Cannabusiness Advisory

Don’t Make a Federal Case Out of It

June 6, 2018


Crimson Galeria Limited Partnership et al (the Plaintiffs) vs. Healthy Pharms, Inc. et al (the Defendants), in Civil Action No. 1:17-cv-11696-ADB (the Complaint), which is currently pending in the United States District Court for the District of Massachusetts, is an interesting case to watch, as it could have far-reaching implications for the cannabis industry. In it, Plaintiffs allege that all Defendants are criminally conspiring to grow and sell cannabis and cannabis products, in violation of the Controlled Substances Act and the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. This is a stretch, as one of the defendants, Century Bank and Trust Company, only provides banking services to Healthy Pharms, Inc., a Massachusetts-licensed registered marijuana dispensary located in Harvard Square. Not to put too fine a point on the dispute, but by invoking the RICO statute, Plaintiffs are attempting to make a federal case out of what amounts to a Harvard Square landlord dispute, because the landlord does not approve of Healthy Pharms, Inc.’s operation and is concerned about the potentially negative ramifications it may have on its own business and real estate value.

On December 15, 2017, Century Bank filed a brief in support of its motion to dismiss the Complaint, which is quite persuasive and compelling. In it, Century Bank argues that Plaintiffs do not show that Defendants violated the RICO statute, as they fail to sufficiently allege that two key criteria had been met: namely, that (i) Century Bank participated in the conduct of the affairs of the (alleged criminal) enterprise, and that (ii) Century Bank knowingly joined the conspiracy to participate in the affairs of the enterprise. All Plaintiffs have alleged is that Century Bank provided normal banking services, which, by itself, is not enough to support a RICO claim.

Further, Century Bank asserts Plaintiffs have failed to demonstrate that Century Bank was a direct and proximate cause of the Plaintiff’s alleged injuries, also a requirement under RICO. Proximate cause requires there to be a direct relation between the injury asserted and the alleged conduct. Plaintiffs, who are adjacent property owners to the RMD, allege they are harmed, as the value of their real estate or ability to lease would be impaired in the future by the dispensary’s mere existence. In its motion to dismiss, Century Bank argues that Plaintiffs’ injuries (to the extent they can be proven) are too attenuated from Century Bank’s alleged conduct.

Finally, and most relevantly, Century Bank points to the fact that Massachusetts has legalized the use of medical marijuana, and the Department of Public Health has provided extensive rules and regulations addressing the cultivation, sale, and use of medical marijuana in the Commonwealth. Moreover, Congress enacted the Rohrabacher-Farr Amendment, which, to summarize, expressly prohibits the federal government from using federal funds to “…prevent States from implementing their own state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” Century Bank complies with all State laws, and there are no allegations in the Complaint that Century Bank broke any such laws or regulations.

It is important to note that the industry buzz is that the Complaint is politically motivated, as Plaintiffs’ counsel may have ties to Attorney General Jeff Sessions, and have brought almost identical complaints in at least two other states. While this appears to be a long shot by Plaintiffs’ counsel, if they prevail, the state laws regulating medical marijuana in the 30-plus states that have approved such laws to date, along with the federal regulations that the U.S. Treasury issued to govern banks servicing the medical marijuana industry, will be rendered useless.

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