Dangerous Enemies to Dispensary Owners
Bad news for dispensary owners who don't have deep pockets and the fortitude to fight lenghty legal battles:
A federal law crafted to fight the mob is giving marijuana opponents a new strategy in their battle to stop the expanding industry: racketeering lawsuits.
A Colorado pot shop recently closed after a Washington-based group opposed to legal marijuana sued not just the pot shop but a laundry list of firms doing business with it — from its landlord and accountant to the Iowa bonding company guaranteeing its tax payments. One by one, many of the plaintiffs agreed to stop doing business with Medical Marijuana of the Rockies, until the mountain shop closed its doors and had to sell off its pot at fire-sale prices.
With another lawsuit pending in southern Colorado, the cases represent a new approach to fighting marijuana. If the federal government won't stop its expansion, pot opponents say, federal racketeering lawsuits could. Marijuana may be legal under state law, but federal drug law still considers any marijuana business organized crime.
"It is still illegal to cultivate, sell or possess marijuana under federal law," said Brian Barnes, lawyer for Safe Streets Alliance, a Washington-based anti-crime group that brought the lawsuits on behalf of neighbors of the two Colorado pot businesses.
Lawyers on both sides say the Colorado racketeering approach is novel.
"If our legal theory works, basically what it will mean is that folks who are participating in the marijuana industry in any capacity are exposing themselves to pretty significant liability," Barnes said.
The 1970 Racketeer Influenced and Corrupt Organizations Act sets up federal criminal penalties for activity that benefits a criminal enterprise. The RICO Act also provides for civil lawsuits by people hurt by such racketeering — in this case, neighbors of the two businesses who claim the pot businesses could hurt their property values. If successful, civil lawsuits under the RICO Act trigger triple penalties.
Filed in February, the Colorado lawsuits have yet to go before a judge. But one has already had the intended effect.
In April, three months after the RICO lawsuit was filed, Medical Marijuana of the Rockies closed. Owner Jerry Olson liquidated his inventory by selling marijuana for $120 an ounce, far below average retail prices.
"I am being buried in legal procedure," Olson wrote on a fundraising Web page he created to fight the lawsuit. The effort so far has brought in just $674.
The closure came after the pot shop's bank, Bank of the West, closed the shop's account and was dismissed as a plaintiff.
"Its policy is never to offer accounts to recreational marijuana businesses," the court order said.
And just last week, a bonding company in Des Moines, Iowa, paid $50,000 to get out of the lawsuit.
"We are out of the business of bonding marijuana businesses in Colorado and elsewhere until this is settled politically," said Therese Wielage, spokeswoman for Merchants Bonding Company Mutual.
The case of the mountain pot shop shows that racketeering lawsuits can affect the marijuana industry even if the lawsuits never make it to a hearing.
"This lawsuit is meant more to have a chilling effect on others than it is to benefit the plaintiffs," said Adam Wolf, Olson's lawyer.
In the other Colorado lawsuit, against a dispensary called Alternative Holistic Healing, the pot shop isn't going down so easily.
The shop owners are building a 5,000-square-foot warehouse in southern Colorado for growing pot, despite being sued by neighboring property owners for affecting their mountain views. A construction company and insurance company working with Alternative Holistic Healing haven't abandoned the job.
"It's a frivolous lawsuit," said the pot shop's lawyer, Matthew Buck. "It has not affected (the pot shop owners) whatsoever."
But the marijuana opponents funding the lawsuit say they're ready to expand the test lawsuits to more marijuana businesses. The end goal, they say, is clear: to stop the whole pot industry in its tracks.
"We're putting a bounty on the heads of anyone doing business with the marijuana industry," Barnes said. "Just because you see what appears to be this unstoppable growth of marijuana, we disagree. We're starting to change the economics of the marijuana industry."