Trucker’s CBD oil lawsuit survives RICO claims

November 26, 2019

Tyson Fisher


A truck driver suing a CBD oil company after testing positive for marijuana and losing his job has cleared another hurdle in his lawsuit. A federal judge in New York determined that the CBD oil is not considered a controlled substance. Nevertheless, other RICO claims still stand.

On Nov. 21, U.S. District Court Judge Frank P. Geraci Jr. revised a ruling made in April that allowed Douglas Horn to move forward with two of nine claims in his lawsuit against Medical Marijuana Inc. and other companies associated with the product Dixie X CBD. The April ruling allowed Horn to continue the lawsuit on the basis of violations of the Racketeer Influenced and Corrupt Organization Act.

However, both parties contested that ruling. Horn wanted the court to rule the CBD oil as a Schedule I controlled substance. Meanwhile, defendants wanted the remaining two counts dismissed. Judge Geraci denied Horn’s motion, but granted part of Medical Marijuana’s motion.

The recent decision was based on whether or not Dixie X is considered a controlled substance.

CBD oil yields positive THC results

In February 2012, Horn, an over-the-road hazmat trucker at the time, suffered injuries from a vehicle crash. Several months after the crash, Horn looked into natural medicine as alternatives for the prescription medication he was taking because of the crash.

Approximately six months later, Horn responded to a High Times magazine ad from Dixie Botanicals regarding an industrial hemp product called Dixie X. The ad stated the product contained “0.00 THC.” THC, or tetrahydrocannabinol, is the main psychoactive property in marijuana.

Rather, the product contained CBD, formally known as cannabidiol. Along with THC, CBD is one of 113 cannabinoids found in marijuana. Dixie claimed that the product treats inflammation and pain.

In October 2012, Horn submitted a random drug screening as required by the U.S. Department of Transportation. A few days later, he was told that he had tested positive for a high level of THC. Horn was subsequently fired. He had worked for the company for 10 years and had driven professionally for nearly 30 years.

Following his termination, Horn bought some more of the Dixie X CBD oil to have a laboratory independently test the product for THC.

The laboratory explained to Horn that they could not return the product to him after discovering it contained levels of THC well over the federal limit per U.S. Drug Enforcement Administration regulations and therefore illegal.

In August 2015, Horn filed a lawsuit against Medical Marijuana Inc., Dixie Holdings, Red Dice Holdings and Dixie Botanicals claiming the following:

  • Deceptive business practices/false advertising.
  • RICO violation.
  • Fraudulent inducement.
  • Violations of products liability statutes.
  • Breach of contract.
  • Breach of express warranty.
  • Unjust enrichment.
  • Negligence.
  • Negligent infliction of emotional harm.

Question of ‘controlled substance’

In the April decision allowing claims of violating the RICO Act, the court determined that Dixie X constituted a controlled substance under the Controlled Substances Act.

“Dixie X is a mixture that contains extract from the Cannabis sativa plant,” the court explained. “Defendants do not contend that the CBD byproduct from the extraction process can be described as anything other than a ‘resin extracted from’ the cannabis sativa plant. And Dixie X cannot come within any exception because resin extracts are explicitly excluded.”

Defendants disputed that Dixie X CBD oil contained resin extract and thus constituted marijuana. Meanwhile, Horn agreed with the conclusion, but argued the reasoning. He contends that any product that contains any amount of THC was a Schedule I controlled substance in 2012.

On Nov. 21, the court disagreed with Horn’s assertion while agreeing with Medical Marijuana Inc.

“Because plaintiffs have not presented any evidence to show that Dixie X contains either synthetic THC or natural THC derived from marijuana – as the CSA defines that term – plaintiffs cannot prove their RICO claim to the extent it is premised on the allegation that Dixie X is a controlled substance,” the court determined.

However, the court still upheld claims of RICO Act violations related to the CBD oil.

In addition to RICO violations stemming from distribution of a controlled substance, Horn also alleges RICO violations based on mail and wire fraud.

According to 18 U.S.C. § 1961(1)(B), mail and wire fraud constitute racketeering activity. More specifically, mail and wire fraud statutes prohibit communication that involves any scheme to “defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises,” according to the court opinion.

“There is evidence that defendants advertised in at least three different media – on their website, in YouTube videos, and via their customer service representatives – that Dixie X did not contain THC,” the court ruled. “There is evidence that these statements were false; indeed, defendants’ own testing revealed that the product contained detectible amounts of THC. Because defendants tested Dixie X and found that it contained THC yet advertised to the contrary, there is a basis to conclude that these statements were not mere misstatements or puffery but part of a scheme to defraud.”

As a result, the court will allow Horn to proceed with RICO violations derived from mail/wire fraud. RICO claims based on CBD oil being a controlled substance are dismissed.

Another class action lawsuit

Another trucker is suing a Florida-based company that markets CBD gummies after he failed a drug employment screening due to the presence of THC in his system.

Driver Trevor Darrow filed a class action complaint on October 28 in U.S. District Court for the Northern District of Illinois against Just Brands USA, alleging the company violated the Illinois Consumer Fraud and Deceptive Trade Practices act by mislabeling their JustCBD products as having “no THC.”

The class is open to any person who within three years of the filing, purchased JustCBD products with the “no THC” label in the state of Illinois. The class is not limited to truck drivers, nor those who failed a drug test as a result.