Steven Schain Steven Schain

Editor’s note: This is the first in a two-part series.

“The international market for cannabis is projected to hit $31.4 billion by 2021. Currently, the global market is estimated to be worth $7.7 billion and will see a compound annual growth rate of 60 percent as other countries liberalize their marijuana laws. The United States currently drives 90 percent of global cannabis sales …,” “Global Marijuana Market Will Soon Hit $31.4 Billion But Investors Should Be Cautious,” Fortune Magazine, Nov. 7, 2017.


Listen to experts discuss the vast differences and patchwork regulation state-to-state as cannabis legalization continues to grow across the U.S. Listen Now.

Here’s how it happens.

Take an incident like when Oregon’s Liquor Control Commission recalled Blue Magoo marijuana strain after 2017 samples were found to contain state-limit-exceeding pesticide residue levels.

Now imagine personal injury lawyers hijacking social media, and leveraging like-minded legislators, regulators and media sources, as they toss a $10,000-claim grenade at Blue Magoo’s growers and processors and any dispensary selling the strain.

Each year defective, faulty or misused products cause serious injuries, property damage and business interruption. Defending litigation or settling claims can materially drain a company’s resources requiring additional regulatory requirement compliance, developing/disseminating product warnings, instituting a product recall, deploying employee time to investigate/mitigate claims, investigating/testing products and assessing risk, and hiring expert consultants and attorneys.

Lawsuits range from a single plaintiff seeking damages for personal injuries or property damage to class actions in which a defect is common to an entire group of claimants.

Due to marijuana’s 100 percent federal illegality, even more is at risk. The Comprehensive Drug Abuse Prevention and Control Act of 1970 prohibits marijuana’s manufacture, distribution, dispensation and possession and lists it next to heroin as a Schedule I controlled substance having “a high potential for abuse,” 21 U.S.C. Sections 801, Et. Seq (1970) (Controlled Substance Act). Thus, claims may be brought against anyone in the marijuana industry’s supply chain touching the item prior to sale to the consumer; i.e., anyone planting, cultivating, harvesting, processing/extracting, testing, packaging, disposing, transporting and dispensing marijuana (hereafter, collectively referred to as marijuana-related businesses).

Because even the most standard claim could crash any insufficiently prepared marijuana-related business, this two-part article provides an overview of tort and statutory claims that may be asserted; and steps to take to avoid, mitigate and defend against liability and claims.

Tort Claims

Unlike criminal prosecutions seeking to remedy societal harms punishable by the state, a tort is a private civil claim in which a claimant seeks monetary relief to remedy a physical or financial loss. Although there are no reported recoveries against marijuana-Related businesses, exposure may exists for products liability, medical malpractice and server liability tort claims.

Products liability is the area of tort law addressing defective product claims including manufacturing defects, design defects, manufacturer’s failure to warn and product-related warranties. While mostly seeking remuneration for personal injury, property damage or economic harm, products liability claims often seek punitive relief seeking to redress harms allegedly done to society.

Design defects are common to each item of the same design and, though usually unknown to the manufacturer, exist before the product is manufactured. Manufacturing defects are caused by a failure in the manufacturing process and unique to the individual product manufactured. A manufacturing line failure could cause same defect to appear in multiple individual products.

Failure to warn claims are based on product’s foreseeable uses and misuses and assert that a  “failure to forewarn the user of potential harms” occurred. Breach of warranty claims stem from defective materials or workmanship giving rise to claims based on breaches of warranties that are either written (and accompany the product) or implied by law.

A specific professional negligence tort law subset, medical malpractice is defined as a physician’s act or omission by during a patient’s treatment deviating from medical community’s accepted norms of practice which injures the patient. Because of the varying nature of 30 states, District of Columbia, and the commonwealths of Guam and Puerto Rico’s medical marijuana programs and tort law system, no unified national exposure standard exists. However, in systems requiring physician to “prescribe” a specific strain, “THC dosage” or “delivery system” (flower, vaporization, concentrates or infused products), arguably a “treatment decision” may occur that triggers a medical malpractice claim.

Encompassing dram shop and social host liability exposure, server liability claims are against sellers of both medical or adult use marijuana to diminished capacity patients/customers whom injure third parties (e.g., car crashes). Thirty-eight states have dram shop acts or case law holding an alcoholic-drink-seller strictly liable to anyone injured by an obviously intoxicated party whom seller served. Similarly, eighteen states have social host liability laws holding party hosts liable for any alcohol-related injuries result from providing alcohol to minors or third parties or encouraging/allowing anyone to drink excessively and either be injured or killed or caused another’s injury or death.

