Decision nears on Arkansas’ first medical marijuana cultivation centers, but legal recourse a concern

Nearly a year after lawmakers began the process of writing new laws for the state’s controversial medical marijuana industry, the arduous and complicated task of issuing the state’s first growing and cultivation facilities will begin in earnest this week.

While there will be excitement around the unveiling of the five winning bidders, legal calamity is likely to cloud the awards.

Tuesday (Feb. 20) is the official deadline for the Arkansas Medical Marijuana Commission (AMMC) to review and score 95 applications for the state’s first licenses to operate a cannabis-growing cultivation center. The five-person regulatory panel will then meet at the Arkansas Alcoholic Beverage Control (ABC) headquarters on Feb. 27 to hand out awards based on the best scores for five operators of the marijuana growing facilities.

As of Friday (Feb. 16), the Arkansas Department of Health had approved 4,002 applications for medical marijuana registry ID cards allowing citizens to eventually obtain Arkansas-grown, doctor-approved marijuana and other cannabis-related medical products. Another 245 applications are “in-process,” said ADH spokeswoman Meg Mirivel, although cards will not be provided to patients until a month before the medial product is available.

Rep. Doug House, R-North Little Rock, who spearheaded most of the state’s medical marijuana legislation in the 2017 session, said the commission has had an unenviable job of reviewing and screening nearly 100 applications since early December. Now, they must choose winners from a large pool of submissions.

“For the commission, it has really been a tedious task to go through at least 95 applications … to pick out five cultivators. It is kind of like selecting a contractor to build a building. They are looking for people who can provide the product to the dispensaries and the people that meet all the requirements and qualifications,” House said.

Over the past two months, the five members of the AMMC board have been sequestered away from public purview to read, review and score the applications based on a 500-point merit scoring system approved by the state legislature in May 2017.

According to state Department of Finance & Administration (DF&A) officials, the AMMC’s scoring system breaks down points that applicants can earn into different sections that are focused on operating marijuana facilities in compliance with more than 24 different laws approved by lawmakers. Other sections included applicant qualifications, financial disclosure and an operations plan.

The cultivation center awards will be revealed on Feb. 27, while dispensary facility licenses will come later this spring. There are 227 dispensary applications for up to 32 state permits, which will be evenly distributed with no more than four dispensaries in each of eight regional zones designated by the commission.

In response to a state Freedom of Information request in late December, DF&A officials released the public names of all the companies applying for cultivation and dispensary licenses along with their locations. However, the names of the individual owners were redacted so not as to give any company a “competitive advantage,” said DF&A spokesman Scott Hardin.

A review of the 322 publicly available applications shows dozens with incomplete or inaccurate information, a potential source of future litigation. As many as one-third of all cultivation and dispensary applications are missing items such as notarization, incomplete contact or registered agent data, incorrect math on percentages of ownership, insufficient financial information, inadequate proof of residency, and inaccurate answers to questions of affiliation or ownership with more than one facility,  just to name a few of the errors or omissions.

Hardin said all applicants were released publicly, even if they may be summarily rejected for being incomplete or not meeting qualifications.

“At this point in the process, we are not distinguishing the applications that may not meet minimum qualifications as they are considered active until the commission votes to take formal action on them,” Hardin said. “Since September 18, 2017 — the deadline to submit an application — no applicant has been allowed to sign, supplement or adjust an application.”

LEGAL CONCERNS
Despite the excitement of the state’s first marijuana cultivation permits being handed out by the end of February, there is still concern the availability of medical cannabis in 2018 could be stalled because of lawsuits from applicants who don’t receive a license.

From Washington state to Vermont and in many states in between, there has been litigation surrounding rejected or disqualified applicants for licenses in the medical marijuana ecosystem. Local lawsuits abound from companies that were shut out from the lucrative state permits based on scoring systems, incomplete application data, and problematic rules and regulations. However in Arkansas, the path for legal appeal is unclear.

At a symposium sponsored by the Arkansas Medical Marijuana Association trade group in late 2017, Little Rock attorney Alex Gray said he expected appeals and lawsuits from applicants who don’t move forward. An appeals process was created under legislation approved by the General Assembly during the 2017 session earlier this year.

“It is not any different than any other (Arkansas government) agency decision. If the Medical Marijuana Commission scores your application and it is not one of the winners, you do have rights to appeal that decision,” Gray said at the time, referring to the Arkansas Administrative Procedure Act.

Since then, the Arkansas Supreme Court has ruled that the state’s sovereign immunity law – which prohibits the state from being named as a defendant – offers blanket immunity for boards, commissions, and agencies. The lawsuit that initiated this ruling, Board of Trustees of the University of Arkansas vs. Matthew Andrews , centered on a minimum wage dispute, but there is widespread thought that the ruling could apply to Freedom of Information requests, illegal exaction cases, and certainly administrative rules and regulations.

Subsequently, Arkansas’ lower courts have been applying the sovereign immunity decision to a variety of cases, including a recent dismissal of a lawsuit by agricultural conglomerate Monsanto over a state ban on dicamba fertilizer and an Arkansas Oil and Gas Commission regulatory lawsuit involving property owners and royalties.

Rep. House, an attorney, thinks the state courts will allow for appeals regarding medical marijuana.

“That [Andrews] was a wages case, this is an administrative process case,” House said of possible lawsuits against the AMMC concerning medical cannabis permits.

“There are going to be folks that won’t get the permit or won’t win and want to sue,” House said. “Good for them, that’s what the whole process is for – they can appeal and go through the whole administrative process and I expect some to try and go to federal court. And normally the federal court says: ‘we don’t decide marijuana cases.’”

House’s opinion is disputed.

“Under the Andrews decision and subsequent rulings by trial courts interpreting Andrews, there is no way to challenge a decision made by the commission,” contends Gray. “These applicants have all invested between $100,000 and $200,000 to submit their applications.”

Gray’s firm — Steel, Wright, Gray & Hutchinson — represents some of the applicants and he has been pushing for a constitutional amendment proposal to undo the Arkansas Supreme Court ruling on sovereign immunity.

DF&A officials referred questions on sovereign immunity to its legal representative, the Arkansas Attorney General’s office. The office provided this short statement to potential challenges regarding medical marijuana licenses: “The Attorney General does not comment on ongoing litigation. However, in instances where a state actor is not following state law, we do not believe the Andrews decision prevents a lawsuit.”

Gov. Asa Hutchinson has also given guidance on how he wants state agencies to use a sovereign immunity defense. He’s asked all agencies under his authority to seek his office’s approval before asserting it in court cases. Talk Business & Politics asked how he would prefer the AMMC to handle challenges that are likely to arise for the awards of the licenses.

“The guidance will depend upon the nature of any lawsuit and any additional rulings that may come down from the Arkansas Supreme Court on the issue of sovereign immunity. It is premature to say anything further at this point,” the governor said through his spokesman, J.R. Davis.

GET MOVING
Storm Nolan, president of the Arkansas Cannabis Industry Association, said there is a sense of anxiousness surrounding the commission’s announcement next week to award the state’s first legal cannabis-growing facilities.

Ahead of the commission’s Feb. 27 meeting, the Fort Smith-based trade group is holding “Arkansas Cannabis Patient Day” at the State Capitol for medical cannabis patients, doctors, nurses, and advocates. ABC’s headquarters is located just west of the capitol grounds.

“I just think people are ready to get moving, especially patients,” said Nolan. “Once they know there are licensees out there and they can see them actively building out their facilities and getting everything sped up and hiring people, that is going to be very exciting for a lot of people.”

Editor’s note: Talk Business & Politics Roby Brock contributed to this report.