Cannabis Grower Wins Rico Lawsuit

Go Fund Me Page Started to Pay for Legal Expense

One of the oldest lawsuits against a cannabis licensee facing Racketeer Influenced Corrupt Organization Act (“RICO”) has finally gone to trial this week in Denver. 

The lawsuit  between SAFE STREETS ALLIANCE, PHILLIS WINDY HOPE REILLY, and MICHAEL P. REILLY, Plaintiffs, v. ALTERNATIVE HOLISTIC HEALING, LLC, d/b/a Rocky Mountain Organic, JOSEPH R. LICATA, JASON M. LICATA, 6480 PICKNEY, LLC, PARKER WALTON, CAMP FEEL GOOD, LLC, et al. was decided in favor of the cannabis licensee according to Fox 31 Denver.

Help with Legal Expenses is Needed

The legal expenses have been enormous for the defendants. 

As such, a Go Fund Me page has been established to pay for the $100,000 needed to defend this lawsuit.  The favorable decision of this lawsuit will silent other lawsuits attempting to use RICO as their choice of legal action to shut down the cannabis industry.

Go Fund Me for Rico Lawsuit

Go Fund Me Page

  

The Insurance Industry Escaped a Big Catastrophe and Dodged a Bullet

In addition, the cannabis insurance industry is breathing a sigh of relief wondering if RICO would have been a claim they needed to indemnify across the United States.  One of our carriers had 8 different RICO claims in Oregon alone.  After the announcement of the Colorado case, the carrier representative stated “we dodged a bullet!”

We’ve reported extensively the policy language being used on most liability policies could have triggered the insurance carrier to respond to these types of claims with legal representation for the insured at a minimum.

 

 

 

 

 

 

 

 

RICO Lawsuit Targets Cannabis Insurance Providers

Message to Cannabis Insurance Carriers:  “That is racketeering activity under 18 U.S.C. § 1961(1)(D).”

Rico Lawsuits and Insurance Targets

A lawsuit filed in Massachusetts on September 7, 2017 demonstrates just how far attorneys will go to seek recovery for damages from other businesses when filing lawsuits against cannabis licensees.

The case (CRIMSON GALERIA LIMITED PARTNERSHIP, RAJ & RAJ, LLC, HARVARD SQUARE HOLDINGS LLC, and CHARLES RIVER HOLDINGS LLC Plaintiffs, v. HEALTHY PHARMS, INC.; et. al.) is about neighbors who weren’t happy to have a store selling pot and decided to file a lawsuit. 

Their choice of legal action is tied to a federal statute originally used for organized crime known as Racketeer Influenced and Corrupt Organization Act or “RICO” as their means to seek legal justice. 

Marijuana businesses attract undesirable individuals according the the lawsuit

The legal documents harshly describe those who visit Healthy Pharms  as being less than desirable.  “Marijuana businesses make bad neighbors, which include and without limitation, emitting pungent odors, attracting undesirable individuals, increasing criminal activity, driving down property values, and limiting the rental of premises.”

Plaintiff’s lawyers cast a wide net to include insurance “providers”

The list of those being sued or named as defendants include the City of Cambridge, Massachusetts Department of Health, Century Bank and Trust Company and a list of “John Doe’s.”  Attorneys will use a fictitious name like John Doe when parties to a lawsuit are unknown at the time of filing the lawsuit, but would like the option to add those parties as the case develops.

In this circumstance, John Doe 2 and John Doe 3 are both providers of insurance to the various cannabis related companies. John Doe 2 is the insurance provider of general liability insurance to Healthy Pharms, 3 Brothers, or Red Line for a marijuana cultivation facility.  John Doe 3 is the provider of property insurance to Healthy Pharms, Timbuktu, or Red Line for the medical marijuana dispensary.

The entry point to include insurance providers references the insurance obligations from the lease agreement between Healthy Pharms and Timbuktu that require meeting liability limits of $1,000,000 per occurrence and $2,000,000 per aggregate.   By meeting those limits of liability through a insurance contract, the insurance carriers have further the RICO activity the lawsuit alleges.

