State marijuana businesses are immune from RICO

My friend University of Denver Law Professor Sam Kamin, who co-chaired the Regulatory and Tax Structure Working Group of the California Blue Ribbon Commission on marijuana legalization with me, is to thank for whatever understanding I have of RICO here. Still, Sam does not necessarily agree with anything I write.

Sam points out that RICO, the Racketeer Influenced and Corrupt Organizations Act, poses a huge threat to private marijuana businesses. A Colorado case just settled out of court, with the defendant marijuana business shutting down, and defendants paying $70,000 to plaintiffs.  Another suit is pending.

Sam had this to say in the Denver Post:

“There was a lot of fanfare when these suits were filed and very little when this one was settled,” said Kamin, a law professor at the University of Denver. “I still think that it’ll be impossible for any business to show that they were harmed by the location of a marijuana business.

“But it doesn’t mean that these suits are pointless or non-problematic for the industry,” he said. “In fact, they’re going to be incredibly problematic for the industry going forward. The folks who helped to bring this suit and sought out plaintiffs for this suit are looking for more and other lawsuits.”

Here’s the killer argument: Public entities can’t be RICO defendants because they are incapable of forming the requisite mens rea.  Gregory Joseph, Civil RICO: A Definitive Guide, makes this point at 87-88. Even government officials are immune, unless they try to enrich themselves outside their official capacities.

Gvt eees

Id. at 90.  The text goes on and on with more authorities, but I’ll let the fair use copyright doctrine stop me there.

At the extreme, RICO pushes the entire industry into state hands – the Louisiana model, where LSU and HBCU Southern are authorized by statute to do all the medical growing. That may be too extreme politically for some, but private growers who want to risk RICO actions could co-exist with RICO-immune state stores.

The other pros and cons of state sales or “monopoly” are covered thoroughly in Chapter 4 of the RAND Report, Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions, http://www.rand.org/pubs/research_reports/RR864.html. That Report indicates that for many other reasons, state sales are safer than private sales. So are sales in municipal stores, like the one up and running in North Bonneville, Washington.

RICO liability is just another kind of danger that’s present with private sales and absent with government sales.  Exemption from income tax is discussed here: http://taxprof.typepad.com/taxprof_blog/2016/02/leff-presents-taxing-governmental-marijuana-sales-today-at-indiana.html

 

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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