Lawsuit Challenges State on Dispensary Licensing

Lawsuit Challenges State on Dispensary Licensing
Chet Patel and Roshan Patel each own 22.5% of the new Pine Bluff dispensary. (Composite photo)

A company rejected for an Arkansas medical marijuana dispensary license is suing to clear the air over the state’s process of selecting replacement retail outlets when the original licensees fail to open for business.

Medicanna LLC of Pine Bluff filed suit Feb. 13 in Pulaski County Circuit Court, claiming that the state violated its right to be granted a replacement dispensary license as Zone 7’s fifth-best-scoring application. The state granted four licenses in each of eight zones across the state a year ago, but the Medical Marijuana Commission voted earlier this month to grant a 33rd dispensary license.

But instead of going to Medicanna LLC, led by Elizabeth Parker, the license went to Nature’s Herbs & Wellness, which plans to open a Pine Bluff store under the ownership of Arkansas hoteliers Chet Patel, Laxmiben Patel, Roshan Patel and Darshan Patel, as well as Jessica Johnson. The new license followed frustration by board members over delays in opening some dispensaries a full year after they gained licenses. Particular annoyance was reserved for Pine Bluff Agriceuticals, owned by Michael and Teresa Ann Wilkins, which didn’t even have certainty on its site.

Medicanna’s lawsuit says the license went to Nature’s Herbs capriciously, and that the commission’s decision was “plagued by unlawful and inconsistent procedures,” particularly in ruling out Medicanna on the basis that it had received a partial reimbursement of its license application fee.

Update: Tuesday, Feb. 25, 2020: Pulaski County Judge Wendell Griffen temporarily barred the state Medical Marijuana Commission from issuing dispensary licenses pending a preliminary injunction hearing in the case.

Defendants in the suit are the Arkansas Department of Finance & Administration, its Alcoholic Beverage Control Division and the Arkansas Medical Marijuana Commission. The complaint says the state ignored its rules requiring replacement licenses to go to the next high-scoring applicant, ruling instead that Medicanna was disqualified by accepting the return of half its $7,500 application fee.

The ABC’s “nonsensical and directly contradictory rationale,” the lawsuit said, was that Medicanna “is no longer an applicant because it was refunded half its application fee. Again, the rules require that any applicant not in the top four be refunded half of their fee.”

Chris Burks of WH Law PLLC, who is representing Medicanna, did not respond to a request for comment. Scott Hardin, an ADF&A spokesman, said his department had been served with the suit on Tuesday and was “reviewing it along with our attorneys (the Attorney General’s office).”

The suit also claims the Medical Marijuana Commission would not give Medicanna’s lawyers a fair hearing, denying them a place on its agenda and stating the panel had “made a final disposition of the matter.” Medicanna never withdrew its license application, the suit says, and it has “expended funds in an expectation that they would be awarded a license.”

The complaint seeks a temporary restraining order to prevent the state from granting replacement dispensary licenses and to stay the license granted to Nature’s Herbs & Wellness.

That dispensary “has been formally licensed,” Hardin said. “The company paid the $15,000 licensing fee and posted the required $100,000 bond.”

An Issue of ‘Fairness’

The granting of the replacement license was foreshadowed last month when the Medical Marijuana Commission voted unanimously to reject the sale of licenses granted to Pine Bluff Pharmaceuticals, which had a tentative site near the Pine Bluff airport, and Arkansas Patient Services of Warren (Bradley County). The transactions would have been complete changes in ownership, and commissioner Travis Story spoke for the panel in saying licensees making little progress shouldn’t be allowed to sell their licenses after a year of inaction.

“It’s frustrating when it seems that [some dispensary licensees] haven’t even taken the first step toward opening. To sell it just before renewal, it raises a fundamental fairness issue.”

Robert Lercher, the head of customer relations for the state’s first operational medical marijuana cultivation center, Bold Team LLC of Cotton Plant, had hoped to buy the Wilkinses’ dispensary license. Lercher’s wife, Bold co-owner Kyndall Lercher, recently bought the license for another Pine Bluff dispensary, Pain Free RX on Mallard Loop. The potential buyers were represented by Alex Gray of the Capitol Law Group.