Cannabis Dispensaries Take Another Hit With Antitrust Lawsuit
Small business owners, particularly those in the cannabis industry, have plenty of legal issues to worry about. But antitrust law only poses risk for the mega-players in the industry, right?
Wrong. Last month a jury in California found that a number of small, independently owned cannabis dispensaries and their owners had conspired and coordinated their efforts to suppress competition for retail cannabis in Richmond, California, just north of Berkeley and San Francisco. The plaintiff in that case, Richmond Compassionate Care Collective (“RCCC”), had received a permit from the City of Richmond to operate a medical marijuana collective within the City limits, subject to certain zoning restrictions. Under the local ordinance only four permits were issued, one to RCCC and the other three to the defendant dispensaries. Under the ordinance, the recipient of a permit had to open for business within six months or the permit would expire and become void.
The Plaintiff alleged that the defendants, who should have been competing against each other, secretly met and agreed to work together to prevent the plaintiff from acquiring a properly-zoned location for its dispensary. According to the plaintiff, defendants’ scheme was successful, as defendants tied up every available, suitably zoned property in the City during the six-month window—resulting in plaintiff losing its permit. Presented with an array of evidence, including texts and emails between the defendants, the jury found a number of the individual and corporate defendants guilty of violating the Cartwright Act, California’s antitrust statute. The jury then awarded damages to plaintiff in the amount of $5 million, which under antitrust law will be trebled to $15 million.
This appears to be the first case in which participants in the cannabis industry have been found to violate state or federal antitrust laws. The lesson from the RCCC case would seem to be fairly simple - that owners and operators of companies, big or small, must be careful to avoid any conduct or communication with their competitors that appears designed to keep new entrants out of the market, to set prices, to rig bids or to allocate customers, or to otherwise reduce competition.
That doesn’t mean that companies can’t fight back against existing or potential competitors that appear to be violating state or local licensing requirements or other applicable laws. On the contrary, when a new entrant or competitor breaks the rules in order to gain an unfair advantage, those companies are violating the law, and there is nothing wrong with weeding out bad actors.
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