Statutory Claims

At both the federal and state level, legislatively passed laws aimed at protecting the general public can be asserted against a marijuana-related business by either an individual or a group of claimants to obtain monetary relief to remedy a physical or financial loss.

  • RICO Claims

Allowing for recovery of “treble damages” (i.e., triple the actual damages) and attorney fees for acts performed as part of an “ongoing criminal organization” called an “enterprise,” the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Section 1964(c)(RICO) is a federal statute focusing on “racketeering activity” which encompasses Controlled Substance Act violations. Thus, not only do marijuana-related businesses fall within RICO’s ambit, civil liability exists for those knowingly facilitating a marijuana-related business efforts who may be deemed civil RICO conspirators and jointly and severally liable for all injuries caused by the conspiracy, see 18 U.S.C. Section 1964(d); Salinas v. United States, 522 U.S. 52, 63-64 (1997).

At present, marijuana-related businesses’ RICO exposure has been limited to “adjacent property nuisance” cases most notably in Safe Streets Alliance v. Hickenlooper, 859 F.3d 865, 884-91 (10th Cir. 2017), New Vision Hotels Two v. Medical Marijuana of the Rockies, District of Colorado Civil Action No:15-cv-00350, and Crimson Galeria Limited Partnership v. Healthy Pharmaceuticals, District of Massachusetts Civil Action 1:17-cv-11696.

The Safe Streets Alliance plaintiff was a Colorado property owner whom filed a RICO suit against adjacent marijuana-odor-emitting cultivation facility alleging that smell diminished value, and interfered with its use and enjoyment, of property. Although the trial court dismissed the RICO claim due to failure to demonstrate “a plausible injury” to property proximately caused by the grower’s activities, the U.S. Court of Appeals for the Tenth Circuit reversed holding that the plaintiff could prevail by demonstrating that emitted-odor interfered with property’s use or diminished its market value, or that stigma associated with nexus-to-a-marijuana-related-business diminished the property’s value.

Stemming from the “loss of high school ski team business due to marijuana-related business proximity,” New Vision Hotels Two‘s Holiday Inn franchisee plaintiff asserted RICO claims against a nearby prospective dispensary that never opened because investors abandoned the project following the suit’s filing. The plaintiff then asserted RICO claims against prospective dispensary’s service providers, collecting $70,000 from project’s accountant and tax surety bond’s underwriter.

Also asserting “diminished property values RICO claim” against a prospective dispensary, the Crimson Galeria Limited Partnership plaintiff submitted a commercial real estate appraisal  assessing a $26 million value diminution to its Harvard Square buildings resulting from  dispensary’s opening.

  • Drug Dealer Liability Act

Although 16 states have passed a Drug Dealer Liability Act (DDLA) statute seeking redress for those injured by illegal drugs, state licensed and compliant marijuana-related business fall outside of DDLA’s scope.

Establishing a form of “market liability,” the DDLA makes drug dealers civilly liable to those injured by a driver under the influence of drugs, families losing a child to illegal drugs and others injured by illegal drugs. A DDLA plaintiff need not prove that the drug user received a specific defendant’s illegal drugs but, instead, only that: the defendant was distributing illegal drugs in the injury-causing user’s community; the distributor was distributing same type of drug used by user; and the defendant’s community distribution was simultaneous with when the user was using.

Because it is a state statute omitting legalized medical or adult use marijuana from its scope, DDLA does not apply to 30 states, the District of Columbia and the commonwealths of Guam and Puerto Rico’s medical marijuana program participants.

To the contrary, because DDLA’s “specified controlled dangerous substance” definition excludes marijuana and limits “marketing of controlled dangerous substances” definition to “illegal distributing, dispensing, or possessing with intent to distribute, a specified controlled dangerous substance,” licensed and complaint Marijuana Related Businesses appear immune to from DDLA exposure.

Steven Schain practices marijuana law through national cannabis law firm Hoban Law Group. With 14 offices and 42 lawyers, Hoban Law Group’s practice is 100 percent devoted to cannabis and hemp law. Admitted to practice in Pennsylvania and New Jersey, Schain represents entities, governments and individuals in choosing a structure, preparing and submitting license application, regulation, compliance and litigation, and drafting legislation. Contact him at steve@hoban.law.