UPDATES: Judge Griffen enjoins award of marijuana cultivation permits | Arkansas Blog

Wednesday, March 21, 2018

UPDATES: Judge Griffen enjoins award of marijuana cultivation permits

Posted By on Wed, Mar 21, 2018 at 11:03 AM

Circuit Judge Wendell Griffen this morning issued a preliminary injunction to prevent the state Medical Marijuana Commission from awarding five permits to companies to cultivate marijuana in the state.

He declared the earlier scoring of five top applicants "null and void," with a key factor being commissioners with conflicts of interest.

No comment yet from the state on whether it will appeal to the Arkansas Supreme Court or set about a new evaluation process for the cultivation permits. Several have raised the question of whether the commission could hire an independent outside party — say a national accounting firm — to evaluate applications.

Said a spokesman for the Department of Finance and Administration, whose Alcoholic Beverage Control Division is the administrative support for the Commission:

“We respect Judge Griffen’s decision and must refer any questions regarding this matter to the Attorney General’s Office, our legal representation in this matter. “
I'm seeking reaction from the attorney general. UPDATE: Not much from Leslie Rutledge's office:

We are reviewing the circuit court’s memorandum order and discussing it with Director Casteel and other affected state entities.
Wednesday evening, Scott Hardin of DF&A noted that the next step in the process is awarding 32 dispensary permits from among 200 or so applicants. He said:

A review of the order is underway to determine next steps regarding dispensary scoring. 

Griffen's decision came in a lawsuit filed by Naturallis Health, one of dozens of applicants that finished low in the scoring. It has alleged faulty judging, conflicts of interest and arbitrary scoring. Other intervenors made similar complaints. The commission announced the top scores Feb. 27. The winners, in order, Natural State Medicinals Cultivatin, Bold Team, Natural State Wellness Enterprises, Osage Creek Cultivation and Delta Medical Cannabis Compnay.

Here's the opinion.

The judge agreed that there were questions about the application rules requiring set distances between marijuana facilities and schools.

He also said connections between Commissioners Travis Story and Carlos Roman (a successful applicant was a legal client of Story; professional colleagues of Roman were owners of another high-scoring applicant) violated the "appearance of bias legal standard for administrative decision-making,"

The judge said that, while the amendment legalizing medical marijuana said it did NOT waive sovereign immunity, the argument can't be used by the state here because the lawsuit alleges illegal action by the state. He declined to dismiss the suit on that ground and the argument that the plaintiff lacked standing.

The judge rejected some of the challenges made by Naturalis, such as lack of specific proof of residency for some owners of applicants; the different score sheet used by one commissioner, and the absence of a markdown for a regulatory fine paid by one applicant of which the commission was not aware. But he found the review hadn't adequately considered whether some applicants were owners of corporations that had not paid franchise taxes. The state argued that corporations could not be construed as individuals. But he wrote:

Here, the un-contradicted proof shows that the Medical Marijuana Commission did not evaluate the fact that persons identified as owners in the applications from Natural State Medicinals Cultivation, Osage Creek Cultivation, and Delta Medical Cannabis Company owned and managed entities that had their business licenses revoked, despite clear language in Commission Rule 1.9(b) that "[t]he commission shall consider... [o]wning and managing a business that has not had its business license revoked" when evaluating cultivation facility license applications. 
The judge also found the state staff had acted arbitrarily in not independently validating whether applicants were 3,0000 feet from a church or school.

On the finding that Story and Roman shouldn't have participated, Griffen wrote:

Here Plaintiff points to pecuniary relationships between Commissioner Roman and Dr. Scott Schlesinger and between Commissioner Story's law firm and other business interests
owned by Jay and Mary Trulove. That proof is not nebulous, hypothetical, or fanciful. The fact that Dr. Roman scored the cultivation facility application of NSMC, a competitor to Plaintiff whose ownership includes Dr. Schlesinger, more than thirty points higher than the average score Dr. Roman assigned to other cultivation facility license applicants is certainly enough to create a reasonable suspicion of unfaimess, even if it does not establish actual bias. The same is true for Commissioner Story, whose law firm has represented Jay and Mary Trulove since 2015 in a number of legal matters
Administrative decisions must not only be unbiased, the judge wrote, they must appear to be unbiased. (Critics will undoubtedly find much to say about this portion of Griffen's decision, given the controversy in which he's enmeshed as a personal opponent of the death penalty sitting on a case that ultimately led to a ruling adverse to the state carrying out an execution.)

