Washington and California, had thrown out a similar lawsuit, finding that the claims were not appropriate under RICO.

The 10th Circuit’s ruling in Walton’s case appeared to all-but assure a barrage of RICO suits would continue against cannabis businesses.

But in a fortuitous turn of events, the jury turned out to be on Walton’s side. Perhaps it was a sign that the public opinion has veered in favor of legalized marijuana, or at least away from neighbors who make fussy complaints about it.

In any case, they came back with a verdict in favor of Walton, rejecting the Reilly couple’s allegations that they were owed for a $30,000 drop in their property values. Some observers suggested the verdict could have a chilling effect on other RICO cases against marijuana businesses.

In the end, though, while Walton won this battle, other pot growers will likely continue fighting a war.

The verdict does nothing to invalidate the 10th Circuit’s ruling. Now that two federal appeals courts have reached opposite conclusions on the issue, the possibility of a Supreme Court battle over it is growing more likely, meaning there is still incentive to launch legal attacks against marijuana business owners.

Need some help making sense of what this RICO stuff means for you if you’re a grower, distributor or another player in the legalized marijuana industry? Here are some key points explained.

What is RICO: A 1970 law passed largely to go after Mafia bosses and other people sitting at the top of criminal organizations. Also one of Congress’s catchier acronyms. The spelled out version is a little trickier to remember accurately, though. It’s the Racketeer Influenced and Corrupt Organizations Act.

The law has both civil and criminal components, and unlike many criminal laws it allows for a private right of action – which means a person not connected with a government agency can sue you for alleged violations. In a nutshell, if you’re engaging in some form of criminal activity under federal law, anything done to further that activity, in concert with others, could be considered a RICO claim.

Why it matters: If your regular run-of-the-mill nuisance lawsuit was the punch at the high school prom, a civil RICO claim would be like the fifth of vodka someone spiked it with. RICO damages are trebled. That’s right, trebled. Plus, it has the added weight of sounding more nefarious because it has to do with criminal conspiracies usually. Generally speaking, you don’t want to be sued under RICO.

What counts as a “racketeering” crime: A broad range of offenses qualify, but notably they include gambling, murder, kidnapping, arson, bribery and drug dealing. If you engage in a pattern of activity in furtherance of those crimes, you can potentially be sued or prosecuted under RICO.

In ordinary practice, that means if you live next to a drug trafficker or someone else participating in a major criminal conspiracy that harms your quality of life, impacts your property values or otherwise makes life miserable for you, you can sue for damages. Unfortunately, opportunistic neighbors like the Reilly’s are using it to claim that their lives and properties are being harmed by otherwise legitimate marijuana businesses.

If pot is legal in my state why can I still be sued under RICO: In the United States, we have two primary bodies of law – state/municipal and federal – which operate somewhat independently of each other. If something (such as marijuana) is legal under one regime, that doesn’t make it legal under the other. Under the letter of the law, pot is still illegal, and in fact producing it and selling it is still a crime under federal law.

Ergo, a RICO case is all too easy to bring against even a legal pot business.

In the cannabis industry and facing difficult legal issues? David Kani is an experienced litigator with a solid reputation for successfully managing the challenging cannabis legal landscape in court and out.


David Kani

David Kani is a Newport Beach, California based business lawyer with a focus on cannabis companies, their investors, employees and cannabis-related litigation.
To connect with David: [hidden email] or 714-907-0697.

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