A State and Federal Divide over Cannabis Commerce

by | Feb 17, 2023 | Cannabis Law

A federal appellate court recently handed down a ruling that has a significant effect on the legal cannabis industry. There exists an uneasy status quo about the legality of cannabis, because it is still criminalized by the federal government. This new ruling is yet another example of the ongoing legal battle cannabis businesses face in finding legal protection within the current quasi-criminal framework.

RICO Law and Cannabis

The Racketeer Influenced Corrupt Organizations Act (RICO) is most commonly used by law enforcement to fight organized crime by criminalizing three activities: (1) using illegal income to acquire, establish, or operate an enterprise; (2) acquiring an interest in such an enterprise; and (3) using an enterprise to collect a debt.  However, everyday citizens and corporate entities can also use the terms of RICO as an effective tool to initiate investigation into and litigation against complex organized criminal efforts within the context of commercial enterprises. Shulman v. Kaplan tested the extent of these protections.

At the heart of Shulman is an alleged wire-fraud scheme that victimized a cannabis producer. To recover the lost money, the business owner filed a successful RICO lawsuit in California. However, the defendant appealed the decision to the Ninth Circuit. The appellate court reversed the earlier decision, holding that RICO does not apply to in this instance because cannabis is still considered a Schedule I drug at the federal level. The ruling is notable because the suit was deemed actionable on its merits except for the drug’s lingering status as federally illegal irrespective of the growing number of states that have legalized medicinal and/or recreational cannabis.

Protections End at California’s Borders

The ruling in Shulman is a stark reminder that protection for cannabis businesses exists only at the state level. Until there is uniform legislation at the federal level, cannabis entrepreneurs must be vigilant about where they place their trust. By consulting attorneys skilled in cannabis law, you can identify potential pitfalls and reduce your risk.