international law WHO UN cannabisLast Friday, December 7, the World Health Organization (“WHO”) Expert Committee on Drug Dependence (“ECDD”), was scheduled to make a recommendation about the international legal status of cannabis. The WHO is a “specialized agency” of the United Nations, and the ECCD is a WHO committee consisting of experts in the field of drugs and medicines, that assesses the health risks and benefits of the use of psychoactive substances. Alas, the ECDD announced it would temporarily withhold the results of the assessment until January, declaring it needed additional time “for clearance reasons.”

Earlier this year, the ECDD released a preliminary report (“Pre-Review”) on the effects of the plant, which concluded that cannabis is a “relatively safe drug.” The Pre-Review also revealed that cannabinoids (“CBD”) offer numerous therapeutic benefits, including reduction of pain, promotion of sleep, and improvement of motor function for individuals affected by Parkinson’s disease. As a result, the ECDD made the recommendation to the United Nations Commission on Narcotic Drugs (“CND”), that pure CBD not be scheduled under any international drug treaty.

The Pre-Review results gave us and other reform advocates great hope that a more in-depth review would take place before the ECDD makes a final recommendation to U.N. Secretary António Guterres. Comprehensive scientific data on the effects and benefits of cannabis are hard to find. Indeed, the current status of cannabis as a strictly prohibited substance has forced researchers who wish to study the plant to overcome additional hurdles that do not exist for the study of other drugs. To this end, U.S. Surgeon General Jerome Adams declared last week that the federal government should evaluate how it classifies the drug because the restrictive scheduling hinders research.

Just as we need to look at criminal justice laws, rules and regulations, we need to look at health laws, rules and regulations, and that includes the scheduling system.”

This statement by one of the key officials of the Trump administration highlights a shift in the U.S. federal government’s strict position on the prohibition of cannabis. As we previously discussed, the federal government has repeatedly cited to obligations under international treaties to perpetuate the current ban on cannabis and its derivatives. Back in May, the Food and Drug Administration (“FDA”) concluded that CBD should be descheduled but felt forced to recommend rescheduling the plant to Schedule V of the Controlled Substance Act to comply with international treaties to which the U.S is a party. Nonetheless, the FDA specified that if treaty obligations were to no longer require control of CBD that its recommendation would need to be promptly revisited.

Accordingly, the potential recommendation by the ECDD to remove cannabis from international control would create wide-ranging implications for the global effort to legalize the plant, including in the U.S. But for now, we must wait patiently for the ECDD’s recommendation to the CND, which is scheduled to be discussed and to go up for a vote in March 2019. The delay is frustrating, although we are encouraged to see that the U.N. continues to take a hard look at cannabis. Sit tight.

california cannabis BCC

Today, the Bureau of Cannabis Control (BCC) published its Proposed Text of Regulations Submitted to Office of Administrative Law for review here. We are still in the process of reviewing everything, but there are enough ambiguities to cause us a good deal of concern, particularly with respect to IP licensing and contract manufacturing agreements.

We are also reviewing the BCC’s responses to comments submitted on the proposed regulations back in early November, of which there are about a thousand pages. We’ll be analyzing the regulations section by section and writing about all of the changes over the course of the next week.

Stay tuned.

oregon marijuana cannabis clackamas deschutes We always talk about the cannabis industry being dynamic. That’s true from a markets perspective and it’s true from a regulatory point of view. When it comes to regulations in particular, industry observers tend to focus on the big picture developments: e.g., whether marijuana will finally be re- or de-scheduled at the federal level, whether we will get a farm bill legalizing industrial hemp nationwide, or which new states have legalized cannabis. Those broad issues deservedly get a lot of press. However, marijuana business owners are often more concerned about what is going on locally, at the city or county level. In fact, most cannabis business owners get more passionate about proposed changes to local regulations than proposed state- or even federal law developments.

My law firm has worked with regulated cannabis business in Oregon, Washington and California since 2010. I suspect that none of our cannabis business lawyers support extensive local regulation of marijuana (let alone local licensing programs). Because states tend to promulgate extensive regulatory structures, local rules tend to be duplicative and controversial once you get beyond basic land use concepts. That said, cities and counties are often pressed by their citizens to regulate cannabis businesses, and state governments give ample regulatory authority to local jurisdictions– often including the choice to “opt out” of industry participation altogether.

