Marijuana RICO Cases: Why They Don’t Smell Victorious
With the legalization of recreational marijuana by many states including California, Colorado, and Illinois, a number of marijuana-related RICO cases have been filed. All the plaintiffs have lost.
One of the first was Safe Streets Alliance v. Hickenlooper (2017), in which Colorado landowners sued an adjacent marijuana farm for nuisance, alleging the ever-present odor it produced lowered its property value.
The racketeering activity was continuous violations of The Controlled Substance Act (CSA), the federal statute making the possession and use of marijuana a crime. It is a form of racketeering activity. The district court dismissed the suit because it believed the injury to the property value was not “proximately” caused by the racketeering. The Tenth Circuit reversed, holding the alleged injury was caused by the marijuana under Colorado nuisance law and is therefore proximate enough to satisfy the Supreme Court’s causation requirement as enunciated in Holmes v. SIPC (1992). Further, the plaintiff did not need to quantify the amount of the property loss through an appraisal in order to plausibly allege damage.
That decision was great news for the plaintiffs’ bar, and they proceeded to file more such cases around the country. To my knowledge, none have been successful. (The Safe Streets Alliance case went to trial in 2018. The jury found for the defendant).
The Shulman Decision: The End of RICO for Marijuana Growers?
Then the next type of marijuana RICO case emerged, and the plaintiff was the grower. In Shulman v. Kaplan, 58 F.4th 404 (9th Cir. 2023), the district court in California dismissed a RICO claim brought by a grower against a partner in the business.
It was a standard business dispute, meaning the RICO violations were fraud-based, not CSA violations. The Ninth Circuit affirmed on the basis of a lack of “statutory standing,” reasoning the plaintiff was not injured in its “business or property” by a RICO violation because a plaintiff violating the CSA, a type of racketeering activity, is barred from using RICO. It held: “It is clear that Congress did not intend the term business or property to include cannabis businesses or property… Congress would have considered cannabis to be a form of organized crime…” Therefore, under this reasoning, RICO cannot be used to “protect the same variety of conduct it was intended to combat.” This is akin to the common law in pari delicto defense (equal fault) which courts have used to bar plaintiffs from recovery in a myriad of cases, including RICO.
This is a very persuasive argument and is being followed by lower courts to bar RICO cases by marijuana growers and CBD sellers. See, e.g., Cuper Development LLC v. City of Cudahy, (C.D. Cal 2024); Pacific Green, LLC v. Fiore, 2024 WL 2106737 (CD Cal. 2024). I can find no case by a marijuana grower which has been upheld anywhere since Shulman.
Thus, far it does not seem a single RICO case brought against a marijuana grower has prevailed. This is surprising. The Shulman decision likely ends any case by marijuana growers. The bottom line is marijuana-based RICO cases are likely dead.
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