A rise in lawsuits alleging violations of federal RICO and narcotics laws against marijuana growers and related businesses in states that have legalized marijuana has caused a shudder in the industry. Marijuana businesses need to be aware of their growing litigation risks and take appropriate action to reduce their crop’s exposure.
It was October 31, 2018, and less than a day of jury deliberations had passed. A Colorado jury in a civil Racketeer Influenced and Corrupt Organizations Act (“RICO”) action, Safe Sts. Alliance v. Alternative Holistic Healing, LLC, Civ. Action No. 15-349 (D. Colo.), filed Feb. 19, 2015, delivered its verdict. The jury was asked to decide whether marijuana cultivators and distributors and related parties were liable to their adjacent neighbors under civil RICO claims. The jury found in favor of the defendants, concluding that the plaintiffs had suffered no cognizable harm and, therefore, failed to establish their RICO claims.
Originally, claims also were filed against various Colorado state and county officials, including John W. Hickenlooper in his official capacity as Governor of Colorado. Safe Sts. Alliance v. Alternative Holistic Healing, LLC, 2016 U.S. Dist. LEXIS36115, *7 (D. Colo. Feb. 8, 2016). In the Second Amended complaint, the plaintiffs alleged injuries caused by the defendants’ marijuana activities, including unpleasant odor on their land. Id. at *9-*10. Both the state and private defendants moved to dismiss.
The lower courts (the magistrate court and the district court) found that the state defendants should be dismissed. The Tenth Circuit agreed. It held that private parties had no right to enforce the Controlled Substance Act (“CSA”), 21 U.S.C. §§ 801-904 (the federal criminal law regulating controlled substances, including marijuana), against states without identifying an independent federal right. Since no such right existed, the action against the states could not stand. The court also found that permitting parties to litigate against states that legalized marijuana would interfere with the Department of Justice’s CSA enforcement. Safe Sts. Alliance v. Alternative Holistic Healing, LLC, 859 F.3d 865, 902-04 (10th Cir. 2017).
As to the marijuana-growing defendants and their related entities, the magistrate judge found that the plaintiffs had not sufficiently alleged that they suffered business injuries. Safe Sts., 2016 U.S. Dist. LEXIS36115 at *29. The plaintiffs’ “broad generalization” that the marijuana business emitted foul odors that “marred the mountain views from the Reilly’s property, thus making it less suitable for hiking and horseback riding” and decreased the value of their property, were “conjecture and hardly equate to concrete financial losses.” Id. at *30-*31, *34. Because the plaintiffs failed to meet pleading and standing requirements for civil RICO, the claims had to be dismissed. Id. at *29-*30. The magistrate judge recommended that the complaint be dismissed with prejudice. Id. at *43 (footnote omitted). The district court adopted the magistrate judge’s recommendation. Safe Sts. Alliance v. Alternative Holistic Healing, LLC, 2016 U.S. Dist LEXIS 36113, *7, *9-*10 (D. Colo. Mar. 21, 2016).
The Tenth Circuit, however, reversed and held in a lengthy opinion that: (1) the growers could run afoul of RICO through their CSA violation, (2) the legality of their actions under...