Upon information and belief, John Does 1, 2, 3, and 4 issued insurance policies with the intent to further Healthy Pharms, Timbuktu, 3 Brothers, Red Line, and their respective
officers, directors, managers, investors, assigns, nominees, and/or affiliated persons to commit crimes under the CSA in violation of 21. U.S.C. § 846.

That is racketeering activity under 18 U.S.C. § 1961(1)(D).

The plaintiff lawyers did not specify if insurance provider is broader term to include the insurance broker or retail agent who sold the policy, underwriters and surplus lines brokers involved in underwriting, and inspection companies who may have been involved in some manner. 

If it means all of the above, this lawsuit is a strong message to the cannabis insurance industry that plaintiff’s lawyers are seeking deeper pockets to pay for these lawsuits.

Rico Lawsuit Naming Cannabis Insurance Carriers

Who is John Doe Insurance Provider?

Has Healthy Pharms Et al. tendered defense to their cannabis insurance carrier?

If they haven’t, it would be prudent to notify their insurance broker and carrier of the legal circumstances as required by most insurance policies under Duties in the Event of Loss or Damages.  The failure to notify the insurance carrier within a reasonable time frame may result in the claim being denied.

The insurance carrier wallet is now wide open

Plantiff’s lawyers will appreciate the National Cannabis Industry Association insurance committee white paper released on the subject to indicate RICO is a claim that would be covered on the commercial liability insurance.  This  acknowledgement is likely to lead to further litigation in every state with medical or recreational marijuana laws.

The cannabis insurance carriers will have a negative attitude on the subject as they evaluate how they could have foreseen this type of legal action, while thanking the insurance committee for identifying the exposure.

Resource: 

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS Case 1:17-cv-11696-ADB

CRIMSON GALERIA LIMITED PARTNERSHIP, RAJ & RAJ, LLC, HARVARD SQUARE HOLDINGS LLC, and CHARLES RIVER HOLDINGS LLC Plaintiffs,

v.

HEALTHY PHARMS, INC.;TIMBUKTU REAL ESTATE, LLC; PAUL OVERGAAG, an individual; NATHANIEL AVERILL, an individual; 4FRONT ADVISORS, LLC; 4FRONT HOLDINGS LLC; KRISTOPHER T. KRANE, an individual; 3 BROTHERS REAL ESTATE, LLC; RED LINE MANAGEMENT, LLC; JOHN DOES 1 THROUGH 4; TOMOLLY, INC.; CITY OF CAMBRIDGE, a body politic; TOWN OF GEORGETOWN, a body politic; MASSACHUSETTS DEPARTMENT OF PUBLIC HEALTH; CENTURY BANK AND TRUST COMPANY; MAURA T. HEALEY, in her official capacity as Attorney General of the Commonwealth of Massachusetts
Defendants

43 Insurance Enforcement Actions Charged against Washington Licensees

Gumwall in Seattle

The Gum Wall in Seattle Washington

State of Washington is Serious about Enforcement of  Cannabis Insurance Laws

Enforcement of cannabis insurance laws was something we wanted to know was actually being performed in Washington.  Sure enough, the State of Washington Liquor and Cannabis Control Board (“LCCB”) mandates by law cannabis licensees must procure insurance under statute cited in §WAC 314-55-082 Insurance Requirements.  The State of Washington is one of the few states to include insurance as a condition of being a licensee.  The regulations essentially states the purpose, guidelines, and meeting certain coverage limits to include naming the LCCB as a additional insured, etc….. 

As a result, we were curious to know if any actions had been taken against licensees for failing to buy cannabis insurance by contacting the LCCB who promptly responded. 

Since 2015, there have been 43 enforcement actions charged against various licensees for violating §WAC 314-55-082.  Based on the report, it would appear most licensees are receiving a verbal warning.  However, a certain number of licensees were given multiple warnings including written, suspension, and eventually fined. 

