a renewed bid by Oklahoma, Nebraska and others to stamp out Colorado’s recreational cannabis sales…

Bid to take down Colorado marijuana laws revived in court

Amid uncertainty about the future of federal enforcement, a renewed bid by Oklahoma, Nebraska and others to stamp out Colorado’s recreational cannabis sales
  • Published: Jan 17, 2017, 5:42 am

By Alicia Wallace, The Cannabist Staff

Federal appeals court judges on Tuesday reviewed the reach of racketeering laws, chewed over case law and opined over olfactory issues in a case that threatens to stamp out Colorado’s recreational marijuana industry.

A three-judge panel for the 10th U.S. Circuit Court of Appeals in Denver took oral arguments in a consolidated case that claims Colorado’s recreational cannabis laws fly in the face of federal controlled substances and racketeering laws.

The states of Nebraska and Oklahoma joined the dispute after the U.S. Supreme Court declined to hear their case. The appeals also included a lawsuit from county sheriffs and another from a Pueblo horse ranch. The plaintiffs’ challenges were among several raised in and after 2014, when Colorado’s first-of-its-kind foray into regulated sales of cannabis didn’t sit well with all, especially neighboring states concerned about federally illicit substances spilling over their borders. Those complaints and the Nebraska-Oklahoma suit were eventually struck down.

On Tuesday morning, in a crowded, small, upstairs courtroom at the Byron White U.S. Courthouse in downtown Denver, attorneys and judges reviewed the reach of RICO and other federal acts and the impacts of marijuana cultivation on nearby properties.

“I went into the courtroom thinking that this was a slam dunk,” Matthew W. Buck, an attorney representing a half-dozen marijuana businesses named in the suits, said in an interview Tuesday afternoon. “And I came out of it thinking that it would be more of a toss-up.”

Buck said his confidence about the outcome waned after judges appeared to align with plaintiffs’ arguments that the wafting smell of federally illegal marijuana from the Pueblo cultivation facility to neighboring properties such as the horse ranch damaged property values. The impact of the greenhouse construction on sight lines from the property also was cited.

“(If this case were remanded to district court), it would effectively open the floodgates for every single dispensary and every single cultivation facility to be sued under federal court for RICO,” Buck said.

The Racketeer Influenced and Corrupt Organizations Act, oft-used in the implication of crime families and fraudulent financiers, also allows for private individuals to sue “racketeers” who allegedly damaged a business or property — in this case, property values. With RICO at the heart of its complaint, the entity backing the Pueblo County horse ranch also argued that the federal prohibition of marijuana overrides state law.

“Colorado is authorizing violation of the (U.S. Controlled Substances Act) through this licensing regime,” Brian W. Barnes, an attorney for plaintiff Safe Streets Alliance, told the judges Tuesday. Safe Streets, a Washington, D.C.-based anti-drug and anti-crime organization, took up the cause of the southern Colorado horse ranchers.


Get caught up on Colorado’s pot lawsuits

In-depth analysis: Who exactly is behind the lawsuits over Colorado’s legal marijuana? Primarily out-of-state interests with deep pockets

Pot pesticides lawsuit tossed: Denver judge says consumers who sued weren’t actually harmed from smoking pot they say was treated with pesticides

Fewer targets: Federal judge removes the governor and other state and Pueblo County officials as defendants in a high-profile marijuana racketeering lawsuit based in southern Colorado

Nebraska-Oklahoma lawsuit: Previous articles about the landmark lawsuit filed by neighboring states over Colorado’s marijuana legalization

More on the RICO suits: Colorado residents suing to halt recreational marijuana sales

RICO suits: Coverage of cases trying to halt Colorado’s recreational marijuana sales by using a federal law against organized crime

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Asked by Judge Harris J. Hartz as to whether a change in enforcement policy on the federal level, perhaps from a new U.S. attorney general, would solve his concerns, Barnes said he would welcome such a change but added it would be a “bank-shot” enforcement action against a third party and would not get at the heart of the state laws that stand in opposition to federal laws.

Hartz later questioned Barnes on the need for more enforcement beyond the mechanisms already in place through federal law or actions such as the 2013 Cole Memo that set guidelines for federal prosecutors in states with legalized marijuana. State laws regulating the sale of marijuana, Hartz noted, could in effect be a means of enforcement.

“How do you decide where to draw the line of authorizing and limiting pot and encouraging it?” Hartz asked.

Matthew Grove, assistant attorney general for the state of Colorado, said his state’s regulations are not preempted by federal law.

A decision from the 10th Circuit panel could take months, case attorneys and legal experts say.

In that time, the current landscape of the U.S. marijuana industry could see a drastic shift. More states may finalize or decide to pursue legalization measures, and a new presidential administration may shake up the “hands-off” status quo in enforcement.

“When the Obama administration did not push back (on legal states), this litigation was sort of the last chance for people opposed to this,” said Sam Kamin, a professor of marijuana law and policy at the University of Denver’s Sturm College of Law. “Now they can move back to the policy realm and attempt to do so through federal law enforcement.”

If the appeals court judges shoot down the appeal, Kamin said he believes a push to the U.S. Supreme Court would be unlikely.

“That likely will be the end of these legal challenges for the foreseeable future,” he said.

The states’ anti-legalization effort stretches back to December 2014, nearly one year into Colorado recreational marijuana sales.

The states argued that they had to shell out more money because of a spike in marijuana arrests, vehicle impoundments, drug seizures and prisoner transfers.

“This contraband has been heavily trafficked into our state,” Nebraska Attorney General Jon Bruning said at the time, according to a report in the Omaha World-Herald. “While Colorado reaps millions from the production and sale of pot, Nebraska taxpayers have to bear the cost.”

In the months that followed, Colorado’s marijuana laws were the target of several other suits, including disputes by county sheriffs, Pueblo County horse ranchers and a hotel owner in the mountain town of Frisco.

The cases involving the Pueblo horse ranchers and the county sheriffs advanced to appelate court; the suit by the hotel owner was dismissed after a settlement.

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Marijuana Opponents Using Racketeering Law to Fight Industry

DENVER — Jul 13, 2015, 4:20 PM ET

By KRISTEN WYATT Associated Press

Associated Press

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.

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