For years, businesses and private individuals have attempted to sue cannabis companies based on RICO laws meant to curb organized crime. In what can only be described as a stunning turnaround, legal cannabis companies are now going on the offensive, and using RICO laws against illegal cannabis operations, and corrupt law enforcement.
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What does RICO mean?
In 1970, the US passed the Racketeer Influenced and Corrupt Organizations Act, also known as RICO. The law is meant to battle organized crime in the US. The law allows the federal government to prosecute and bring civil penalties to criminal racketeers involved in ongoing criminal enterprises, and is meant to keep criminal operators from getting involved with legitimate businesses.
It covers activities like illegal gambling, bribery, kidnapping, murder, money laundering, counterfeiting, embezzling money, drug trafficking, slavery, and other crimes that fit in this general category. The way it works, is in order for a conviction to be made, the government must prove that the defendant was a part of at least two racketeering activities, as well as proving the defendant has a direct investment in a criminal enterprise which affects commerce, whether interstate or foreign.
This also includes having had an interest in, or participating in, such activities. Some of the organizations that this law has been used against, include members of the mafia, extremist groups like Operation Rescue which is an anti-abortion group, and the Hell’s Angels, a motorcycle gang. RICO suits can be criminal, and come with prison sentences. Or they can be civil suits in which plaintiffs seek payments from defendants. Civil cases come with their own requirements for substantiation, and are more relevant to legal cannabis companies.
Cannabis and RICO
The cannabis quandary of state vs federal is exemplified by RICO laws. Cannabis is federally illegal, yet perfectly legal in specific locations, complete with laws to govern use and regulated industries. Yet this discrepancy between federal and state laws, leaves cannabis in a strange gray area. In places where its legalized, it shouldn’t be considered a crime to lawfully take part in the industry under states rights. However, because its still federally illegal, this opens cannabis companies up to federal litigation under RICO laws, even when the companies check all boxes correctly for a legal operation in their own states.
For civil cases, so far, “federal courts have concluded that operating a marijuana business qualifies as ‘dealing in a controlled substance… as defined in section 102 of the Controlled Substances Act,’ even in states that have legalized recreational marijuana.” This is important because civil suits come with the requirement that plaintiffs must be able to allege that the defendant has been habitually committing predicate offenses in association with a commercial and legitimate enterprise. This is one of the stricter pleading requirements for civil cases, and a damning one for cannabis companies.
On the positive side, other pleading requirements in civil cases do exist, which make it more difficult to find cannabis companies guilty of RICO crimes. Like the requirement that a plaintiff must show some amount of damage/injury to the business or property where the business is located, and this must be related to financial loss. It also requires that the plaintiff be able to show that it was the defendant’s RICO violation which caused the damage/injury in the correct time period.