There have been a total of 4r licensees who have been fined for failing to buy insurance in Washington. In 2015, there were a total of 18 insurance violations.  The lowest number of citations was in 2017 with just 1.

Is the LCCB enforcing the purchase of product liability insurance?

Unknown.

This information was requested, but the report only indicates the licensee had violated §WAC 314-55-082. 

This information would have been important to know if the LCCB was enforcing their interpretation of the statute to buy product liability coverage as it was reported here some confusion had previously existed on the interpretation of this statute.

Less than 1% chance of being cited, but not worth the risk

In our opinion, the State of Washington continues to demonstrate they have the most active and stringent cannabis laws of any state.  The chance of being cited for operating without the proper insurance is low.  With approximately 1,500 licenses, that chance is less than 1%. 

However, the enforcement actions do indicate the LCCB will continue to punish those who operate without insurance.

This is a risk most licensees will want to avoid. 

Enforcement Actions

State of Washington Insurance Citations and Enforcement actions

Source: Washington Liquor and Cannabis Control Board

 

 

Washington LCCB Appears Now to Require Product Liability Insurance for Cannabis Licensees

The Washington State Liquor and Cannabis Control Board (“LCCB”) seems to be reversing their initial opinion on whether product liability insurance was a requirement by statute (WAC 314-55-085) for its licensees.  Internal communication by the department seems to indicate product liability insurance will be understood as a being part of the statute.

We have consulted with internal staff, and would like to take this opportunity to clarify that commercial general liability insurance is required for all licensees under WAC 314-55-082. This coverage would cover instances of product liability claims. More information is also available at the Office of Insurance Commissioner’s website, here: https://www.insurance.wa.gov/your-insurance/business-insurance/marijuana/. If you have questions about that, please reach out to OIC.

Source:  Washington State LCCB Amanda Smith, Forms and Records Analyst 07-17-2018

Need to cover instances of product liability claims

While not clearly stated in the statute (WAC 314-55-085), this additional communication “This coverage would cover instances of product liability claims” (emphasis added) does appear the direction the LCCB is taking when defining the type of insurance they mandate upon their licensees. 

WAC 314-55-085 does provide an indication of the intentions of those who wrote this section. 

The intent of the required insurance is to protect the consumer should there be any claims, suits, actions, costs, damages or expenses arising from any negligent or intentional act or omission of the marijuana licensees. 

However, the statute would have been less ambiguous by naming the coverage lines such as “products and completed operations” or “product liability.”  The statute could be further interpreted to include “professional liability” based on the broad nature of protecting the consumer from “any claims.” 

Another issue with this wording is “intentional acts” are typically not the types of claims covered by insurance.   If someone is acting with intent to harm the consumer, then most claims of this nature are likely to be considered outside the scope of insurance due it be intentional as opposed to accidental.  Intentional acts should be removed from the statute. 

Regardless, this recent communication reverses and conflicts with a prior statutory opinion made on August 15, 2016, when the  LCCB clearly stated product liability was not required by statute as publicized in our article entitled Required or Not Required?  Washington Cannabis for Product Liability Insurance

Lack of pesticide testing is good reason to transfer this type of risk to the insurance industry

Cannabis Pesticide Caution Sign

In our opinion and clearly conjecture, the lack of any pesticide testing on cannabis products could be a strong reason the statutory opinion was astutely reversed to transfer any and all underlying risks to the insurance industry covering future product liability claims. 

If you’re the LCCB, then protecting the regulatory agency from pesticide lawsuits would be prudent.  These types of claims have not surfaced, but could be laying dormant for future insurance carriers to worry about.  Furthermore, the statutes require the LCCB is named as an additional insured, primary and non-contributory, and waiver of subrogration.   The LCCB will be protected by the insurance of their licensees.

In the future, the LCCB is likely to become vigilant with enforcing product liability insurance is not excluded, but a coverage line purchased by the licensee. 

Need to buy product liability insurance in Washington?

