Cannabis Musings - February 20, 2024
Escalation.
Friends, the battle between licensed cannabis and hemp-derived THC products (now being referred to in the marketplace as “intoxicating hemp,” which I suppose makes sense from a branding perspective, but sounds weird to me) is escalating. As more states are considering limiting or outright banning these hemp products from sale outside of licensed dispensaries, the broader cannabis industry is firming up its assault the way America’s Founders intended – suing.
Last week, a Georgia resident filed suit in Federal court against a number of companies that make and test products containing hemp-derived Delta-8 and Delta-9 THC. We saw a relatively similar suit filed in California state court last fall. The gist of the Georgia suit seems to boil down to an argument that the defendants misrepresented the amount of Delta-9 THC in the products bought by the plaintiff. What’s more interesting to me about the lawsuit is that, unlike the California suit, the plaintiff is also making a claim under RICO.
RICO (short for “Racketeer Influenced and Corrupt Organizations” and which, despite popular belief, has nothing to do with Gerardo) makes racketeering (certain types of crime, including violating the Controlled Substances Act) performed by an enterprise a crime. Each of those terms is loaded with nuance, but the simplest way to think about RICO is that it’s most famously been used by the Federal government against the Mob. States also have their own RICO laws – Georgia is using its own RICO statute in its prosecution of Former President Trump.
But RICO is one of those laws that people like to threaten, but few (including lawyers) actually understand. Its bark is worse than its bite (in case you’re wondering, similar legal actions that have a fairly high threat-to-actual use ratio include lender liability and Rule 11 sanctions).
RICO, interestingly, also allows for private citizens to sue a criminal enterprise for damages. Friend of Cannabis Musings, Seth Goldberg, Partner at Duane Morris LLP, wrote a good article a few years ago discussing the use of class action RICO claims against cannabis companies, where he explained that the violation of the CSA was the “predicate act” underlying the RICO claim. In the Georgia hemp products case, the plaintiff is suing under both Federal and State RICO, and the claim is generally similar to the ones highlighted in the Duane Morris article – the defendants’ products contained tested levels of Delta-9 THC that exceeded statutory thresholds, making it (non-hemp) cannabis, not hemp, violating the CSA. The alleged misrepresentations in testing and labelling constituted a RICO enterprise.
I’m not going to dare try to unpack the plaintiff’s claims here or assess whether they’ve got any chance of success. Instead, to me, it’s further indication of how the licensed cannabis industry perceives intoxicating hemp as an existential threat.
Certainly, the death blow to intoxicating hemp would be if Congress closes the hemp loophole (I recognize this is a divisive term within our industry, so please don’t email me about it) in the 2024 Farm Bill, which is why the licensed cannabis industry has been lobbying on that. Hard. If that were to happen, I’d expect that you won’t see licensed liquor stores and distributors carrying hemp-derived THC beverages (just like they won’t carry non-hemp-cannabis-derived THC beverages (see why we need better nomenclature?)).
But nothing is certain in this industry when it comes to Congress and cannabis policy, so licensed cannabis seems to be rounding out its approach towards the hemp industry. It’s a little akin to Trulieve’s proactive attack on 280E in the midst of a potential rescheduling that would render 280E powerless against cannabis (yes, I recognize that Trulieve filed for a refund of back taxes, which is why I qualified with this statement with “a little akin”). History has taught us to plan for the worst when it comes to cannabis policy, so better to try to control your own destiny.
This will be interesting to watch. I’ve got the Jiffy Pop ready.
Be seeing you!
© 2024 Marc Hauser and Hauser Advisory. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form.