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Are Bad Actors In Cannabis On The Decline?

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While RICO cannabis charges have proved generally ineffective in court, other approaches might have more success.

Cases brought against cannabis companies have seemingly been on the rise as of late. The legal actions vary in form and could create a sense of unease within the industry. Despite the headline-grabbing cases, the number of improper actors in cannabis may actually be on the decline.

RICO Charges Target Cannabis 

One of the most common legal tactics used in recent years has seen the Racketeer Influenced and Corrupt Organizations (RICO) Act. Enacted by the Nixon administration as part of the Organized Crime Control Act of 1970, RICO charges were designed to keep proceeds from illicit operations out of legal entities, primarily targeting organized crime and triple damages for winning plaintiffs.

But more civil plaintiffs have turned to RICO charges for issues unrelated to organized crime.

Unlike federal RICO action, civil cases have not focused on illegal funds. A Colorado case in 2017, Safe Streets Alliance v. Hickenlooper, saw the anti-cannabis organization alleging that nearby cannabis operations drove down property values. The claim was ultimately dismissed.

Cannabis operators have filed RICO charges as well. In June 2022, the Cayuga Nation claimed a RICO violation and conspiracy allegations against Pipekeepers Tobacco & Gas, saying the shop operated illegally and was taking money from the Nation. The case is ongoing, but two of the RICO claims were dismissed in September. The only issue remaining is the claim that the store building was bought with racketeering funds.

In Arkansas, four cannabis operators face RICO charges over alleged inflated THC numbers. The class action case brought by three patients alleges that lab Steep Hill Arkansas and three grow operations, Bold Team, Natural State Medicinals, and Osage Creek Cultivation, took part in deceiving customers via inflated THC figures.

Rather than being representative of bad actors in the industry, some insiders say that the cases are driven by outsiders looking to stifle the industry.

Steve DeAngelo, a Steep Hill co-founder who left the company in 2019, doesn’t consider the allegations against that company significant. Instead, he called the charges “shady,” alleging the plaintiffs in the case “are folks who are basically trying to invalidate a state medical cannabis law using a federal preemption clause.”

Despite the lack of worry over the Arkansas RICO charges, DeAngelo expressed concern over the legal tactic. “There’s a real danger that if you set a precedent, federal law can preempt the state medical cannabis law,” he said.

David Feder, a business and litigation attorney and founding member of firm Weed Law, feels that the cannabis space continues to suffer from bad actors in the public and private sectors in part because they hide behind EBITDA numbers rather than bottom line results.

“If cannabis companies weren’t allowed to use adjusted EBITDA, we’d probably have a lot more truth and transparency,” he said.

Feder is involved in his own RICO case against Acreage Holdings, in which he alleges Acreage stole the New York license held by his company, EPMMNY, to sell to patients in the legal market.

cannabis bud
Photo by Tetra Images/Getty Images

Additional Charges of Concern

While RICO cannabis charges have proved generally ineffective in court, other approaches might have more success.

In November, California brands Greenfield Organix and LPF JV Corporation were named in a class action customer lawsuit filed by firm Dovel & Luner. The charges allege THC potency inflation in Kingroll-brand pre-rolls.

The filing is the firm’s second class action against California THC brands. In October, they filed a customer class action against DreamFields Inc. and Med for America Inc., alleging that Jeeter-brand products contained lower THC percentages than stated.

THC often gets headline attention but is far from the only possible fraud charge in the sector. In October, the U.S. Securities and Exchange Commission charged Canadian cannabis brand Cronos and former Chief Commercial Officer William Hilson with fraud and aiding and abetting company violations. The action stems from a $2.3 million accounting oversight between 2019 and 2021, which Cronos self-reported after an internal audit.

Cronos settled with the SEC, paying no financial penalties and agreeing to hire independent compliance consultants. Hilson paid a five-figure fine to the Ontario Securities Commission and is prohibited from practicing before the SEC for three years.

Despite ongoing concerns and recent rises in reports, Lewis Koski, chief strategy officer for Metrc and former director of the Colorado Marijuana Enforcement Division, feels regulatory technology and market maturation are helping minimize intentionally improper companies and actors.

“My personal experience as a former regulator, the regulated framework and the businesses that operated within that framework shine a really bright light on the ones that are not,” he said.

Source: https://thefreshtoast.com/cannabusiness/are-bad-actors-in-cannabis-on-the-decline/

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New Mexico cannabis operator fined, loses license for alleged BioTrack fraud

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New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.

The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.

Golden Roots operates the The Cannabis Revolution Dispensary.

The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.

The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.

Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.

After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.

In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.

The company requested a hearing, which the regulator scheduled for Sept. 1.

At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.

Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.

Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.

The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:

Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.

Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/

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Marijuana companies suing US attorney general in federal prohibition challenge

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Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.

According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”

Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.

The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”

The companies want the case to go before the U.S. Supreme Court.

They hired prominent law firm Boies Schiller Flexner to represent them.

The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.

Similar challenges to the federal Controlled Substances Act (CSA) have failed.

One such challenge led to a landmark Supreme Court decision in 2005.

In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.

In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.

Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.

“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.

“Moreover, the facts on which those precedents are based are no longer true.”

Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”

While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.

“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”

Source: https://mjbizdaily.com/marijuana-companies-suing-us-attorney-general-to-overturn-federal-prohibition/

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Alabama to make another attempt Dec. 1 to award medical cannabis licenses

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Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.

The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).

Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.

Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.

That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.

Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.

Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.

A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.

Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/

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