RICO Lawsuit Threatens Industry

Treats Growers, Sellers Like Mafia

By Art Cosgrove
Oregon Cannabis Connection


In Beavercreek, Oregon, sits a beautiful patch of 11 acres with horses and forestland that is adjacent to two properties that cannabis producers have been using to cultivate crops since late 2014. Now the owners of the land have filed suit in federal court against their neighbors over the alleged nuisance and threatening behavior by the cannabis growers.

It may seem like a relatively small thing, the type of neighbor-to-neighbor squabble that happens every single day across the country. But the lawsuit filed by Erin and Rachel McCart threatens to open a relative Pandora’s box of legal complexities.

The McCarts’ case is unique because they’re attempting to use Federal Racketeer Influenced and Corrupt Organizations (RICO) statutes to go after 43 defendants, including growers, processors, dispensaries and even their financier, Bank of America.

The strategy goes like this: Growing marijuana may be legal under Oregon state law, but it remains a violation involving the cultivation of a Schedule I drug federally. Therefore, without even requiring the Feds to do a thing, the plaintiffs can use RICO (which was designed to ensnare everyone involved in an organized crime outfit) to rope in everyone in the supply chain, from the producer to the consumers.

This isn’t the first time the clever strategy has been used and, the first time, it survived some fierce litigation. The case, also brought by ranch owners against nearby farms in Colorado, was dismissed; however, it came back to life via the 10th US Circuit Court of Appeals, which reversed the lower court decision this past June. The way is now clear for the case to be heard, which could have enormous ramifications for the whole industry.

In both the Colorado and Oregon cases, the crux of the claims rests on the idea that the cannabis farms are lowering the ranches’ property values. Setting precedent here, especially using RICO, would be ground-shaking for the industry, and could start a scramble for new land to cultivate. Currently, anyone with a few acres of arable land can get in on the growing and potentially sell to local dispensaries or keep it for personal use. Now imagine there’s a legal precedent that allows neighbors to sue because the smell lowers their property values, and they can extend that suit to everyone in the supply chain that has touched the product. And since it’s a RICO case, the plaintiff can collect damages in treble. It would threaten to eliminate all residential and small grow operations located anywhere even close to another property owner.

“This is basically a road map for people who own property that is near (a marijuana facility) … for how to bring a federal suit to get relief,” Brian W. Barnes, an attorney for the ranch owners in the Colorado case, told The Cannabist in an interview after their big appeals win.

In the case of the McCarts, the suit names two of Portland’s larger dispensary chains, Chalice Farms and Nectar. It shines a light on the dangerous levels of vertical integration in the industry; if someone were to trace the financials back up the chain, they’d find Oregon’s dispensaries are owned by a much smaller number of people than they think. A lot of investors own multiple, seemingly competing dispensaries in the same market space, and a successful precedent like a RICO suit winning in federal court could have a domino effect, toppling the entire industry.

A new frontier in the legal hurdles the cannabis industry faces may have just emerged. The outcomes of the cases in the Oregon and Colorado federal circuit court systems will undoubtedly be closely observed by the entire industry.