When localities do regulate cannabis, the process is often iterative, meaning rules are adopted and amended over time. Sometimes the changes accrue in response to changes in state law; sometimes they are in response to litigation; sometimes they are needed when current rules are failing; and sometimes the local population just changes its opinion about cannabis businesses altogether (usually, for the better).

We continue to see cities and counties modify their rules in Oregon. Below is a brief encapsulation of what is going on around the state today, based on client projects. This list is probably not exhaustive, so if you have updates on what is going on in your area, we’d love to hear from you.

Clackamas County

Clackamas County is home to 220 cannabis licenses by our count, making it home to over 10% of OLCC licensees and the fourth largest cannabis county statewide. We have been a part of most rulemaking processes on offer at the County, from the original implementation of Measure 91 to the reversal of the ban on cannabis processing. Recently, Clackamas County proposed to modify its rules yet again, by limiting the availability of production on certain lots. The relevant Planning Commission hearing was held last night, and the Board of Commissioners will hold a public hearing on the proposed license limits on January 16. The amendments, if approved, would limit continguous lots of record under the same ownership to one OLCC producer license, or one medical marijuana (OHA) grow site. The change would apply only to lots zoned as Ag/Forest, Exclusive Farm Use, and Timber. Current OLCC producer licenses existing on contiguous lots in these zones would be grandfathered. The proposed revised regulations are here, and an FAQ is here. There is still plenty of time to submit comments.

Josephine County

Anyone familiar with the Oregon marijuana industry knows that Josephine County has had a rough time in its efforts to regulate cannabis. The County has suffered several consecutive legal setbacks, but apparently is pushing forward with a new effort to limit OLCC marijuana activities on “rural residential” zoned properties. The Board of Commissioners most recently held a land use hearing on November 7, with a first reading of the proposed new ordinance. No word yet on next steps, but it appears that the County is going through the proper public notice requirements this time, and fortunately the current ordinance draft includes grandfathering rights for current licensees (“non-conforming use” application options).

Deschutes County

Deschutes County Ordinance 2018-012 took effect on Friday. The new regulations reduced the available County acreage for cannabis by 17%, mostly by prohibiting marijuana production and processing in the multiple use agricultural (MUA) zone. The ordinance contains many other provisions as well, from new setback requirements to noise and odor mitigation rules. Although Ordinance 2018-012 is now in effect, we are including Deschutes County here because an appeal of this ordinance was filed with the Oregon Land Use Board of Appeals a few weeks back. The appeal means that these regulations are in flux to some extent, and will not be affirmed or rejected for several months.

New Oregon cities 

Last month, we covered the industry-friendly reversals of Ontario, Klamath Falls, Clatskanie and Sumpter, a quartet of cities scattered about the state which initially prohibited cannabis but are now opening their borders to OLCC licensed businesses. It now appears that the cities of Gates and Joseph may have “legalized” as well. For information on Ontario rulemaking, go here. For information on the Klamath Falls process, go here. We do not yet have information on the remaining four cities, but interested parties should reach out to those City Councils to gauge plans for rulemaking in the newly green jurisdictions.

oregon marijuana OLCC report
Pretty good report for licensed Oregon producers.

On Monday, the Oregon Liquor Control Commission (“OLCC”) released results of enforcement inspections of recreational marijuana producers, which indicate that the majority of inspected licensees are in compliance with Oregon laws and the OLCC rules.

“Operation Good Harvest” was a saturation compliance effort that focused on Oregon’s fall 2018 legal outdoor cannabis harvest. OLCC inspectors were in the field for the past two months and conducted 354 inspections across the state, with an emphasis on southern Oregon, a hotbed of marijuana production, accounting for more than a third of the recreational marijuana licenses in the state.

The OLCC inspected a total of 354 outdoor producer licensees and found that 259, or 73 percent of them did not have any “deficiencies” nor were they likely to commit potential violations. Of the 95 licensees with deficiencies, 41 have potential violations that could lead to the cancellations of their license, which roughly represents 12 percent of the outdoor producer facilities inspected. A more comprehensive overview of the inspection results is as follows:

Region

Inspections Licensees with Deficiencies Compliance Rate

Possible License Cancellations

Statewide

354

95

73%

41

Bend

11

5

55%

2

Eugene

44

9 44%

5

Medford

167

43 74%

22

Portland Metro

102

33 68%

11

Salem

30

5

83%

1

The inspections reflect our agency’s effort to prevent diversion from Oregon’s legal cannabis market, and we’ll continue compliance activity across all license categories to maintain the well-regulated market that Oregonians expect”, declared Steve Marks, OLCC Executive Director.

