The commercial litigation landscape for CBD, hemp and marijuana is constantly evolving as federal and state courts issue decisions that impact investors, commercial contracts, employment issues, intellectual property and insolvency. The CannaBizDisputes™ blog regularly tracks and reports on these developments.
California federal court dismisses civil RICO claims, but cannabis businesses may face increased risk going forward
The U.S. District Court for the Northern District of California issued a recent decision dismissing civil claims for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) asserted by a group of property owners against defendants harvesting cannabis on an piece of adjoining property. Bokaie v. Green Earth Coffee LLC, 2018 WL 6813212 (N.D. Cal. 2018). The plaintiffs alleged that the “odor and noise emanating from the grow operations are intolerable, injure their enjoyment of the property, and lower their property values.” And while the plaintiffs’ RICO claims were dismissed for their inability to allege a cognizable injury to property (because the harvesting had abated, and the “cause of the depreciation ha[d] been removed”), the decision is noteworthy for its conclusion that “[b]y definition, growing or dealing in cannabis constitutes racketeering under 18 U.S.C. § 1961(1).” (defining “racketeering activity” to include “dealing in a controlled substance”). The court in Bokaie also found that plaintiffs had adequately alleged that such racketeering activities were ongoing, and that there was a threat of repetition – another essential element of a civil RICO claim.
This means that – even in a state like California, where harvesting cannabis is legal under state law – cannabis-related businesses can potentially be liable for continuous racketeering under RICO by default. And while that alone is insufficient to sustain civil RICO liability, cannabis-related businesses are likely to face an increased risk of potentially burdensome civil RICO litigation, and may find it harder to have such claims dismissed. Indeed, had it not been for the fact that the defendant-cultivators in Bokaie had agreed to cease their cultivation activities prior to the deciding of the motion to dismiss, it is entirely possible (and perhaps likely) that the plaintiffs civil RICO claims would have survived the motion to dismiss.
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