Losing competitors sue over marijuana cultivation permits | Arkansas Blog

Tuesday, March 13, 2018

Losing competitors sue over marijuana cultivation permits

Posted By on Tue, Mar 13, 2018 at 4:15 PM

The first lawsuit was filed Tuesday over the state Medical Marijuana Commission's scoring of the top five applicants for cultivation permits under the new medical marijuana law.

The suit was filed by Naturalis Health,  which finished 38th in the scoring, with an application to be in Little Rock.  It asks for an injunction against award of the permits. The suit was assigned to Circuit Jduge Wendell Griffen. Defendants are the state Finance and Administration Department, Alcoholic Beverage Control Division and Marijuana Commission. One question is whether the state will raise a sovereign immunity argument against the lawsuit. Gov. Asa Hutchinson seemingly will make the decision. He's instructed executive agencies not to use the defense without his permission. A judge conceivably could raise the issue on his own.

The suit says decisions were made arbitrarily and in violation of the Administrative Procedures Act.

UPDATE: Another losing applicant, Delta Cannabinoid, later filed an administrative appeal in Lee County, home of one of its owners, retired Judge Olly Neal of Marianna, but I don’t have details on it yet. That group had earlier complained about the process on several grounds, including lack of racial diversity among members.

The Naturalis suit contends there were "wide-ranging discrepancies" and "outright violations" in the applications of the top five scorers — Natural State Medicinals, Bold Team, Delta Medical Cannabis Natural State Wellness and Osage Creek Cultivation. The suit also argues bias or conflicts of interest on the part of commissioners.

Specific shortcomings included a residency requirement, tax liabilities and distance from a church or school of proposed facilities. The suit noted the commissioner, Travis Story, who graded the application of a legal client, and said other commissioners didn't have requisite experience for the task. An independent committee of industry experts shouild have done the scoring, the suit says.

The suit lists numerous cases of corporate charters revoked for non-payment of franchise taxes. But the Department of Finance has already responded to a complaint on this point by saying the rule on deficiencies applies to indviduals, not corporations.

The suit faulted scoring. It noted, for example, that no points were deducted on qualifications from the top scorer, Natural State Medicinals, despite the admission that two owners had paid regulatory agency fines of more than $10,000. The suit went on:

The most blatant irregularity in scoring was Chairperson Tillman’s use of a different scoresheet, unlike the uniform scoresheet used by the other four Commissioners. Tillman appears to have provided no numerical scores for several categories.
The suit also airs a complaint about the extraordinarily high score Commissoiner Carlos Roman gave the top score, Natural State Medicinals.

Dr. Scott Michael Schlesinger is identified as an owner for NSMC in the application released by the Commission, owning 5.66%. On information and belief, Schlesinger’s ownership interest was known to the members of the Commission, especially since each applicant’s owner, officer, director or board member was required to submit a disclosure statement. Schlesinger’s disclosure statement is attached hereto as Exhibit 15.

Upon information and belief, Schlesinger and Commission member Dr. J. Carlos Roman have an extremely close personal and professional relationship. Schlesinger is the founder  of Legacy Spine and Neurological Specialists, and upon information and belief, Dr. Roman routinely refers patients to Dr. Schlesinger’s medical practice. See Referral Note from Roman to Schlesinger, attached hereto as Exhibit 16.

Not surprisingly, Dr. Roman scored NSMC’s application at a 98 out of 100. The average score Dr. Roman gave out to the remaining cultivation applicants was 55.55 out of 100. 
The complaint recounted in detail a conflict first reported here, Commissioner Story's past legal work for the Trulove family of Berryville, owners of Osage Creek.

Incredibly, Story awarded one of his highest scores of any applicant (94.5) to OCC. Story’s actions are unmistakably rife with inherent conflict and bias; Story should not have participated in the scoring process when the obvious and irreconcilable conflict became known to him. His actions caused harm to Naturalis and further demonstrates the process was flawed, arbitrary and capricious, and unfair to all applicants.

In addition to Story failing to recuse from the selection process, news reports of Story’s text messages indicate he was scoring applicants on the evening of February 25, 2018, five days after the scoring deadline had passed and just two days before the Commission met to select the successful applicants.

The suit objects to the apparent plans to ratify permits Wednesday without a hearing or opportunity for public comment. Absent a review by the commission, a review by the court is appropriate, the complaint says.

The complaint was signed by Jay Bequette of Bequette and Billlingsley. The owners of Naturalis LLC are not identified, but they are believed to include Jackson T. Stephens III, grandson of the founder of the Stephens financial empire, who invested heavily in the successful campaign to get the medical marijuana amendment on the ballot. Henry Willmuth is an organizer of the Naturalis LLC.

Here's their lawsuit.

UPDATE: From Dustin McDaniel of Natural State Wellness:

“The lawsuits that have been filed are without legal merit. Also, with regard to our applications, the Lee County lawsuit is factually inaccurate. In our applications to the MMC, John Terry and Chris Hewitt were accurately identified as officers of Harvest, Inc., not NSWE. Neither person is an officer, manager, or owner of NSWE. Furthermore, in the application to the MMC, Mr. Ryan Young was properly identified as 100% Asian American, which he is.”

Tags: , , , , ,


Comments (11)

Showing 1-11 of 11

Add a comment

Subscribe to this thread:
Showing 1-11 of 11

Add a comment

More by Max Brantley

  • Today's the day for landlord-tenant bill UPDATE Another defeat

    Rep. Jimmy Gazaway (R-Paragould) says he will present his HB 1410 to provide protection to renters at a committee meeting after adjournment today. The bill will incorporate changes suggested by the Arkansas Realtors Assocviation, but that powerful lobby still won't support the bill. UPDATE: the bill fell one vote short.
    • Mar 18, 2019
  • Headlines and the open line

    A busy legislature leads the day's video news roundup. Here's the open line.
    • Mar 18, 2019
  • Senate committee approves tobacco tax bill with income tax cut

    The Senate Revenue and Taxation Committee this morning endorsed Sen. Jim Hendren's SB 571 to provide an income tax cut for low-income people and make up the revenue loss with an increase in the tax on cigarettes and other smoking products.
    • Mar 18, 2019
  • More »

Readers also liked…

  • Sabin's subterfuge in the race for mayor has roots in rigged city government

    The Arkansas Democrat-Gazette reports that an ethics complaint has been filed saying that the exploratory committee Rep. Warwick Sabin created to prepare for a run for Little Rock mayor was a subterfuge to avoid the city ordinance that doesn't allow campaign fundraising to begin until five months before the November 2018 election.Of course it is.
    • Aug 10, 2017
  • Use of solar on the rise in Arkansas

    With a pivotal ruling expected any day now from the Public Service Commission, Kyle Massey at Arkansas Business reports on the increase in Arkansans adding solar generation units on their homes and business.
    • Apr 13, 2018
  • Antwan Phillips wants to make a difference in reducing Little Rock violence

    KARK/Fox 16's push to do something about Little Rock violence includes a spotlight on people trying to make a difference — in this episode Antwan Phillips, a lawyer at Wright, Lindsey and Jennings.
    • Aug 30, 2017


Most Recent Comments


© 2019 Arkansas Times | 201 East Markham, Suite 200, Little Rock, AR 72201
Powered by Foundation