The results of Operation Good Harvest demonstrate that the OLCC continues to take steps to corral Oregon’s overproduction of marijuana by taking a tougher stance on rule violations by licensees. (For some background on this administrative policy progression, we have recently written about OLCC’s recent “tightening up”, from application scrutiny through dealing with non-compliance.)

The result of Operation Good Harvest also seems to reinforce the fact that the surplus of marijuana in our state does not generally emanate from cannabis grown and produced by OLCC licensees, despite earlier reports to the contrary. Instead, illegal export tends to stem from unlicensed grows and from poorly regulated, quasi-commercial systems like the Oregon Medical Marijuana Program.

As far as the violations actually turned up by OLCC inspections in Operation Good Harvest, the most common deficiencies pertained to issues with cameras and surveillance coverage. Other common violations included:

  • Data in the Cannabis Tracking System (METRC) not matching plants or product found on the licensed premises;
  • Marijuana plants not tagged and entered into METRC;
  • Failure to provide the OLCC with harvest notification information;
  • Making unapproved alterations to the licensed premises; and
  • Using scales not approved by the Oregon Department of Agriculture.

The agency is currently investigating licensees for alleged violations and will decide how to charge these license holders once its investigations are complete. Any licensees whose license will be revoked will be entitled to challenge the OLCC charges through the State of Oregon’s Administrative Hearings process However, the final decision on any charges will be made by the OLCC Commission.

Operation Good Harvest produced promising results, showing that Oregon continues to be a leader in regulating cannabis, and that this nascent industry is slowly but surely finding its equilibrium.

california cannabis temporary license
Hopefully, more cities are creative with this hard stop.

We recently wrote about an announcement by the California Department of Food and Agriculture (“CDFA”) that temporary license applications need to be submitted by December 1, 2018 in order to be reviewed on time for approval and issuance before December 31, 2018. To date, California Department of Public Health (“CDPH”) followed suit, but the California Bureau of Cannabis Control (“BCC”) has not. It’s safe to say that BCC applications submitted after December 1, 2018 have a low chance of being issued this year.

This is significant because after January 1, 2019, these agencies will have no legal authority to issue temporary licenses, and will not do so. After January 1, 2019, only provisional licenses will be issued, and only then to parties who hold or held temporary licenses. Parties that don’t have temporary licenses and thus cannot get provisional licenses will be stuck in the annual license logjam, which everyone knows moves at a snails’ pace. These deadlines cannot be solved with more regulations. They are from MAUCRSA and only the legislature can modify them. We wouldn’t count on that happening.

This time crunch places would-be licensees whose local applications are under review from California cities in a tough spot. As part of the state-level application process, the above-linked MAUCRSA section requires applicants to fork over “[a] copy of a valid license, permit, or other authorization, issued by a local jurisdiction”, and cities are not going to state that an applicant is approved while an application is under review.

Some cities have come up with creative solutions to this problem. The Los Angeles Department of Cannabis Regulation (“DCR”), for example, issued a release stating that it would issue to applicants from the second phase of applications (which closed a few months ago) who have paid their application fees a local letter of authorization that could be taken to the target state agency. The letter would not authorize commercial cannabis activity in Los Angeles. It would authorize an applicant to simply move into the temporary license phase, in order to eventually secure the provisional license that would eventually get them operational faster. At least one state agency, in turn, has expressed that letters from localities may be sufficient. Earlier this year, the CDPH wrote that local authorization may take the form of a “letter of acknowledgement”.

L.A. is a big city, and is swamped in applications. Our L.A. cannabis business and real estate lawyers have seen some other cities issue letters of authorization, but others that have refused. It’s not clear whether many other cities would write a letter of authorization, or what they would be willing to say. But it’s certainly worth reaching out to a city to see if they will.

oregon cannabis marijuana sisters sumpter klamath clatskanie ontario
Oregon is getting greener and greener each cycle.

Cannabis not only won big around the country on Election Day 2018, but also on a local level last week within states that had already legalized adult use marijuana, such as Oregon and California. As to Oregon in particular, a handful of cities voted to lift bans on recreational marijuana on November 6. Nearly all of them succeeded.

