A Washington-based organization is filing racketeering lawsuits against Colorado marijuana businesses and their affiliations in an effort to upend the industry. The organization, Safe Streets Alliance, has successfully shut down one marijuana business and has a pending suit against another. The lawsuits are using racketeering claims to put marijuana dispensaries at risk of shutting down. Here is a quick guide to break down who is affected by the lawsuits, which law is being implemented and what effect these lawsuits could have.
Who is affected?
Beyond the dispensaries themselves, these lawsuits are designed to target every business even slightly affiliated with the marijuana dispensaries. This includes landlords, bankers, construction companies, accountants and bonding agencies, among a myriad of other businesses that could be lumped into the racketeering enterprise. Any individual or business that assists anyone who cultivates or sells marijuana could be at risk for these lawsuits. The lawsuits are also implicating Colorado state officials for not complying with federal law and issuing licenses to sell illegal drugs.
What is the applicable law?
The lawsuits are based on the 1970 Racketeer Influenced and Corrupt Organizations (RICO) Act, which criminalizes anyone who partakes in racketeering activity. Specifically, the law says it is “unlawful for any person to be associated with any enterprise engaged in interstate or foreign commerce to participate in the conduct of such enterprise’s affairs through a pattern of racketeering activity.” In summary, the act implements federal criminal penalties for activities that benefit an illegal enterprise.
What is the impact of these lawsuits?
One dispensary, Medical Marijuana of the Rockies, has already closed down as a result of the lawsuit. The lawsuit named many of the shop’s affiliates, and the shop went under after the affiliates decided to discontinue business with the shop. A potentially unnerving point of interest is that the bonding company for Medical Marijuana of the Rockies paid $50,000 to get out of the lawsuit. Many bonding companies have stopped writing bonds for marijuana businesses out of fear for being named in a future lawsuit. Although this is understandable, it could have a potentially devastating effect on marijuana businesses across the state.
According to both the Colorado Retail Marijuana Code and Medical Marijuana Code, applicants must first obtain a surety bond before they can be approved for a license to operate. These bonds essentially protect the government from any sales and use taxes not paid by the marijuana business. Since this is the only form of security accepted by the state, the ability for marijuana businesses to obtain licenses rests in the hands of bonding companies issuing the form.
Although the ultimate effect remains to be seen, there is a chance these lawsuits could drive current marijuana license holders out of business and return all marijuana transactions back to the black market. If all of the bonding companies decide to pull out of the marijuana industry due to fear of being implicated in a lawsuit, there will be no way for Colorado applicants to obtain licenses. However if the lawsuits fail in court, confidence could potentially be restored in the industry and bonding companies could continue writing these bonds again. Additionally, Colorado legislators can pass a bill making other forms of security available for marijuana license applicants (irrevocable letter of credit or cash, for example).
Currently there is a lawsuit against Alternative Holistic Heating, a medical marijuana vendor that is building a 5,000 foot warehouse in southern Colorado. The neighboring property owners are suing the company for negatively affecting their mountain views and property value. The business owners have not yet flinched in the face of the lawsuit, claiming it to be frivolous. The outcome of lawsuits like this will go a long way in determining the future of retail and medical marijuana businesses not only in Colorado, but the rest of the country.
Still in need of a marijuana bond?
For marijuana license applicants, the bond form for retail marijuana can be found here and the bond for medical marijuana can be found here. Applicants can still obtain bonding through SuretyBonds.com, which issues both retail and medical marijuana license bonds. For more information or to request a quote online, visit our Colorado Marijuana License Bond page.
We will continue to provide updates on the marijuana bond market here on our blog. Subscribe to the Surety Bond Insider below to receive updates in your inbox.
UPDATE: SuretyBonds.com is no longer issuing marijuana bonds as a result of the racketeering lawsuits filed against Colorado marijuana vendors and their associates.