Utah Faces Lawsuit Over Cannabis Licenses

A Utah-based company that sought a license to operate as a cultivator in Utah’s medical marijuana industry has filed a lawsuit against the state, claiming that operators from out-of-state were given an unfair advantage in the licensing process. The legal action filed in U.S. District Court by the plaintiff JLPR LLC last weekend alleges that officials with the Utah Department of Agriculture and Food (UDAF) coached some applicants on navigating the selection process and gave them unfair notice of a pending ruling change.

JLPR alleges in the suit that officials with the UDAF allowed their personal connections to out-of-state cannabis companies to interfere with issuing cultivation licenses in the state’s medical marijuana program, which was approved by voters with the approval of Proposition 2 in November 2018. Licenses for eight cultivators, four of them from out-of-state operators, were awarded in 2019, while cannabis dispensaries were licensed in January 2020.

The lawsuit claims that the selection process was unfair to JLPR and was detrimental to the launch of the state’s medical marijuana program. The suit is calling on the court to award JLPR a cultivation license immediately or place it at the head of the list for the next license issued. The plaintiff is also seeking unspecified monetary damages to compensate for lost profits, payment for consulting services and legal fees.

“Rather than selecting truly capable and qualified companies to successfully operate an emerging Utah cannabis market company, politically connected companies were selected,” attorneys for the plaintiff wrote in the suit. “This [bias] in the selection process, directly resulting from improper connections, has harmed Utah patients, violated the law and violated JLPR’s due process and equal protection rights.”

In addition to the UDAF, the lawsuit lists former officials of the agency related to the medical marijuana program, state purchasing officials and other firms seeking cultivation licenses as defendants in the action.

“The corruption and other problems in the selection and agency appeal process were a gross violation of JLPR’s due process and equal protection rights,” the lawsuit stated.

Utah Suit Alleges Tip-Off To Rule Change

A key aspect of the legal action relates to a late change in regulations that allowed companies from out of state to apply for cultivation licenses. Originally, the rules for the state’s medical marijuana program required all growers to be Utah-based companies.

Although the change was announced after the deadline to apply for the cultivation licenses had passed, several out-of-state operations had already submitted applications. JLPR alleges that the applicants from out of state must have been tipped off to the impending rule change in order to have completed the lengthy and costly application process on time.

“It would be almost impossible—not to mention, pointless—to have completed all this work otherwise,” the lawsuit stated.

The suit also claims that the licensing process was rushed, application evaluators had conflicts of interest, and that state agriculture officials had improper communications with applicants.

“A bias toward out-of-state applicants is obvious on the face of the selection,” JLPR attorney Jason Kerr wrote in the lawsuit.

After the licenses were awarded, JLPR appealed the decisions to the UDAF and then the Utah Division of Purchasing and General Services. Both agencies denied the appeals and a subsequent complaint to the Utah Court of Appeals was rejected earlier this year. The lawsuit claims 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 those of some successful applicants.

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

Utah State Auditor Faults Selection Process

JLPR cited an investigation by Utah State Auditor John Dougall that found conflicts of interest in the selection process and improper communications between applicants and state officials. Dougall recommended that the UDAF amend the application process and begin again. The UDAF reviewed its process, but confirmed the eight licenses awarded.

The suit notes that Scott Ericson, a former deputy commissioner with the UDAF, left his job with the state only weeks before the application period closed and began working as a consultant for Standard Wellness, an Ohio-based company that was awarded one of the cultivation licenses. The suit claims that Ericson met with representatives of Standard Wellness while still employed by the state, an allegation he denies. He also said he was not involved in setting the standards for awarding the licenses and learned of the state’s criteria for awarding the licenses at the same time as other applicants.

“I completely deny any impropriety in knowing what the questions would be, what the scoring would be or having a head start,” said Ericson, who is still employed by Standard Wellness. “It just did not happen.”

Officials with the UDAF declined to discuss the pending legal action with reporters after the lawsuit was announced earlier this week.

“We do not have any comment at this time as we have not received nor been able to review these complaints,” Utah agriculture commissioner Craig Buttars said in a statement to local television news on Tuesday.