As we’ve previously explained, Oregon allowed cities and counties to opt out of the legal sale of recreational cannabis. Many cities and counties–particularly rural areas east of the Cascades–chose to go this route. One of the few ways cities and counties can lift the ban is through local initiatives that are presented to the voters. On November 6, some of those previously opted-out Oregon cities were able to life their bans through this process.

Ontario

Back in 2014, when Oregonians as a whole voted on the legalization of recreational cannabis use and sales, Ontario, Oregon was one of the cities that overwhelming voted against legalization. Ontario’s strong stance against the legalization of recreational marijuana allowed the city to ban the sale and production of marijuana. That all changed on November 6, 2018. According to preliminary results, the city lifted the ban with 1904 citizen voting in favor of the sale and taxation of marijuana within the city and 1450 voting against. The ban will officially lift on January 2, 2018. At that time, marijuana business owners can submit applications to the city for conditional use permits to open retail stores in the City. (Full disclosure: We worked on this initiative process.)

Klamath Falls

Similar to Ontario, Klamath Falls banned marijuana after the November 2014 statewide vote. On election night 2018, the Klamath Falls voters passed an initiative allowing recreational sale of marijuana in the city. Klamath Falls ban on recreational sales will be lifted in February 2019.

Klamath Falls faced strong opposition in an anti-pot PAC that raised more than $23,000 against the petition. Not a small measure for a local election. The surrounding county, unfortunately, is still dry.

Clatskanie

Unlike Ontario and Klamath Falls, Clatskanie citizens voted on what is known as a “referendum.” A referendum is an ordinance passed by the City Council that is put to public vote. Here, the city council of Clatskanie proposed a vote on banning marijuana businesses in the City limits. The voters made their intentions clear and struck down the ordinance—meaning the City must allow marijuana businesses within City limits. Another win.

Sumpter

Sumpter may have squeaked out a victory for recreational marijuana businesses on election night. According to the Baker City Herald, 73 persons voted no to banning marijuana businesses whereas 72 voted yes to the ban. Sumpter may be joining Klamath Falls and Ontario in the new year licensing recreational marijuana businesses. This one is incredibly close.

Sisters

Unfortunately, Sisters was unable to generate enough votes to lift the ban. Nearly 57 percent of voters in Sisters voted to keep its current ban on recreational marijuana businesses banned in the city limits. Perhaps city residents were biased after two Sisters residents were arrested on October 11 related to an illegal operation.


All in all, it was a good night for local cities. Many Oregon cities have tried and failed to lift bans in past elections, however, there seems to be a clear movement towards lifting bans in cities to allow the recreational sale of marijuana (and getting access to that growing stream of state-wide tax revenue). We here at Harris Bricken are hopeful the trend will continue, and are excited to be a part of it along the way.

As we wrote on Tuesday, the midterm elections were monumental for cannabis: Michigan voters approved of a proposal legalizing recreational marijuana for adult use, Utah and Missouri will soon establish medical marijuana regimes, and Texas Representative and marijuana antagonist Pete Sessions lost to a Democrat.

All in all, Tuesday was a good day at the state and national level. But cannabis wasn’t just on the ballot at the state or national level—many cities had measures on that would regulate cannabis in one form or another. This post discusses some of the more impactful ballot measures that won and lost in California.

california elections cannabis marijuana

To start, dozens of cities and counties in California had cannabis taxation measures, which is a good sign for the expanding market. Oakland voters, for example, approved of Measure V, which amends the local code to allow cannabis manufacturers and cultivators to deduct the value of raw materials when calculating gross receipts for tax purposes. Fresno voters approved of Measure A, which adopts a cannabis business license tax. As noted above, numerous cities had tax measures on the ballot—and they are quite literally all over the map.

El Dorado County had a number of cannabis measures on its ballot. Measures P, Q, R, and S each passed, allowing the retail sale, delivery, distribution, and outdoor/indoor cultivation of commercial cannabis for recreational and medicinal purposes. Interestingly, El Dorado County’s Measure N (a tax measure), didn’t pass.

Los Angeles County’s well-publicized Measure B, which would have established a municipal bank, failed. This was a closely watched measure in the cannabis industry, as many had hoped for a local bank in which to bank their earnings. Because the California effort to charter a state bank has cooled, local businesses may have limited options until a federal fix occurs.

