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The cannabis industry’s first anti-trust case to reach trial was decided in favor of pot shop owners who alleged they’d been illegally edged out of the market by a would-be competitor’s unfair business practices. Jurors awarded $5 million (tripled to $15 million under the Cartwright Act) plus attorney’s fees.
In Richmond Compassionate Care Collective v. 7 Stars Holistic Foundation, an independently-owned dispensary, RCCC, in Contra Costa County, sued the owners of the Richmond Patients’ Group (RPG) over allegations of conspiring to block RCCC from opening a new shop. Evidence presented at trial included evidence the defendant impeded access to the finite amount of commercial property zoned for medical marijuana distribution.
Plaintiffs argued the defendant, a potential competitor, intentionally thwarted their opportunities by submitting fraudulent letters of intent, leases, and purchase agreements to landlords of commercial properties, effectively tying up those spaces until RCCC’s permits became expired. (Local ordinance in Richmond, Calif. requires cannabis shop permit holders open up a shop within six months or lose their permit.) The defendants reportedly even went door-to-door, trying to persuade landlords to avoid leasing to RCCC. Defendants also made efforts to compel a change in city ordinance that would reduce the number of cannabis permits available (in this, they were successful). RPG was also accused of trying to influence city officials to deny RCCC’s licensing permit.
As our Los Angeles cannabis attorneys can explain, trying to compel a change in local ordinance or state law isn’t illegal. But the plaintiffs underscored it as evidence of the defendant’s purpose and intention with regard to the other actions.
RCCC alleged RPG’s efforts ensured they were closed off at every turn by RPG’s actions and eventually lost their permit – and millions of dollars in investments and potential profits. This, they allege, was in direct affront to the California Cartwright Act, the state’s antitrust law prohibiting efforts to block fair competition in the free market.
Why California Cannabis Company Antitrust Cases May be On the Rise
Antitrust cases are intended to ensure free and fair markets in our economy. Congress passed the first antitrust law in 1890, the Sherman Act. Two additional federal antitrust laws were passed in the years after, including the Federal Trade Commission Act, which established the FTC, and the Clayton Act. Although there have been some revisions over the years, these laws are still in effect today and remain the core of U.S. antitrust law.
The laws exist to prevent things like unfair competition, unlawful mergers, and illegal business practices that would deprive consumers and workers of the benefits of free market trade and opportunities. Ultimately, the idea is to ensure there are strong incentives for companies to operate efficiently, keep prices down, keep quality up, and play fairly.
The California Cartwright Act builds upon these principles, with specific prohibitions on things like market division schemes, exclusive dealings, price fixing, price discrimination, and group boycotting.
We’ll start seeing more antitrust cases in the California cannabis industry because the competition is getting increasingly fierce, particularly in regions where potential profit margins are high but permits and opportunities are limited. Cannabis as an industry is highly-regulated and inherently regional, which means it’s going to be inevitable that some firms are going to get squeezed. Whether that amounts to antitrust violations will depend on the specifics of the case.
If you believe your competitors have engaged in unlawful business practices or if your cannabis company has been accused of unfair practices, it’s important to consult with an experienced Los Angeles cannabis business lawyer as soon as possible.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.
Additional Resources:
California Jury Awards Millions To Cannabis Company In Antitrust Case – Anti-trust/Competition Law, Oct. 6, 2021, 6Park News
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