Arkansas Supreme Court hears arguments on state’s stalled medical pot industry

The Arkansas Supreme Court on Thursday (June 7) heard testimony on the state’s expedited appeal of a Pulaski County Circuit Court decision to block the medical marijuana cultivation licenses handed out to five venture partnerships nearly three months ago.

During the hour-plus hearing before an overflow crowd at the Arkansas Justice Building on the State Capitol grounds, attorneys representing the five winning cultivation facilities, the Attorney General’s Office, Little Rock-based Naturalis Health and intervenors made the arguments before the state’s highest court in the highly-watched case to determine next steps for the state’s stalled medical pot industry.

The case was handed off to the Supreme Court on appeal after a March 21 decision by Pulaski County Circuit Court Judge Wendell Griffen declared the state Medical Marijuana Commission’s (AMMC) process of scoring and awarding Arkansas’ first licenses to five pot cultivators as “null and void,” citing the constitutional amendment approved by voters.

Naturalis Health had filed the first lawsuit against the commission and other state parties on March 13 in Pulaski County Circuit Court amid a flurry of legal protests and complaints filed by several runners-up and also-rans for the state’s first batch of the highly-coveted cultivation licenses.

Rutledge, on behalf of the Arkansas Department of Finance and Administration, Arkansas Alcoholic Beverage Control Division, and Arkansas Medical Marijuana Commission (AMMC), filed the appeal on March 23 requesting the state’s high court to speed up the defendant’s appeal of Griffen’s ruling. The five winning companies selected by the AMMC to receive the state’s first medical pot licenses also joined the state in its interlocutory order – an appeal that is made before all claims are resolved.

In making arguments on behalf of those companies, Little Rock attorney Casey Castleberry told justices it was his belief Judge Griffen improperly adjudicated a case where the lower court had no jurisdiction. He further argued Natural Health had no right to appeal the decision from a “quasi-judicial” state agency to the lower court, noting that the Commission does not have “subject matter” jurisdiction.

“Without adjudication, there is no jurisdiction before this court,” Castleberry said. “Jurisdiction can only be created by the (Arkansas) Constitution or by legislative action, not by an agency of the state.”

After noting Amendment 98 did not address jurisdiction, state Supreme Court Chief Justice Dan Kemp asked the local attorney if the constitutional referendum approved by voters in the 2016 election was flawed. Associate Justice Rhonda Wood also peppered Castleberry with several questions concerning whether the Commission had awarded licenses ahead of a postponed March 14 meeting to ratify the scores of the five highest-scoring cultivators.

“We believe we have licenses and a protectable property interest as we stand before you today,” said Castleberry, part of the legal team representing Natural State Medicinals Cultivation, Bold Team LLC, Natural State Wellness Enterprises, Osage Creek Cultivation and Delta Medical Cannabis Company as first five companies to grow and supply the state’s legalized cannabis products for medical patients.

Following Castleberry’s 20-minute argument, Lee Rudofsky, inspector general for Attorney General Leslie Rutledge, told the justices he essentially agreed with the key points made by Castleberry. He also said he believes the Marijuana Commission would have selected the same winners despite Griffen’s ruling that two commissioners on the panel had the “appearance of bias” in the lower court’s March 21 decision.

“It still would have been the same exact five licenses,” said Rudofsky, citing the fact Naturalis Health had the 38th best score out of the 95 applicants for the state’s first awards for medical pot greenhouses.

Justices Wood and Shawn Womack later posed several questions to Rudofsky concerning separation of powers between the executive, judicial and legislation branches of state government, and whether the high court should show some judicial constraint before making a ruling in the controversial Pulaski Court case. Like Castleberry, Rudofsky also said Judge Griffen’s lower court ruling had so many errors that it should be tossed out.

“I think the Court should be careful before it steps in,” advised Rudofsky. “Once the court has subject matter jurisdiction, then it should step in and protect the Constitution.”

Following Castleberry and Rudofsky arguments, Naturalis Health counsel Jay Bequette told the justices the Marijuana Commission’s process of selection the five winning cultivators was “fundamentally flawed and corrupt.”

“This situation was so inherently flawed that it affected all of the unsuccessful applicants,” he argued. “We played by the rules, but the rules were just not followed by the Medical Marijuana Commission.”

Despite his argument, several justices turned Bequette’s attention back to whether the Pulaski County Court had standing to hear Naturalis Health’s lawsuit since the losing medical pot applicants failed to exhaust their legal appeals before the Commission and the ABC board. Nearing the end of closing arguments, Chief Justice Kemp asked the only question concerning the issue of sovereign immunity, which mainly prevents the state of Arkansas from being sued in court. Bequette told the justices he believed that issue did not apply in this case because state had acted “arbitrarily and capricious” in the awarding of the cultivation licenses.

Bryan Ray, counsel for Clear Creek Medical Inc. and other intervenors in the case, also argued the Medical Marijuana Commission’s “de facto” decision to award the cultivation licenses should be thrown out because the legislature’s rules designated that the winners be incorporated. He argued that since all five of the winning licensees were organized as limited liability partnerships (LLCs) they did not meet the state’s legal standards as corporations.

Near the close of his arguments, Justice Woods asked Ray if he thought Griffen had failed to follow lower court rules when he issued a restraining order halting the issuance of medical marijuana license. Ray said he believed the lower court had made some errors but balked at giving an opinion on Griffen’s ruling.

At the close of the hearing, Judge Kemp refused a request by Castleberry for the court to take up a flurry of last-minute filings over the past three days concerning a request by Attorney General Rutledge for a protective order to seal the contents of an unidentified letter filed by the AG’s office. In that two-page motion filed on Tuesday, Rutledge asked the high court to keep secret the contents of her letter for unknown compelling reasons.

“For reasons that will be apparent on the face of the tendered letter, there is good cause for filing it under seal. Aside from the Court, only counsel of record for each party should be given this information, and they should be required not to disclose it further,” requested Rutledge.

Rutledge’s request set in motion a quick decision by the high court to grant the AG’s office a temporary protective order strictly prohibiting all attorneys involved in the case from distributing the letter or its contents to their clients or others, including the press.

By late Wednesday afternoon, attorneys for Naturalis Health asked the Supreme Court justices to deny Rutledge’s request.

“In the interests of transparency and full disclosure, Naturalis believes the document tendered by the Attorney General’s Office should be filed of record and subject to inspection by the general public,” stated Keith Billingsley, attorney for the prospective Little Rock pot grower.

At Wednesday’s hearing, none of the attorneys would discuss the details of Rutledge’s letter but said the late filing by the AG added an extra layer of suspense to the highly-watched legal proceedings.

Before the Naturalis lawsuit on March 13, the commission was expected to ratify the scores of the five highest-scoring cultivators and to review several letters of protest presented by three of the 90 losing cultivators that participated in the highly-competitive sweepstakes for the state’s first legal pot cultivation facilities.

To date, the AMMC staff has only posted the scores of the top five cultivators that were awarded licenses at the February meeting. All five had met the state’s requirement to pay a $100,000 licensing fee and post a $500,000 performance bond to begin construction on the state’s first cultivation facilities. Four of the five cultivators plan to build their pot greenhouses in the Arkansas Delta.

At Thursday’s hearing, Special Justice Emily White participated in place of Justice Josephine Hart, who recused from the case. Judge Kemp did not say when the high court would issue a ruling.