Elsewhere, the City of Malibu passed Measure G, which will now allow retail sales of commercial cannabis and deliveries. Before, Malibu only allowed medicinal sales. But wait before delivering into Malibu from other cities; you’ll need a regulatory permit from the City of Malibu to do so. No word yet on what that application process will look like.

As noted above, these are just a few of the measures that were adopted (or not) on Tuesday. California, like many other places nationally, is certainly moving toward a more open marijuana landscape.

 2018 marijuana cannabis midterms michigan utah missouri

Today was a stellar day for marijuana advocates around the country. Not only did a handful of states authorize legalization of medical and recreational marijuana at the polls, but the Democratic Party took control of the House of Representatives, and one very problematic Congressman, Pete Sessions, was sent packing down in Texas.

Below is a summary of the big changes nationwide, with many of these results still firming up at the time of writing. Note that this post does not detail some of the “smaller” local developments, such as decriminalization in certain Ohio cities, enthusiasm for cannabis by Wisconsin voters, or many other positive developments ushered in by this evening’s voting.

Michigan

Congratulations to the Wolverine State, which voted to legalize adult use (recreational) marijuana statewide. Individuals who are at least 21 years of age will be permitted to possess and use marijuana and marijuana-infused edibles, and grow up to 12 marijuana plants for personal consumption (that’s quite a bit). Permitted retail sales will be subject to a relatively modest 10% tax. Per state law, ballot initiatives take effect 10 days after results are certified, which can take up to three weeks from yesterday. So, legalization should take effect by the end of the year. Michigan is the tenth most populous state in the nation, and the first Midwestern state to legalize cannabis– which is a big deal. (Yes, Michigan is a part of the Midwest.)

Missouri

Missouri is another Midwestern state to make giant strides on cannabis, legalizing medical marijuana statewide. Missourians reviewed three medical cannabis legalization measures on the ballot: the one that passed is known as Amendment 2. Amendment 2 is an impressive entrée into legalization for a couple of reasons: first, it actually amends the state constitution to allow medical cannabis; and second, it contemplates a licensing program extending far beyond decriminalization, to state licensure for cultivators, manufacturers, testing labs and dispensaries. Under the new regime, qualified patients with physician approval will be allowed to receive cards for any condition the physician sees fit. There will be a 4% tax on retail transactions. Of the three initiatives on Missouri’s ballot, this one was the best.

North Dakota

Alas, North Dakota failed to move beyond the confines of its medical marijuana program. Measure 3 would have allowed people 21 and older to possess, use, grow, buy and sell marijuana for recreational purposes, and it would have expunged previous cannabis convictions from criminal records. Stepping back, Measure 3 was an odd initiative in that it failed to include any language regarding regulation or taxes. Apparently, the idea was to let the legislature figure that part out, but Measure 3 advisers may be kicking themselves for that strategy today.

Utah

Like North Dakota, Utah is a fairly conservative state. In keeping with that ethos, Utah passed a fairly conservative ballot measure last night to legalize medical marijuana – but passed it nonetheless. Proposition 2 allows qualified patients with physician approval to a purchase two ounces of medical marijuana in any two week period, or products containing 10 grams of CBD or THC. Curiously, smoking medical marijuana isn’t allowed. To the good, patients who live more than 100 miles from a dispensary will be able to cultivate 6 plants at home, and there will be a caregiver program. The state will issue licenses for cultivation, processing, testing and dispensaries.

In all, Proposition 2 had a very interesting backstory, such that today’s legalization of medical marijuana in Utah was something of a fait accompli. You can read about that here.

Congress

Democrats took back the House of Representatives last night, which is great news for federal legislation prospects. Although cannabis is not a distinctly partisan issue these days, most progressive cannabis legislation tends to come from the House, and the prospects of moving marijuana legislation are far superior today than yesterday. The fact that the Senate is still solidly Republican is not ideal for federal legalization, but the prospect of compromise legislation on everything from decriminalization to banking to taxes — to say nothing of issues like industrial hemp — is better than ever.

