Cannabis organizations, especially multistate operators (MSOs), are increasingly incorporating lawsuits into their licensing application method in a bid to safe a permit in a hugely sought-right after industry.
That method of preparing to fight license rejections by state regulators, particularly these lost by a narrow margin, is primarily based on a quantity of components:
- Lots of marijuana business enterprise applicants in markets across the nation have won licenses by attractive or filing lawsuits targeting the initial awards handed out by regulators. In Florida alone, 17 of 22 healthcare cannabis license holders won their vertically integrated permits by way of legal challenges.
- Firms figure that if they’ve currently spent roughly a half-million dollars to apply and safe areas, what’s one more $50,000 or so to appeal a selection?
- There’s a belief that the initial scoring method was biased or corrupt.
“You can practically appear at every single state and there’s some form of challenge,” mentioned Michael Mayes, CEO of Quantum 9, a Chicago-primarily based cannabis consulting firm.
“It’s absolutely component of the (licensing application) method.”
Mayes mentioned that considering the fact that applicants commonly raise lots of income to apply for a license, it pays for an unsuccessful applicant to use some of the income to “delay the method, to attempt to infiltrate the corruption and, in some markets, it surprisingly operates.”
Jeremy Unruh, director of public and regulatory affairs of PharmaCann, a Chicago-primarily based multistate operator, agreed.
Unruh mentioned it is the realization that an application “isn’t the finish of the game.”
“There is a method that several applicants undertake,” he mentioned, “and that is to challenge the scoring and hopefully the whole process” in hopes of winning a license or altering the law to permit more licenses into a industry.
MSOs much more probably to program for legal challenges
Multistate operators are most probably to develop the method into the application method since they normally have deeper pockets to employ litigation attorneys and have seasoned equivalent licensing difficulties in other states, Unruh mentioned.
“The takeaway is regardless of whether an applicant has the foresight to anticipate the predicament,” he noted.
“MSOs do. And their investors possibly want to see it (the legal challenge).”
Litigation attorneys and other consultants are brought in to assist figure out not only the very best techniques for winning a license, but to create a method to fight a feasible rejection – primarily based on the guidelines, regulations and application scoring program of the distinct state.
Mayes and Unruh each pointed out Maryland’s 1st healthcare cannabis licensing round in 2017 as one particular of the triggers for the method.
Green Thumb Industries (GTI), a Chicago-primarily based MSO, won a license right after filing a suit claiming it lost a cultivation license to a reduce-scoring competitor.
In addition, claims of corruption and a lack of minority representation basically led Maryland lawmakers to expand the quantity of cultivation and processing licenses.
“After Maryland, it became clearer that the path of acquiring a license is larger and longer than the application method itself,” Unruh mentioned.
Other current examples of productive challenges contain:
- GTI won a healthcare marijuana cultivation license in Ohio in August right after a productive appeal to the state.
- Earlier this year, Trulieve settled a lawsuit against Florida’s healthcare marijuana regulators and, in the method, won the correct to open 49 dispensaries, 14 much more than the cap of 35.
- Atlanta-primarily based Surterra Wellness claimed it need to be treated the similar as Trulieve, and, in August, Florida state officials agreed.
Regulators can be personal worst enemy
Legal challenges to license choices are pending across the nation – notably in Nevada more than recreational MJ licensing and Arkansas more than MMJ licensing.
Regulators in component have contributed to their personal troubles, Mayes mentioned.
Lots of states didn’t employ independent third-celebration scorers, leaving them open to charges of bias and corruption. In component, state officials might not have completely understood the weight of their choices.
Arkansas turned to an independent dispensary application evaluator right after receiving heavy criticism for the way it handled cultivation-license applications.
Restricted licensing in most cannabis markets also contributes to claims of bias and corruption.
“The licenses have a tendency to be much more useful, so there’s much more at stake,” Unruh mentioned.
“My take is that, exactly where there’s income and restricted licensing, there’s corruption,” mentioned Donna Much more, a companion in Fox Rothschild’s Chicago law workplace.
“Like any other business, honestly.”
Much more was reacting to the news that the FBI is investigating public corruption in the cannabis business.
Stated Mayes: “There appears to be widespread corruption in the business when it comes to awarding licenses.”
Not every single cannabis business enterprise believes it is essential to program for legal challenges ahead of an application is scored.
Kris Krane, president of 4Front Holdings, a cannabis consulting firm and multistate operator, mentioned his Phoenix-primarily based firm hasn’t adopted such a legal method in the application method itself.
But, he mentioned, if a enterprise falls just brief of winning a license, then they are “much much more probably to appear for inconsistencies or convince themselves they have identified them.”
“It’s component of the calculus,” Krane mentioned.
Meanwhile, states increasingly are searching for approaches to remain out of litigation, Mayes mentioned.
These tactics contain hiring a third-celebration evaluator with topic matter professionals who grade each and every application blindly – in other words, devoid of recognizing the identity of the applicant.
State regulators also increasingly are methodically spelling out the appeal method in the business guidelines and regulations.
In Pennsylvania, for instance, a enterprise filed suit to invalidate the state’s whole healthcare marijuana application method, which would have thrown the nascent business into chaos.
But an appellate judge ruled that the enterprise, Keystone ReLeaf, need to have 1st sought a remedy with the state.
Jeff Smith can be reached at [email protected]