The judge rejected an argument that losing applicants were entitled to a hearing before the commission. He said the law clearly provided for an appeal, but to circuit court.

In summary, Griffen said:

To put it bluntly, the Medical Marijuana Commission and Alcoholic Beverage Control Division have proceeded in a manner that dehes due process and the rule of law, rather than in a manner that respects it.
He said it was "unpleasant" that the decision means more delay for people hoping to obtain medical marijuana to alleviate suffering. But he said it was the court's duty to uphold the rule of law.

Based on the findings of fact, conclusions of law, and analysis set forth herein, the licensing process and decisions of the Medical Marijuana Commission and its co-defendants Alcoholic Beverage Control Division and Arkansas Department of Finance and Administration are hereby declared to violate Amendment 98 to the Constitution of Arkansas, found to be ultra vires, violate due process of law, resulted from improper procedure, and are arbitrary and capricious. Hence, the licensing decisions and rankings rendered by the Medical Marijuana Commission must not stand, and are, hereby, declared null and void. Plaintiff s motion to enjoin

Defendants from issuing cultivation facility licenses is GRANTED

A separate lawsuit was filed in Lee County by another unsuccessful applicant that contended the process hadn't adequately considered African-American interests. No decision has been issued in that case.

UPDATE: Griffen's ruling "will help convince Arkansans that the process [of selecting medical marijuana cultivators and dispensers] was rolled out in a fair and equitable manner," Storm Nolan, the founder of the Arkansas Cannabis Industry Association and its former president, said.

"The unfortunate part is it's going to take even longer for patients to get medical cannabis," and patients are already frustrated with the amount of time it's taking Arkansas to implement a constitutional amendment voted on by the people in 2016. "It's making people cynical," he said, and the association is trying to educate those who need medical cannabis that the "state is not trying to drag its feet" on the implementation of the industry.

Nolan is also an owner in River Valley Relief Cultivation, which was scored in sixth place by the Medical Marijuana Commission, just out of the running.

Should a rescore by an independent party be deemed a solution to avoid conflicts of interest, the commission might have to change its rules, which would take months, Nolan said. The commission originally asked for an independent party to do the evaluations, he said, but was informed that would not be possible. We've asked the counsel for DFA, Joel DiPippa, for confirmation but have not had a response. [Update: DiPippa said all questions should be referred to the attorney general's office.]

Griffen's ruling "was probably adverse to us," Nolan said, referring to River Valley Relief Cultivation and its position at sixth place. But, he added, "At the end of the day, when the dust settles, this is probably the best [outcome]. We're just hoping it goes quickly to the Supreme Court and they don't dally."

Another top-five scorer also issued a statement:

Delta Medical Cannabis Company is disappointed with the order entered today. We fully and completely satisfied all requirements and obligations associated with the application process. We followed and complied with all applicable rules, have been completely transparent, and have done nothing to justify the delay in receiving our license. We believe that our application was judged fairly and impartially, and that all rules of the Medical Marijuana Commission and Alcoholic Beverage Control Division were followed. We look forward to receiving a license from the state of Arkansas, and stand ready to cultivate medical marijuana for qualifying Arkansans as soon as possible.
Wednesday evening, former Attorney General Dustin McDaniel, an owner and spokesman for another of the top five applicants, issued this statement:

“The MMC issued to us the attached license on green paper, which states that it is, “CULTIVATION FACILITY LICENSE PERMIT 00123”

“Natural State Wellness Enterprises was clearly awarded its license on March 9, 2018. We are evaluating how best to respond to the court’s order, which says it is both a “Preliminary Injunction and Declaratory Judgment.” We will take all appropriate steps to defend our license and assist the State in defending the constitutionality of the MMC's decisions.”

“If the Court’s ruling stands, the MMC will have to hire dozens, perhaps hundreds, of people to investigate every assertion made under oath on every application. That would have a severe budget impact on many agencies beyond just the MMC, and is simply not required by the rules or the Constitution,” McDaniel said. 

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