From Arkansas to California: Is The RICO Statute Being Used to Target Legitimate Cannabis Businesses?

“As long as cannabis remains federally illegal, individuals will seek to use the RICO statute as a basis for asserting claims against cannabis companies.”

Jennifer Cabrera, Vicente Sederberg Attorney

A classic action lawsuit was filed against two California-based cannabis brands on Thursday 20th October for allegedly inflating THC amounts in their products. This comes three months after a similar lawsuit had been filed in Arkansas, against four marijuana companies. Two plaintiffs moved to court to file a Racketeer Influenced and Corrupt Organizations (RICO) suit against  DreamFields Brands and Med for America for inflating the THC amounts in their Jeeter pre-roll products with the intention of making higher profits.

Delta-9-tetrahydrocannabinol (THC) is the primary euphoria-inducing compound in cannabis. Higher amounts of THC are associated with a greater “high” or stronger effects, though this might not be entirely true. But with this belief, consumers have been willing to pay more for higher THC products. Higher THC products attract higher prices and consequently fetch higher profits for the producers.

A review by Wee Week showed that all Jetter products had considerable lower THC amounts than what was indicated on the labels. While the average THC indicated was 35%-46%, Weed Weekly found that the pre rolls only contained 23%-27% THC. “THC inflation” is a trend that appears to be gaining popularity in the cannabis industry as consumers scramble for increasingly higher THC numbers. Even though higher THC may not necessarily mean stronger effects, producers are finding themselves at crossroads; with some bowing to the pressure to “give consumers what they want.” In some cases, this may mean colluding with “independent labs” to bump up THC numbers. 

The RICO Statute and THC Inflation

In spite of a couple of RICO lawsuits being filed against cannabis companies in the recent past, none has been successful so far. But given the trend so far, it looks like there’s more to come. According to Jennifer Cabrera,  Vicente Sederberg attorney, the RICO statute will be used to assert claims against the cannabis industry for as long as cannabis remains federally illegal. Speaking to My Cannabis, Jennifer made the following observations.

“RICO is often the preferred cause of action because if plaintiffs are successful, they are entitled to treble damages, costs, and attorneys fees. However, most civil RICO lawsuits that have been filed against cannabis companies in the past have been unsuccessful due to the many elements that comprise the cause of action. In the Arkansas class action suit, most of the defendants have already responded to the Complaint with a Motion to Dismiss, arguing that plaintiffs have failed to plead sufficient facts to show the existence of a criminal enterprise or that plaintiffs have suffered any damages. Many civil RICO claims do not proceed beyond a motion to dismiss, but this remains to be seen in this specific case. 

I would note that the claims asserted in the Arkansas action, which centers around allegations of misrepresentation of cannabis potency, are distinct from other civil RICO cases that have previously been asserted against marijuana licensees. Historically, RICO suits have been brought by abutters, who try to use the racketeering statute to pursue damages related to loss in property value. In either situation, in order for participants in the regulated industry to avoid RICO lawsuits, they should strictly adhere to the applicable regulations in their jurisdiction and proactively engage with neighbors and their communities.”