Utah threatens cannabis license lawsuit

A Utah-based company filing a license to operate as a breeder in the Utah medical marijuana industry has filed a lawsuit against the state alleging that operators from other states received an unfair advantage in the licensing process. The lawsuit filed by plaintiff JLPR LLC in the U.S. District Court last weekend alleges that officials from the Utah Department of Agriculture and Food (UDAF) coached some applicants to navigate the selection process and unfairly informed them of a pending change in decision.

JLPR alleges in the lawsuit that UDAF officials allowed their personal ties to cannabis companies outside of the state to interfere with the issuance of cultivation licenses in the state’s medical marijuana program approved by voters with Proposition 2 approval in November 2018. In 2019, licenses were issued to eight breeders, four of them from foreign operators, while cannabis pharmacies were licensed in January 2020.

The lawsuit alleges that the selection process against JLPR was unfair and detrimental to the start of the state’s medical marijuana program. The lawsuit calls for the court to immediately grant JLPR a cultivation license or to put it at the top of the list for the next license granted. The plaintiff also demands unspecified monetary compensation to compensate for lost profit, the payment of consulting services and legal fees.

“Instead of selecting truly capable and qualified companies to successfully operate an emerging business in the Utah cannabis market, politically affiliated companies were selected,” the plaintiff’s lawyers wrote in the lawsuit. “This [bias] harmed patients in Utah, violated the law, and violated JLPR due process and intellectual property rights in the selection process that resulted directly from inappropriate associations. “

In addition to the UDAF, the lawsuit lists former agency officials associated with the medical marijuana program, state purchasing officials, and other grow license firms as defendants.

“The corruption and other problems in the selection and appointment process of the agency represented a gross violation of the due process and the same intellectual property rights of JLPR,” the lawsuit said.

Utah Suit Claims Notice of Rule Change

A key aspect of the lawsuit concerns a late change in regulations that allowed overseas companies to apply for cultivation licenses. Originally, the state’s medical marijuana program rules required all breeders to be Utah residents.

Although the change was announced after the deadline for applying for cultivation licenses had expired, several foreign companies had already submitted applications. JLPR claims that foreign applicants must have been informed of the upcoming rule change in order to complete the lengthy and costly application process on time.

“It would be almost impossible – let alone pointless – to finish all this work in any other way,” the lawsuit says.

The lawsuit also alleges that the permitting process was rushed, application evaluators had conflicts of interest, and state agricultural officials were inappropriately communicating with applicants.

“A bias towards foreign applicants is evident in the selection process,” wrote JLPR attorney Jason Kerr in the lawsuit.

After the licenses were awarded, JLPR appealed to the UDAF and then to the Utah Division of Purchasing and General Services. Both agencies dismissed appeals and a later appeal to the Utah Court of Appeals was denied earlier this year. The lawsuit alleges that the four unnamed owners of JLPR have a wealth of business experience and contacts in the cannabis industry that made their application superior to that of some successful applicants.

“With this wealth of knowledge and resources, JLPR was and is perfectly suited to Utah’s medical cannabis needs,” the complaint reads.

Utah State Examiner Error Selection Process

JLPR cited an investigation by Utah state auditor John Dougall which found conflicts of interest in the selection process and improper communication between applicants and state officials. Dougall recommended that the UDAF change the application process and start over. The UDAF reviewed their process, but confirmed the eight licenses issued.

The lawsuit notes that Scott Ericson, a former UDAF assistant commissioner, quit his job with the state just weeks before the application deadline and began working as a consultant for Standard Wellness, an Ohio-based company that received one of the cultivations’ licenses . The lawsuit alleges that Ericson met with representatives from Standard Wellness while he was still employed by the state, a claim he denies. He also said he was not involved in setting the standards for issuing the licenses while learning about the state’s criteria for issuing the licenses along with other applicants.

“I deny any inappropriateness in asking what the questions would be, what the score would be, or having a head start,” said Ericson, who is still employed by Standard Wellness. “It just didn’t happen.”

UDAF officials declined to discuss the pending lawsuits with reporters after the lawsuit was announced earlier this week.

“We have no comment at this time as we have not been able to receive or investigate these complaints,” Utah Agriculture Commissioner Craig Buttars said in a statement to local television news on Tuesday.