Pete Sessions (“Prohibition Pete”)

This one could probably fall under the “Congress” paragraph above, but it’s a significant enough development to merit special mention. Back in March, I had fun writing about how Pete Sessions was almost single-handedly blocking cannabis reform, including bipartisan proposals, from his perch as Chair of the House Rules Committee. Well, Pete lost yesterday. This means that the undemocratic nonsense of blocking floor votes on issues that both parties want to vote on, is likely over. This development will probably be under-reported given everything else that occurred today, but it’s huge.

All in all, voters across the U.S. once again expressed their desire to do away with prohibition on November 6. This morning, 33 states and the District of Columbia have laws broadly legalizing marijuana in some form. The President may be open to reform, and we expect industrial hemp to be legalized within a couple of months. Interestingly, the U.S. has also found itself in a marijuana sandwich of sorts, between Canada’s recent federal legalization and Mexico’s imminent legalization. But that’s a story for another day.

For now, cannabis reform advocates should rejoice: Voters rejected prohibition in many places, nationwide.

hemp cbd paul ryan farm bill
There’s been quite a bit of it lately on hemp and CBD.

Earlier this week, Speaker of the House Paul Ryan announced his support to end federal cannabidiol (“CBD”) prohibition and expressed strong support for the uses of industrial hemp. To view the video of Ryan’s comments, go here at the 21:15 mark.

For any newbies out there, CBD is one of the many chemical compounds in a class called “cannabinoids” that naturally occur in cannabis plants. “[CBD] has proven to work,” Ryan said, specifying that it “helps reduce seizures.” Indeed, the Food and Drug Administration (“FDA”) approved Epidiolex back in August, which is G.W. Pharma’s oral CBD solution for the treatment of seizure associated with Lennox-Gastraut and Dravet syndrome. The FDA approval prompted the Drug Enforcement Administration to reschedule all FDA-approved drugs containing cannabis-derived CBD with no more than 0.1 percent THC under Schedule V of the Controlled Substance Act (“CSA”).

The Speaker, who is not running for reelection and is retiring from Congress at the end of the year, shared that his mother-in-law used a synthetic form of cannabinoids when she was dying from melanoma and ovarian cancer.

Ryan also jumped on the opportunity to speak in favor of industrial hemp when responding to a medical marijuana question from a rally attendee who husband had succumbed to cancer. “And by the way, there’s a lot of industrial uses for hemp that I understand from talking to Mitch McConnell is a big deal to Kentucky agriculture,” he said. “And we’re all in favor of that as well.” Ryan is not going as far as John Boehner, a recent House Speaker who is currently sitting on an advisory board for a for-profit marijuana company, but his take is welcome news to us.

The Speaker’s endorsement of industrial hemp comes at a decisive time. As we previously discussed, Congressional leaders are still attempting to reconcile the House and the Senate versions of the 2018 Farm Bill. The Senate version, which was introduced and championed by Senate Majority Leader Mitch McConnell, would legalize hemp by removing the crop from the CSA definition of marijuana. The House version, however, is silent on this issue, and thus would afford meager protection for the crop. With Paul Ryan’s public support for ending federal CBD prohibition, however, it seems more likely that the House would approve the hemp language found in the Senate bill.

This is not the first time that Ryan has expressed support for the legalization of CBD and industrial hemp. Back in 2015, the speaker co-sponsored a bill with Rep. Scott Perry (R-PA) that sought to remove industrial hemp and CBD-infused products containing less than 0.3 percent THC from the definition of marijuana under the CSA.

It is still important to note, however, that the Speaker’s endorsement of CBD does not extend to the full legalization of marijuana, even for medical uses. “There’s no THC in that oil. That is not medical marijuana,” he declared. But of course, Ryan’s statement is inaccurate given that most CBD products contain small amounts of the psychoactive cannabis compound.

Nonetheless, proponents of industrial hemp and CBD should be pleased by this latest and encouraging development. The public support for the legalization of the crop and of marijuana’s non-psychoactive cousin by one of the most powerful Congressional leaders reveals a shift in the minds of conservatives and suggests the likely passage of the much anticipated 2018 Farm Bill. Stay tuned!

cannabis marijuana RICO litigation
Time for some of these plaintiffs’ lawyers to pack it up.

We’ve been writing about RICO lawsuits on this blog for a while. These lawsuits are typically brought by neighbors of state-licensed cannabis farms, who allege they are bothered by noise and smells associated with cannabis production, and that their property values have been damaged by extension. Generally speaking, these plaintiffs tend to have strong prohibitionist beliefs. Filing RICO lawsuits has also become a cottage industry for certain lawyers, and there are even educational courses for attorneys who want to spend their time on this sort of thing.

