How a racketeering law is targeting cannabis growers in states with legal marijuana

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Would you welcome a cannabis farm as your next-door neighbor?

A federal jury in Denver is being asked to decide, in a trial that kicked off Monday, whether it agrees with a Colorado couple who claim their home is being devalued by a cannabis firm that set up business operations 40 feet from their property line.

Plaintiffs Hope and Michael Reilly say the existence of the cannabis businesses, and noxious odors it produces, are decreasing the value of their real estate and interfering with the use and enjoyment of their land.

“Marijuana businesses make bad neighbors,” the plaintiffs allege in their complaint. “They emit pungent, foul odors, attract undesirable visitors, increase criminal activity, increase traffic, and drive down property values.”

The U.S. District Court for the District of Colorado is hearing the case against defendants Parker Walton, 6480 Pickney, LLC and Camp Feel Good, LLC, owners of a marijuana cultivation facility in Rye, Colorado, who say there are no odors emanating from its facility.

“And our expert agrees,” the defendants’ attorney, Matthew Buck, told Yahoo Finance.

A case of first impression

It’s a matter being litigated for the first time under a federal racketeering law that originated in 1970 to prevent the Mafia from profiting off of illegal business activities. Prosecutors have used this law to go after organized crime, but it also has a civil component that lets people sue over actions related to a criminal enterprise.

The plaintiffs, represented by Washington, DC-based law firm Cooper & Kirk, filed the civil case in 2015 and pushed forward earlier this year, in the wake of a Tenth Circuit ruling from the U.S. Court of Appeals that defined cultivation of marijuana intended for sale as racketeering activity.

Regardless of marijuana’s legalization under Colorado law, cultivation and use of a controlled substance (marijuana is categorized as a Schedule I drug under the Controlled Substances Act) remains illegal under federal law, the court reasoned, and is therefore subject to the Racketeer Influenced and Corrupt Organizations Act. The Act definesracketeering as “the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance.”

‘High-powered money’

Efforts to target state-licensed marijuana businesses using RICO have been criticized by those who support industry expansion and warn that plaintiffs and advocacy groups can turn unresolved discrepancies between state and federal law into a grower’s Achilles’ heel.

“In relation to this case is some high-powered money,” Anna Hatch, senior counsel for Colorado marijuana dispensary LivWell Enlightened Health, told Yahoo Finance. She was referring to one of the case’s original plaintiffs, Safe Streets Alliance, an advocacy group that promotes enforcement of federal drug laws.

Hatch acknowledged property owners who find themselves in the Reillys’ position may have legitimate grievances.

“I think there is an argument there that a marijuana business next door would have a negative impact on property value,” she said. “It’s also entirely possible that the land could be used for cultivation purposes and it could skyrocket.”

For his part, the defendant’s attorney, Buck, says of the Reillys’ property, “The value has gone up every single year.” However, he acknowledged that plaintiffs had made improvements over the course of their ownership.

Nuisance or not?

According to records from the Pueblo County recorder’s office, the Reillys purchased three lots in question between 2011 and 2014 in what is known as the Meadows at Legacy Ranch. Together, the properties total 105 acres, parts of which are immediately adjacent to a 40-acre parcel purchased later in 2014 by Walton.

The defendants’ marijuana cultivation facility — from where the odors allegedly emanate — is an indoor facility located 82 feet from the Reillys’ property line. The space is 1,675 feet from plaintiff’s home, Buck says.

The Pueblo County assessor classifies both the Reilly properties and the Walton property as agricultural, with zoning designed to “retain and promote the appropriate use of dry range and irrigated lands.” The assessor says the classification is meant to encourage open use of the land in keeping with natural characteristics and agricultural functions.

The Reillys say their property became less valuable and less suitable for weekend visits with their children, where they would ride horses, hike and visit with friends, after Walton began using his property to manufacture marijuana.

As more states embrace legalized marijuana, chances are the Reillys’ case will not be an isolated one. Similar cases have been filed in California, Oregon and Massachusetts. In August, a federal district court in Oregon dismissed a RICO-based suit against a cannabis defendant yet left the door open for the plaintiffs to amend and refile their claim.

Under RICO rules, plaintiffs who prevail are entitled to treble, or triple, damages, making the act a potentially more lucrative avenue than a traditional nuisance claim.

Yahoo Finance contacted the attorney for plaintiffs, Brian Barns, who said he could comment only after conclusion of the trial.

A website currently shows Parker Walton as co-owner of Cannacraft LLC, a recreational cannabis cultivation facility that advertises its recreational marijuana products under names like Kool Aid, Clementine, UK Cheese, Voodoo and Skunkberry.

In an email, Pueblo County’s Public Relations Officer, Adam Uhernik, said “because there is an ongoing court case it would be inappropriate for [its Commissioners] to comment on any part of it or county laws at this time.”

The case is expected to go to the jury as soon as Wednesday.

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