4 Arkansas medical marijuana firms face litigation underneath federal racketeering legal guidelines after a bunch of medicinal hashish sufferers filed a lawsuit in opposition to the companies final month. The authorized motion, filed in U.S. district courtroom in Little Rock on July 12, alleges that Arkansas’ medical marijuana cultivators colluded with testing labs to artificially inflate THC efficiency take a look at outcomes. The swimsuit seeks an injunction to close down the state’s medical hashish business underneath the federal Racketeer Influenced and Corrupt Organizations Act.

Legal professional Luther O. Sutter filed the lawsuit on behalf of three medical marijuana sufferers. The swimsuit accuses hashish cultivators Daring Group LLC, Pure State Medicinal Cultivation and Osage Creek Cultivation LLC of fraud for promoting hashish with decrease THC efficiency than marketed.

Steep Hill Inc. of Berkeley, California, and Steep Hill Arkansas of Little Rock are additionally named as defendants and are accused of reporting artificially excessive THC readings for hashish offered to sufferers. The lawsuit additionally names Steep Hill Arkansas homeowners Brent Whittington and Brandon Thornton as defendants, alleging they conspired with growers to defraud sufferers by promoting them marijuana with much less THC than indicated by take a look at outcomes.

“The online impact is to defraud the Plaintiff and putative clause by over-representing the quantity of THC in flower to the detriment of the Plaintiff and Class in order that Steep Hill, the cultivators, and the dispensaries can make more cash,” the plaintiffs allege within the lawsuit.

The swimsuit alleges that the medical marijuana business in Arkansas is a legal racketeering group that’s defrauding the state’s medical marijuana sufferers and is topic to triple damages within the case. With the authorized motion, the plaintiffs search an injunction ordering all hashish cultivators and dispensaries to stop gross sales. The submitting additionally seeks certification as a category motion for the named plaintiffs and different sufferers who’ve bought hashish.

Steep Hill and the hashish cultivators have reportedly denied the fraud fees in opposition to them. In addition they observe that earlier RICO fits in opposition to marijuana firms haven’t been profitable in different states which have legalized marijuana. Steep Hill Arkansas’ Thornton issued a press release calling the fees within the lawsuit baseless.

“We stand behind the standard, integrity and efficacy of our lab, workers and neutral lab outcomes,” he mentioned.

RICO Fits And Authorized Hashish

The lawsuit will not be the primary time the federal RICO statute has been used in opposition to hashish firms working legally underneath state and native regulation. However the success of the fits, that are based mostly on the illegality of marijuana underneath federal regulation, has diversified. Justin M. Brandt, founding associate of the regulation agency Bianchi & Brandt, notes that the RICO statute was initially utilized by federal prosecutors to discourage legal conduct by organized crime syndicates.

“Its use in civil lawsuits introduced by personal people is a latest evolution of the statute, particularly within the context of the hashish business,” Brandt writes in an e-mail. “Traditionally, RICO circumstances introduced in opposition to hashish companies working underneath state-legal applications haven’t been profitable.”

“For this particular case, I imagine there are different probably meritorious claims higher fitted to addressing Plaintiffs’ alleged damages–particularly for the reason that lawsuit is being proposed as a category motion case,” he provides. “We sometimes see these circumstances introduced underneath shopper safety statutes moderately than civil RICO.”

Brandt additionally believes that the plaintiff’s complicity within the alleged criminality diminishes the energy of their racketeering case.

“The circumstances of this case additionally increase threshold questions surrounding the viability of Plaintiffs’ civil RICO claims as a result of the person Plaintiffs appear to have knowingly bought the marijuana at concern, that means they technically participated within the alleged ‘unlawful scheme’ that serves as the idea of their RICO declare,” he writes. “It is going to be fascinating to see how the courtroom evaluates these points, which I anticipate Defendants will increase early on within the proceedings via dispositive motions.”

Brandt provides that the sufferers will doubtless have issue proving a case of racketeering.

“Plaintiffs have an uphill battle with respect to their civil RICO claims, which can develop into much more difficult if maintained as a category motion,” he writes.

How Hashish Corporations Can Keep away from RICO Lawsuits

Legal professional Laura A. Bianchi notes that because of the federal illegality of hashish, there are not any constant nationally acknowledged testing requirements or tips for hashish companies to comply with. However she says that there are methods that hashish enterprise homeowners and license holders can restrict legal responsibility from testing and high quality management points.

“First, in fact, is to function your services in a clear, compliant and clear method. This implies refusing to chop corners in cultivating, manufacturing or producing merchandise,” she explains. “Second, homeowners and license holders must do their due diligence when deciding on a lab to work with. Looking for out a lab with the most effective {qualifications}, requirements, and expertise permits operators to have faith within the outcomes offered, lessening liabilities.”

“Third, as with every enterprise, perfection is not possible, so it’s crucial that homeowners and license holders have (and preserve) the suitable quantity of insurance coverage protection, together with product legal responsibility insurance coverage,” Bianchi continues. “Most frequently the errors made by the labs are unintended, however sadly, there are cases during which the producer and labs are very a lot conscious they’re offering inflated or inaccurate lab outcomes.”

Meg Nash, counsel on the hashish regulation agency Vicente Sederberg, provides that hashish companies may additionally have the ability to keep away from litigation by merely being good neighbors with residents who could also be against having a marijuana operation close by.

“Many RICO lawsuits primarily quantity to claims of nuisance by ‘NIMBY’ litigants,” explains Nash. “With this in thoughts, usually one of the simplest ways for hashish firms to forestall RICO lawsuits is by proactively partaking with their neighbors and neighborhood to solicit suggestions and to implement operational measures that might mitigate odor or some other hurt perceived by people locally.”