The Racketeer Influenced and Corrupt Organizations Act (RICO) is a federal statute that historically has been used to prosecute individuals and companies participating in unlicensed sales of cannabis. As originally contemplated and implemented, RICO was employed by federal prosecutors as a tool to deter criminal behavior—most notably the mafia. But its purpose has evolved over the years, and it now serves as a predicate for civil suits brought by private individuals and companies, including those in the cannabis space. Indeed, two cannabis businesses recently brought actions in California state court alleging civil RICO violations.
The first suit, filed in San Diego County Superior Court on July 6 by licensed retailer, March and Ash, alleges that many local businesses are profiting off illegal cannabis dispensaries. For instance, March and Ash asserts that the San Diego Reader has profited off “numerous ads for unlicensed marijuana shops as well as landlords that were paid rent by illegal retailers, ATM owners that operated cash dispensing machines in the illegal stores and others that support the illicit cannabis businesses.”
In the second action, four licensed cannabis farmers filed suit in Mendocino County Superior Court on August 9, alleging that a former Mendocino County Sheriff’s Deputy and former official with the California Department of Fish and Wildlife participated in conspiracy against legal cannabis operators for years. The suit asserts that the individuals stole from the marijuana farmers and participated in a cover up of the theft. “Certain corrupt law enforcement officers are above the law because the Sheriff’s Office and the District Attorney’s Office have given officers the green light to steal marijuana, guns and cash under color of law,” the farmers contend. “At least some of the local judges have been willfully blind to unlawful conduct by local law enforcement that is common knowledge among many in the community.”
As of August 30, no responses had been filed in either of the cases discussed above. But the defendants will likely attempt to remove the cases to federal court, as the likelihood of success for them significantly increases in federal court given that cannabis sales remain prohibited at the federal level. Another concern for the plaintiffs, according to civil RICO expert, Philadelphia-based Gerald Arth, is the “high failure rate among such lawsuits because the bar set by courts for RICO cases is a tough one to meet.” In general, Fox estimated that 600-900 RICO cases are filed annually across the U.S. Of those, he said, about 85% get dismissed while only a small fraction either settle out of court or end with complete victories for the plaintiffs.
If the plaintiffs are successful, it could provide a blueprint for future civil RICO cases in the cannabis space. In any event, two interesting cases to follow.