As a reminder, RICO is a federal statute that provides for a civil cause of action for acts performed as part of an ongoing criminal organization (in addition to criminal penalties). Because RICO complaints sound in federal law and implicate supply chain and vendor defendants, these cases differ from your ordinary nuisance-and-trespass actions, which pursue only the marijuana grower itself, and are also occasionally brought against cannabis farms.

The first RICO lawsuits started popping up a few years ago, and some of them are backed by prohibitionist groups attempting to rattle the industry. One common strategy of RICO plaintiffs, particularly in the early litigations, was to name every vendor doing business with the cannabis farm, including those that never touched the plant itself: e.g., banks, insurance vendors and equipment providers. The RICO plaintiffs would then dismiss these defendants one by one, as each defendant cut ties with the defendant farm— which seems like a racket if there ever was one.

Although pot-neighbor litigation is probably not what Congress had in mind back when it wrote the Racketeer Influenced and Corrupt Organizations Act, RICO litigants have found some success with their approach, most notably in a 10th Circuit case called Safe Streets v. Hickenlooper, which allowed a RICO lawsuit to proceed in Colorado. More recently, however, the U.S. District Court for the District of Oregon dismissed a RICO lawsuit brought by a different marijuana farm neighbor for “failure to state a claim.” That case is known as Ainsworth v. Owenby and Judge McShane’s well-reasoned decision tees up a potential circuit split.

Like most leading business law firms who specialize in the cannabis industry, we have had quite a few clients ensnared in RICO lawsuits. These client defendants have included everyone from the property owners themselves, to far-off dispensaries that were unaware the cannabis they sold came from a defendant farm. Fortunately, these lawsuits aren’t really panning out for plaintiffs and we expect to see the RICO trend wind down. Recent case law developments in both Oregon and Colorado show why.

Oregon

Last month, a case known as Rice v. Ambrocio settled relatively quickly, having been filed only five months before. Rice was a waste of time and money, and it’s a good example of why people don’t like lawyers. The 56-page complaint named almost 50 defendants, although not all of them “appeared” in the case and a few were never served. The parties ultimately settled for a $60,000 collective payment to the plaintiffs (a guy who runs an anti-cannabis website, and his partner), which pencils out to a measly $1,200 per defendant on average. Most importantly for defendants, the settlement agreement is non-confidential.

This unimpressive plaintiffs’ outcome should make potential RICO litigants think twice about filing a lawsuit—especially one where it appears that the marijuana activity has all but ended on the defendant property before papers are even filed. Ultimately, if you want to file a complaint in federal court and take on 50 defendants, you are going to burn a LOT of cash just getting the thing filed and served. And, even if you battle your way through months or even years of motion practice, counterclaims, appeals, etc., the likelihood of success may not be great. Which brings us to Colorado.

Colorado

Earlier this week, we had what may have been the first jury verdict in a cannabis RICO case, and it came down in favor of the cannabis grower defendant. The plaintiffs were represented by a Washington, D.C. law firm with ties to Jeff Sessions, and apparently backed by a national anti-cannabis group known as Safe Streets Alliance. For all of that firepower, however, the plaintiffs could not prove their property value had been damaged by the cannabis grow they despised. The jury believed the defendants’ real estate expert, and reached a verdict relatively quickly in favor of the cannabis business. This case had been going for three years or so, and the plaintiffs had previously had the larger portion of their lawsuit—which sought to invalidate Colorado’s marijuana program entirely—thrown out.

The “no damages” finding by this jury is an extraordinary end to a protracted piece of litigation. When my law firm has potential clients come to us who are interested in filing litigation, we always look at a couple of things right away in addition to whether the claims seem viable. One of those is whether the potential plaintiff has been damaged. If the answer is “yes” (and the possibility of collection seems reasonable) we can usually proceed. But if the answer is “no”, bringing a lawsuit is probably a bad idea, regardless of whether the other side has breached a contract, done something “illegal”, etc.

If juries in cannabis RICO cases are going to find that cannabis production does not diminish the value of nearby properties, and that grower activity does not damage neighbor plaintiffs, these wasteful lawsuits may finally disappear altogether.

For more on RICO marijuana litigation, check out the following posts in our series: