As DEA Rules Marijuana's Medical Status, Cannabis Giants Face RICO Claims-and Insurers Head for the Exits

As DEA Administrative Law Judge Derek C. Julius considers his recommendation in the federal marijuana-rescheduling proceeding-and federal courts consider MMJ-related challenges-major cannabis multistate operators are facing proposed class actions alleging that recreational cannabis products were marketed as medicine without FDA approval or adequate clinical trials.

Now, an insurance carrier is asking federal courts to declare that it does not have to pay for the resulting defense or liability.

"The same industry seeking federal medical legitimacy is now accused of selling that legitimacy to consumers before earning it through FDA clinical trials," said Duane Boise, president of MMJ International Holdings. "The question is no longer theoretical: Who must prove that cannabis is safe and effective before marketing it as medicine-and who pays when those claims are challenged?"

The Class Actions

In Murray et al. v. Cresco Labs Inc. et al., Case No. 3:26-cv-50184, more than 40 consumers filed a proposed class action in the U.S. District Court for the Northern District of Illinois against Cresco Labs, Green Thumb Industries, Verano Holdings Corp. and Verano Holdings, LLC.

Another action, Duke et al. v. Curaleaf Holdings Inc. et al., Case No. 3:26-cv-00684, is pending in the U.S. District Court for the District of Connecticut.

The complaints assert federal Racketeer Influenced and Corrupt Organizations Act claims, consumer-protection violations, breach-of-warranty claims and other causes of action. Plaintiffs allege that the companies promoted recreational cannabis products as providing therapeutic or medicinal benefits for conditions including pain, anxiety, depression and post-traumatic stress disorder despite lacking FDA approval for those uses.

The defendants have not been found liable. The allegations remain disputed and must be proven in court.

The Illinois complaint focuses on adult-use purchases and expressly excludes physician-prescribed medical cannabis. That distinction places the controversy directly on the use of medicinal representations to promote recreational products.

The Insurance Fight

On August 14, 2026, Palomar Excess & Surplus Insurance Company filed separate declaratory-judgment actions in the U.S. District Court for the Northern District of Illinois:

• Palomar Excess & Surplus Insurance Company v. Cresco Labs, Inc. et al., Case No. 1:26-cv-09856

• Palomar Excess & Surplus Insurance Company v. Verano Holdings Inc. et al., Case No. 1:26-cv-09838

Palomar is asking the court to determine whether its policies require it to defend or indemnify Cresco and Verano against the underlying claims.

No court has ruled that coverage is unavailable. But the filing raises an immediate financial question for cannabis operators: If alleged medicinal marketing is characterized as knowing, intentional or fraudulent commercial conduct rather than accidental bodily injury caused by a covered occurrence, will insurers be required to pay?

The coverage dispute was foreseeable. In a May 18, 2026 analysis titled "The Cannabis Industry's ‘Big Tobacco' Moment," attorneys at Wilson Elser warned that cannabis policies frequently contain health-hazard, class-action, criminal-acts and statutory-penalty exclusions. The analysis predicted that coverage for deceptive-marketing and failure-to-warn claims would be fiercely contested.

Three months later, that predicted fight arrived in federal court.

"The same alleged medical representations that helped sell these products may now create the liability-and provide insurers with their argument for avoiding coverage," Boise said. "That is the perfect storm the industry has failed to confront."

The FDA Question the Industry Cannot Avoid

FDA approval of a medicine ordinarily requires controlled clinical trials, standardized manufacturing, validated chemistry, defined dosing, safety testing and an agency-reviewed determination that a particular product is safe and effective for a particular use.

The allegations against the MSOs concern products that did not complete that process before allegedly being promoted through medicinal or therapeutic representations.

MMJ International Holdings has taken the opposite path.

For more than eight years, MMJ has pursued cannabinoid medicines through the federal FDA and DEA systems. The company has invested more than $10 million, secured two FDA Investigational New Drug applications, obtained an orphan-drug designation for Huntington's disease and manufactured 50,000 pharmaceutical soft-gel capsules with a specialty controlled-substance manufacturer.

MMJ's products remain subject to FDA review, clinical-hold requirements, chemistry and manufacturing controls, toxicology demands and clinical-trial standards.

"The FDA has never given MMJ permission to skip the work," Boise said. "We have been required to identify impurities, validate manufacturing, establish stability, address safety questions and conduct controlled trials. State cannabis operators should not receive the commercial benefit of calling products medicine without meeting comparable evidentiary standards."

Why the Timing Matters

The litigation arrives while Judge Julius considers the evidentiary record from the DEA rescheduling hearing. That proceeding examined whether marijuana has a currently accepted medical use and whether the government may rely on state medical-marijuana experience rather than the traditional federal standards used to establish the safety and efficacy of drugs.

Pain is central to that debate. The federal rescheduling record identifies pain as the indication with the largest body of evidence supporting marijuana's effectiveness. The private class actions, by contrast, allege that cannabis companies overstated or misrepresented the evidence supporting cannabis for pain and other conditions.

The complaints do not legally control the DEA proceeding, and allegations in civil complaints are not scientific findings. Nevertheless, the cases expose the same unresolved question now before federal decision-makers: What evidence is required before marijuana or a specific cannabis product may be represented as medicine?

MMJ also has matters pending in federal court challenging government actions that, according to the company, advantage state-licensed operators while imposing far more demanding requirements on companies following the FDA drug-development and DEA registration pathways.

"The federal government cannot maintain two irreconcilable definitions of medicine," Boise said. "It cannot require one company to complete years of FDA-controlled development while granting medical legitimacy to commercial products that have not demonstrated safety and efficacy through adequate clinical trials."

A Potential Industry-Wide Reckoning

The immediate lawsuits concern specific defendants, policies and disputed allegations. But the broader risk extends throughout the cannabis industry.

If courts permit these cases to proceed, cannabis companies could face discovery into internal marketing decisions, scientific substantiation, warning practices, third-party promotional relationships and what executives knew about the limitations and risks of their products.

At the same time, insurers may examine whether alleged RICO violations, intentional misrepresentations, statutory penalties, class-action exposure and health-hazard claims fall within policy exclusions.

That combination could leave operators financing complex federal litigation while facing potential treble damages, attorneys' fees and uncovered liability.

"This is not simply another cannabis lawsuit," Boise concluded. "It is a direct test of whether an industry can market recreational products with the language of medicine, avoid the FDA clinical pathway and still expect insurers to absorb the consequences. DEA, the federal courts, investors and the public should all be paying attention."

About MMJ International Holdings

MMJ International Holdings is a privately held pharmaceutical company developing proprietary cannabinoid-based medicines through the U.S. Food and Drug Administration's investigational drug pathway. Its development programs include MMJ-001 for multiple-sclerosis spasticity and MMJ-002 for Huntington's disease-associated chorea.

CONTACT:

Madison Hisey