Judge Rules Fort Smith Cannabis Cultivator Got License Improperly

A Pulaski County circuit judge ruled against state medical marijuana regulators late Thursday in a stunning licensing decision as Arkansans vote through Tuesday on creating a recreational cannabis system that would put licensed medicinal businesses at the center of a vast new adult-use market.

Pulaski County Circuit Judge Herbert Wright Jr. ruled that the Medical Marijuana Commission, the Alcoholic Beverage Control Division and the Arkansas Department of Finance & Administration acted “unreasonably, unlawfully, and capriciously” by awarding a cultivation license to Bennett “Storm” Nolan’s River Valley Relief Cultivation of Fort Smith in 2020. 

The judge ordered the state to “take all steps necessary to remedy” violations in Nolan’s license application, but he stopped short of stripping River Valley’s license, saying he lacked that authority.

The lawsuit had asked Wright to revoke the license and grant it to the plaintiff, 2600 Holdings of Little Rock, doing business as Southern Roots Cultivation.

The judge said he couldn’t go that far, but ruled “the Court does have the duty, when entreated, to point out when the State has exceeded the authority granted to it by the voters of the State of Arkansas in a constitutional amendment.”

The license was the last of eight cultivation permits allowed by the 2016 state constitutional amendment that legalized medicinal cannabis.

The order was a bitter blow to River Valley Relief, but not the worst imaginable. Nolan, a Fort Smith hotelier, has invested millions in his grow operation near the airport, but he has never officially been a party in the case. The irregularities with his application included the fact that it listed the name of a business he had previously dissolved. 

“It is evident from the extensive record before the Court that at the time of the award of the license to Nolan the Defendants were aware they were dealing with a nonconforming application,” Wright wrote in his 15-page order. He said Nolan’s application should have been rejected from the start because it proposed a site that was too close to a school. 

The ruling capped a case that was central in a major Arkansas Business examination of the state’s marijuana licensing process and its rocky and litigious history. The report, published Monday, included details from sworn depositions taken by 2600 Holdings in the case, including a revelation that the FBI had investigated a bribe attempt made on a charter member of the marijuana commission. Those depositions also revealed that agents had questioned the former and current chairs of the panel, which granted all of Arkansas’ medical marijuana licenses.

Wright’s order said that he “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 said the rules were never changed and the process was never altered, but the license still was granted.

“It is difficult to come to any other conclusion than MMC was committed to placing Mr. Nolan in charge of a cultivation facility, notwithstanding any and all defects in the RVRC application,” Wright’s order said.

Scott Hardin, a spokesman for the defendants, said Thursday via email that they are reviewing the ruling and consulting with their attorneys. Nolan told Arkansas Business on Thursday evening that he couldn’t comment on the decision. 

Earlier this week, Wright ruled against a pleading by Nolan to intervene, leaving him in the odd position of having no standing in a case that could cost him a hugely lucrative business. The judge ruled that Nolan had waited too long to seek to join a case more than two years old.

Faults in River Valley’s application led to a state decision last year to fine Nolan $15,000 and place him on a year’s probation. He was notified of that decision in a May 2021 letter from Director Doralee Chandler of the state Alcoholic Beverage Control Division, which oversees aspects of regulating the medical marijuana industry.

Wright found that an “agreement to pay a fine does not retroactively make the initial application compliant and constitutional.”

The lawsuit’s importance is magnified by the fact that medical marijuana licensees will be front and center in a new adult-use cannabis market if voters approve the ballot measure, Issue 4, which has been backed by millions of dollars from industry businesses, primarily the cultivation companies. Under the constitutional amendment proposal now on the ballot, all medical marijuana licensees will get matching licenses to grow and sell recreational marijuana.

Through the first nine months of 2022, Arkansans spent $205 million on 36,600 pounds of medical marijuana. The state expects this year’s numbers to surpass the $264.9 million record of 2021, and independent projections for a recreational market’s sales potential start at four times that amount.

Southern Roots had asked for a summary judgment in its favor, and it was granted in Thursday’s ruling.

Dr. Carl Johnson, who leads 2600 Holdings, spoke after the ruling as if it assured Southern Roots a license in the future. “My partners and I thank the court for delivering justice,” Johnson told Arkansas Business. “Southern Roots isn’t the only winner today. All of us win when the government plays by the rules. …

“We are excited today,” he contined. “We are even more excited about the prospects of tomorrow. We are excited to bring a world-class cultivation facility to the people of Jacksonville. We are excited to create new, good paying jobs in our community. And we are especially excited to serve the patients of Arkansas.”

If and when the company is granted a license, Johnson said, “we pledge that we will move at breakneck speeds to begin our operations.” 

The Medical Marijuana Commission, through assistant attorneys general Kate Donoven and Matthew Ford, had argued that even if Wright found the license improperly granted, any decision couldn’t properly award the license to Southern Roots without further pleadings. DF&A flatly argued that Southern Roots had no valid claim, and that all licenses were properly granted under the ABC’s proper authority.

But Wright found otherwise. 

“The application should have been rejected pursuant to the Constitution and the MMC rules, and when the application was ultimately accepted for a license in the second round, it should have been denied because RVRC’s dissolution rendered the application void,” he wrote.

Southern Roots attorney Abtin Mehdizadegan said justice was done, “justice that has been long-delayed.” He expressed hope that state officials will speedily carry out “their now Court-ordered duties with the sense of urgency and expediency deserving of the Constitution that they pledged to uphold and defend. The people of Arkansas deserve for this question to be settled before they head to the ballot box, and at a more fundamental level, all Arkansans—all of us—deserve a government that respects the rule of law.” He praised his legal team at Cross Gunter Witherspoon & Galchus, specifically praising attorney Brett Taylor.

In one deposition taken in the case and obtained by Arkansas Business before the documents were made public last week, current Medical Marijuana Commission Chair James Miller concluded that the decision to give the license to Nolan had been unfair to Southern Roots. 

Miller, a Bryant lobbyist and former gubernatorial aide, was asked in his Oct. 5 deposition if Nolan’s application had failed to meet the state’s minimum qualifications. “From what I’ve seen so far, yes,” Miller replied.

Chandler, the ABC chief, said in her deposition that at the time it issued the license to Nolan, the commission wasn’t aware that the River Valley entity on the license application, River Valley Relief Production, was a defunct entity. “No one was aware that it had been resolved.”

In the same document, Chandler said she was unsure whether she would appeal if Wright ruled that the state must take River Valley’s license away. “I mean, I’d have to look at it,” she said.