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Judge: Arkansas marijuana regulators broke their own rules in granting final cultivation license

by John Lynch | November 5, 2022 at 9:13 a.m.
This Sept. 30, 2016, file photo shows a marijuana bud before harvesting at a rural area near Corvallis, Ore. (AP Photo/Andrew Selsky, File)

Arkansas medical marijuana regulators broke their own rules and made up new ones -- violating the state constitution -- to give a cultivation license to an obviously unqualified candidate, Pulaski County Circuit Judge Herb Wright found. He ordered that the license, the last of eight available, be rescinded and re-awarded using proper procedures.

Wright's 15-page ruling Thursday night comes in response to a lawsuit by a marijuana grower applicant passed over for the license, 2600 Holdings doing business as Southern Roots Cultivation. The company claimed to be the legitimate applicant and asked the judge to award it the license. Wright concluded he had the authority to cancel the license but not the power to tell state regulators who to give it to.

"But the court does have the duty, when entreated, to point out when the state has exceeded the authority granted to it by the voters ... in a constitutional amendment," the ruling states. "The defendants, in awarding a cultivation permit to an entity that never applied, made a decision that violates the Arkansas Constitution, and it violates the rules enacted for the operation of the [Medical Marijuana Commission]."

The judge's ruling comes as this year's medical marijuana purchases in Arkansas reached $205 million as of Oct. 1, the latest figures available. Regulators predict that total sales will reach $275 million by the end of the year, which would top last year's $265 million.

Speaking for the regulators, the commission and the state Department of Finance and Administration, Scott Hardin said they have not decided their next move. Commissioners will meet next Thursday, which will be their first chance to discuss the litigation.

"We are reviewing Judge Wright's order ... in coordination with our legal counsel to determine next steps. As a policy, we don't speak to specifics of active litigation," the spokesman said Friday.

Hardin said that lawyers from Attorney General Leslie Rutledge's office will continue to represent regulators. The commission and finance department had earlier stated an undisclosed disagreement was going to require them to seek their own lawyers.

Southern Roots attorney Abtin Mehdizadegan said Friday that the company's efforts will now focus on seeking licensing by the commission.

"As we turn the page on this lawsuit, our attention is now laser-focused on the future. The ruling makes clear that Southern Roots was always the rightful recipient of the final license," he stated in an email. "We are prepared to move quickly, and because the license ... was never legitimately awarded, we believe the [commission's] only course is to meet and carry out the [order]. From there, we will begin the process of getting the cultivation facility up and running."

The license went to Fort Smith hotelier Bennett "Storm" Nolan, whose River Valley Production LLC of Fort Smith began growing marijuana last year and started selling it in February as River Valley Relief Cultivation. He declined to comment on Friday.

Nolan was never a party to Southern Roots' suit because it went after the state agencies that regulate marijuana, the Medical Marijuana Commission and Alcoholic Beverage Control Administration Division of the finance department, over how the decision was made to award the license to Nolan.

The judge rebuffed Nolan's efforts to come to the defense of the award process earlier this week, finding that he had waited too long to join the lawsuit, despite knowing the issues Southern Roots had raised dated back to 2017. Nolan reports that he has millions of dollars invested in his operation and employs more than 50 people. The judge found that Nolan's operation was a "legal nullity" when it was licensed because he didn't incorporate it until after the grower's license was awarded, meaning the state gave the cultivation certification to an entity that had never been vetted by regulators.

"The operative application was for a business entity that no longer existed. This entity was now able to retain the status of an accepted, scored applicant, though it had never applied for a license, had never been scored, was not in existence at the time of the application deadline or at the time the [marijuana commission] decided to issue the [license]," Wright wrote. "An effort was made by the [commission] to give Nolan thread to stitch up the holes in the [River Valley] application. Whether that was fair or unfair to any of the applications, it was at minimum an unconstitutional and ultra vires [illegal] act."

The marijuana commission appears to have gone out of its way to favor Nolan, the judge wrote.

"The court remains curious as to why so many accommodations were made for Mr. Nolan, despite concerns and protests being repeatedly raised from the beginning of the application process," the judge stated. "The rules never changed. The process was not altered. But the license was granted. It is difficult to come to any other conclusion than [the commission] was committed to placing Mr. Nolan in charge of a cultivation facility, notwithstanding any and all defects in the [River Valley] application."

Mehdizadegan, the Southern Roots lawyer, said the company also has questions remaining about the award process, particularly about a late scoring-change on the River Valley application by a commissioner, Dr. Ronda Henry-Tillman, that put the company ahead of Southern Roots.

"Why did [Alcoholic Beverage Control] allow the blatant constitutional violations to persist for so long? In the context of this prior misconduct, our expectation is for the State to finally begin turning square corners. The Court's decision was just," he stated. "It's time to put the swords down. The attorney general's office, led by Leslie Rutledge, has the power and obligation to assure that the state carries out and implements its mandatory, constitutional, and court-ordered duties."

Arkansas voters approved medical marijuana through a 2016 amendment to the state constitution. Medical marijuana sales have contributed more than $84 million dollars to the state since the first dispensary opened in May 2019, the commission reported. About 74% of that went to University of Arkansas for Medical Sciences, specifically for the institution's work to obtain a National Cancer Institute designation.

Print Headline: Judge: Pot regulators broke own rules in licensing


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