High Crimes: Liability for Directors of Retail Marijuana Corporations

84 Pages Posted: 19 Sep 2019 Last revised: 2 Jul 2020

See all articles by Lauren A. Newell

Lauren A. Newell

Campbell University School of Law

Date Written: June 2020

Abstract

Selling retail marijuana in the United States is illegal — or is it? A rising number of states have legalized the retail sale of marijuana and are busily regulating these sales and the companies that make them. Even so, the sale of marijuana is a crime under federal law. Are companies that sell retail marijuana duly sanctioned, productive contributors to their state economies, or are they felons just waiting for the wheels of justice to turn in their direction? At this moment, no one can answer that question with certainty.

What is certain is that more companies are being formed each day for the purpose of cultivating, producing, and/or distributing retail marijuana, many of which are being formed as corporations (Retail Marijuana Corporations). Like their counterparts outside of the marijuana industry, Retail Marijuana Corporations are subject to the same state corporation statutes and the same federal criminal statutes and securities laws. This means, like other corporations, Retail Marijuana Corporations are governed by boards of directors, who owe their companies the traditional duties of care and loyalty.

What sets directors of Retail Marijuana Corporations apart from other directors is their precarious legal circumstances: Directors of Retail Marijuana Corporations sit at the helm of companies that are knowingly violating federal law. In overseeing these companies’ businesses and guiding them toward profitability, directors of Retail Marijuana Corporations expose themselves to a great deal of potential criminal and civil liability.

Existing scholarship on marijuana-related businesses introduces some of the challenges faced by corporations engaged in the marijuana industry under state law. This Article expands the inquiry to explore new avenues of state and federal liability with a particular focus on directors. Part I provides a brief outline of the laws regulating the retail marijuana business at the federal and state levels. Part II surveys the various sources of liability directors of Retail Marijuana Corporations face. It first addresses liability for breach of fiduciary duty under state fiduciary duty principles. Next, it outlines criminal aiding and abetting liability under the federal Controlled Substances Act. It then discusses directors’ exposure under the Racketeer Influenced and Corrupt Organizations Act. Last, it analyzes these directors’ potential liability under the federal securities laws’ antifraud provisions. Part III concludes with thoughts about why directors’ liability matters to Retail Marijuana Corporations’ investors.

Keywords: Marijuana, cannabis, corporations, Rule 10b-5, securities, fraud, Controlled Substances Act, RICO

Suggested Citation

Newell, Lauren A., High Crimes: Liability for Directors of Retail Marijuana Corporations (June 2020). 16 N.Y.U. J. L. & Bus. 419 (2020), Available at SSRN: https://ssrn.com/abstract=3438485 or http://dx.doi.org/10.2139/ssrn.3438485

Lauren A. Newell (Contact Author)

Campbell University School of Law ( email )

225 Hillsborough Street
Raleigh, NC 27603
United States

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