Tuesday, October 30, 2018
The Commonwealth of Massachusetts legalized the sale of marijuana for medical use through Registered Marijuana Dispensaries ("RMDs") in 2012, and in May 2013, the Department of Public Health enacted regulations that authorized municipalities to regulate the medical use of marijuana.
Cambridge’s Harvard Square saw its first medical marijuana dispensary open at the start of the year. Healthy Pharms, a registered nonprofit medical marijuana dispensary, opened for business but wasn’t entirely welcomed by its new neighbors. Some Cambridge residents and store owners believed the marijuana dispensary would have a negative effect on the neighborhood.
Property owners in Harvard Square brought a lawsuit claiming they had been injured by the anticipated opening of the licensed marijuana dispensary. Crimson Galeria Ltd. P’ship v. Healthy Pharms, Inc., 2018 U.S. Dist. LEXIS 141689 (D. Mass. August 21, 2018). The property owners asserted RICO claims and sought declaratory and injunctive relief against the dispensary and other related parties for acting and conspiring to distribute marijuana in violation of the federal Controlled Substances Act.
The plaintiffs also brought claims against Massachusetts state and local governments on the grounds that federal law preempts Massachusetts' regulatory regime implementing the legalization of medical marijuana dispensaries.
The City of Cambridge issued Healthy Pharms a special permit to operate a dispensary. Another defendant owned the building and leased the property to Healthy Pharms. The individual defendants are officers or principals of several of the defendant entities, including the bank the dispensary uses.
The plaintiffs allege that the prospect of a dispensary has diminished the market value of their properties because the odor of marijuana will disrupt commercial tenants and interfere with the neighboring owners' use and enjoyment of their property. Also, there’s a stigma associated with the sale of marijuana, they claimed.
U.S. District Judge Allison D. Burroughs explained in her opinion that the plaintiffs' claims against the government defendants weren’t valid because, although the federal Controlled Substances Act criminalizes the possession and distribution of marijuana, the authority to enforce the law rests only with the U.S. Attorney General and the Department of Justice.
Healthy Pharms asked the judge to dismiss all of the RICO counts because the plaintiffs didn’t really suffer an injury caused by the opening of the dispensary. There must be clear and definite damages to state an injury under RICO, the dispensary argued. The plaintiffs claimed injuries included: (1) the proposed dispensary might emit odors of marijuana that would interfere with use and enjoyment of their properties; (2) that banks and investors wouldn’t finance certain planned projects due to the anticipated dispensary; and (3) the stigma associated with marijuana and the fear of increased crime had already diminished the market value of their properties.
The judge agreed with the dispensary, holding that the plaintiffs didn’t dispute that their damages theory relied on the public disclosure of the future possibility of a dispensary, and the plaintiffs hadn’t suffered actual damages.
As far as the bank used by the dispensary, the plaintiffs argued that outsiders who help the enterprise accomplish its illicit goals, “thereby evidencing their agreement to advance the cause, are fully liable” under the RICO statutes. But Judge Burroughs held that the plaintiffs hadn’t adequately shown how providing ordinary banking services to marijuana-related businesses, in compliance with Treasury Department guidance aimed at enabling banks to provide such services, sufficiently demonstrated it joined and intended to further a RICO conspiracy.
The judge found that the plaintiffs’ complaint contained little to no allegations that connect any of the other defendants to the alleged enterprise or conspiracy.
The government defendants' motions to dismiss were granted. The remaining motions to dismiss were denied, but the plaintiffs were allowed the opportunity to amend their complaint as far as the other defendants.
Implication of case
While the ultimate outcome of this case remains to be seen (assuming the plaintiff’s amend their complaint regarding other defendants), the primary implication of this case is that cannabis-related banking organizations are able to provide basic banking services to cannabis industry businesses without the threat of RICO liability hanging over their heads. Thus, while a multitude of risks to those in the marijuana-related banking industry still persist, this is at least one positive development for those organizations, and ultimately cannabis-related commercial activity in Massachusetts as well.
-- Jason Carr