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FMG Law Blog Line

It’s A Business Not A Criminal Enterprise (Any Longer)

Posted on: December 17th, 2018

By: David Molinari

The operation of a commercial cannabis business presents a host of unique issues. Security is a concern when the business stores hundreds of thousands of dollars in “inventory” on site. Banking regulations present another problem requiring these enterprises to be a cash-based business; a requirement brought on by federal forfeiture laws if revenues are deposited into any federal banking institution insured by the Federal Deposit Insurance Corporation. Another aspect of operating a cannabis business: the smell. While state legislatures wrestle with how to balance the exercise of police powers with accepting tax revenues generated by a multi-billion-dollar industry, the day to day practical operation forces business and land owners to live and work next to one another; and where the relationship breaks down, neighboring business owners  turn to the courts.

For the cannabis industry, local regulations authorizing permits for operation are developed utilizing combinations of zoning and land use restrictions that have the potential, once a permit is issued, to provide some level of protection against neighboring business owners trying to impose common law remedies such as nuisance or trespass to control greater influx of traffic, odor and diminished land value.  Suits for nuisance or trespass may not allow a disgruntled neighboring land owner relief. The perceived lack of state remedies forces neighboring owners to try alternative jurisdiction and relief theories. In one instance, a neighboring commercial land owner decided to file a federal racketeering, influence and corrupt organization (RICO) civil suit seeking to close down the neighboring commercial cannabis business.

Although various states have enacted legislation legalizing medicinal and recreational cannabis, the fact remains that cannabis is a controlled federal substance, the possession or sale of which constitutes a federal crime.

Hope and Michael R. owned a neighboring commercial tract to Parker W’s cannabis cultivation business. The Hope and Michael claimed that Parker’s cannabis business inundated their neighboring property with the scent of cannabis as well as incessant noise from air conditioners.

Rather than attempting to enforce common law nuisance or trespass theories of relief, Hope and Michael filed a lawsuit based upon federal law and particularly that the product sold and cultivated is illegal under Federal Law; and such illegality had negative effects on the value of other neighboring parcels in the business park. They claimed the presence of the cannabis facility itself dropped the value of the land.

The case made it to trial where Parker argued that the business was legally zoned, housed in a business park that was commercial and agricultural. Other businesses in the park included an animal feed lot. Any scent or odor of cannabis was no different than the smell from an animal feed lot or a nearby landfill. The business itself was legal under state zoning and land use laws.

A federal jury rejected the claim that operation of a cannabis-based business in violation of federal law is inherently racketeering. As to the question of whether the operation of the cannabis business caused damage to neighboring land, the expert opinions presented by the parties actually showed the cannabis business resulted in an increase in the business park land values. One could argue under the Doctrine of Implied Findings, the jury found the smell of pot is preferable to animal feed or a landfill.

The cannabis industry, medicinal or recreational, may enjoy acceptance in a growing number of state legislatures. However, such acceptance in the legislature may not filter down to business to business levels. The economic impact of cannabis, including the influx of sales taxes to local economies as may negate the “stench” of marijuana in the halls of state senate and house chambers; but not to the neighboring small business owners that believe such an industry is only a business in which criminals or cartels profit. Neighboring business owners may not care about broader economic impact of sales taxes and look only to shelter their local investment in their business. The relationship among various commercial activities, be it manufacturing, technology or cannabis is an evolving process. The relationship among business owners will have its ups and downs and the cannabis industry will be subject to every variation of challenge at the local business to business level. Cannabis may be here to stay because of its commercial and economic impact being too great to ignore or confine. In the west, we now have emerging precedent that it is not a racketeering or corrupt business.

If you have any questions or would like more information, please contact David Molinari at [email protected].

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