Colorado lawsuit threatens US cannabis industry

U.S. federal law already poses a number of problems for the cannabis industry. For example, it prevents companies from having access to banking services and insurance services. Some opponents of cannabis liberalization are taking advantage of the ambiguity between the illegality of cannabis at federal level and its legality in some states to develop legal strategies against the industry. Last year, one of these strategies was legitimized by a decision by the 10th Court of Appeal in Denver. A complaint was thus able to make its way up to the federal court, the Supreme Court. The trial began on Monday, and its outcome could be decisive for the cannabis industry.

Details of the complaint

Parker Walton set up his 465m² indoor cannabis farm in the small rural town of Rye in 2014. It was in this same town that the Reilly couple, Hope and Michael, bought several plots of land before they got wind of the cultivation project. In early 2015, they filed a complaint against Walton's company, complaining about the odors emitted by the neighboring cultivation facilities and claiming that their proximity was lowering the value of their property.

In support of their accusation, they invoke the Racketeer Influenced and Corrupt Organizations Act (RICO), a law created in the 70s to combat the mafia. It stipulates that if the property of a civil party has been damaged by a criminal organization, then the accused must reimburse three times the damage, plus legal fees. Under federal law, cannabis companies are considered criminal organizations.

Adam Wolf, a Californian lawyer says Confident that the suit will not succeed, he explains that the Supreme Court has traditionally rejected such complaints. However, Brian Barnes, the plaintiffs' lawyer, says that the growing number of RICO lawsuits from other law firms unrelated to his own suggests that the strategy is likely to succeed.

The couple's complaint is handled by a law firm called Cooper & Kirk. The company in question had filed two simultaneous complaints, the first of which led to the relocation of a dispensary and the couple's case went all the way to the Supreme Court. The strategy seems to be bearing fruit, and could pave the way for a multiplication of similar lawsuits.

A strategy of cannabis opponents

Opponents of cannabis liberalization have long sought an angle of attack to hinder the development of the industry, sometimes by directly attacking states. This is the case, for example, of the organization Safe Street Alliances who filed a complaint against the State of Colorado. Also in Oregon, a county close to California complained about the installation of crop farms on its territory, and sued the state for legalization. To date, these complaints have been unsuccessful, and their arguments have been deemed inadmissible by the courts in view of the supremacy of national law.

Nevertheless, the Colorado Court of Appeals verdict, by suggesting that the firm's legal strategy Cooper & Kirk could prove successful, encouraged similar lawsuits in other states. Since then, two other RICO-type pursuits have been filed by civil parties in Oregon and Massachusetts. RICO lawsuits are usually unsuccessful because the law is designed to protect criminal organizations, not to settle commercial or neighborhood disputes. But this unprecedented case suggests a legal loophole through which cannabis companies can be sued and their activities significantly hindered.

Omar Figueroa, a Federal Court specialist explains that these disputes pose «a very serious threat» to the industry and leave it vulnerable. Companies could be forced to conduct neighborhood surveys to ensure the sympathy of residents before setting up shop anywhere. What's more, Figueroa considers that the outcome of the trial is uncertain and will largely depend on the sympathy of the jury. «RICO litigation can be very expensive and is not easy to win,» he adds.

Matt Buck, an attorney working on the Colorado case, says he expects to see these cases multiply, but doesn't see them as posing a significant threat: «I don't think it poses a serious threat to cannabis businesses other than costing them money to defend nuisance lawsuits.» However, he acknowledges that court costs are very high, sometimes in the hundreds of thousands of dollars. This strategy could therefore prove effective in terms of deterrence, especially for small businesses with limited resources like Walton's.