Product liability insurance is available in the marketplace by a small number of insurance carriers making it expensive for many licensees particularly those just starting up.  These are separate insurance policies from the primary commercial liability.  The price for this type of insurance is based on revenue along with other factors such as the type of operation and product mix. 

This additional expense is compounded by the fact the market price for cannabis is low in the State of Washington.  Many 502 producers are hanging by thread and additional insurance is not affordable. 

Colorado Flower and Trim Pesticide Testing Starts August 1st

Cultivators and Optional Premises Must Start Pesticide Testing

The Colorado marijuana industry is less than one month away from being required to pesticide test flower and trim starting on August 1, 2018.   Medical and retail concentrates are not required to pesticide test due proficiency limits not being established.

What licensees are required in Colorado to test?

  • Medical Marijuana Optional Premises Cultivation
  • Retail Marijuana Cultivation Facilities

Six Colorado Labs Currently Certified for Testing Pesticides

As of now, there are currently six labs certified for testing pesticides.

  1. AGRICOR LABORATORIES LLC
  2. GOBI ANALYTICAL INC
  3. NORDIC ANALYTICAL LABORATORIES LLC
  4. PHYTATECH CO LLC
  5. RM3 LABS COLORADO LLC
  6. TERRA HEALTH CARE LABS INC

According to the Colorado Marijuana Enforcement Division, the purpose of pesticide testing is a matter of public health and safety. 

Impact of Not Testing on your Product Liability Insurance Coverage

What does pesticide testing mean for companies with product liability insurance?

Be compliant and test for pesticides!  Cannabis insurance companies offering product liability coverage will be particularly interested their customers are following the rules.  A lawsuit by a cannabis consumer claiming damages for pesticides is most likely to result in a product liability insurance claim.  If a lawsuit was to occur, the insurance carrier will verify if pesticide testing was being performed by their insurance customer with the mutual understanding no banned pesticides were used during cultivation accordingly.

If pesticide testing was not being followed, the insurance carrier will have a stronger position to deny the claim based on exclusions such as this one used by Knight Specialty Insurance Company:

to any Claim arising out of any Named Insured’s Products manufactured, handled, sold, developed, designed, created, tested, leased, licensed, rented, marketed, disposed of or distributed in knowing or willful violation of any State law, statute, ordinance or regulation;

Colorado Pesticide Bulletin 18-07

MED Bulletin 18-07 Mandatory Pesticide Testing 06-29-2018
 

Colorado Prohibited Chemical List

CODE OF COLORADO REGULATIONS 1 CCR 212-2 Prohibited Chemicals as of 07-02-2018(1)

Colorado MED Bulletins on Licensees Making Recommendations for Pregnancy Related Morning Sickness

Colorado MED Bulletins for Packaging and Labeling

The Colorado Marijuana Enforcement Division has issued an updated bulletin to cannabis licensees Colorado Flagwho may be recommending cannabis to women who are pregnant.  The first bulletin was issued on May 24, 2018.  An updated bulletin was issued on June 4, 2018 reference language to be added to the warning label effective July 1, 2018.

Both of these bulletins essentially refer back to the original packaging and labeling bulletin issued on 02/16/2018.

Beginning July 1, 2018 – “There may be long term physical or mental health risks from use of marijuana including additional risks for women who are or may become pregnant or are breast feeding. Use of marijuana may impair your ability to drive a car or operate machinery.”

Warning labels are not only important for public safety, but protect the cannabis licensee from additional liabilities.  If you’re concerned about additional protection, licensees may want to consider professional and product liability.

Updated Bulletin 18-06 Updated (06/04/2018)

180604 Updated Industry Bulletin 18-06 Reports of Licensees Making Recommendations(1)

Original Bulletin 18-06 (05/24/2018):

180524 Industry Bulletin 18-06 Reports of Licensees Making Recommendations

Packaging and Labeling Rules 18-03 (02/16/2018)

IB 18-03 New Packaging and Labeling Rules 02162018(11)