Cannabis License Lawsuits – Why States Get Sued over Cannabis Licenses
We will review and critique your cannabis license application with an eye toward scoring and any possible litigation risks that it may have.
Cannabis License Lawsuits happen after competitive application rounds. States or municipalities face litigation risk in competitive cannabis license application rounds when the number of cannabis business applications greatly outnumber the available licenses. Further, cannabis license applications are often graded by third-parties, like a big-four accounting firm, that may make mistakes in tallying the points. You can expect many team to sue for a cannabis license if they believe they should have won. Here is a brief article regarding the process.
Key points for Lawsuits over a Cannabis License
- Follow your state or local rules
- find out what went wrong in the application
- comply with procedure for appealing administrative decision
- Know litigation is unpredictable and you may lose
- Have a persuasively written complaint and motions
- Learn everything about how to win a license in the future
SUING YOUR STATE FOR A CANNABIS LICENSE SCRIPT
We all think that, after working so very, very hard that we deserve to win a cannabis license – but in competitive states – most people don’t win. And that’s when the lawsuits start flying …we will talk all about it on today’s episode of.
Thanks for joining us, I’m Tom – and you can find me by going to my website – cannabis industry lawyer.com – where I put content like this so you can find out everything you want to know about the legal cannabis industry.
COMPETITIVE CANNABIS LICENSES CREATE LITIGATION FOR STATES AND MUNICIPALITIES
Here’s something you may already know – not all states allow anyone that wants a cannabis license to get one – States like Illinois, or Missouri, Maryland – they adopted a competitive license system whereby applications are scored by so called experts to be the “best.” Watch until the end and I’ll tell you a way that may put an end to all the lawsuits, which does me no favors as a litigator for cannabis. But that doesn’t matter for Illinois, or maybe your state.
MORE APPLICATIONS THAN NUMBER OF CANNABIS LICENSES AVAILABLE CREATES LITIGATION RISK
Even if your team is strong and earned a license. Illinois only allocated forty craft grower and 40 infuser licenses. And, Illinois only will award 75 adult-use dispensary licenses, but it received applications from over 700 teams that submitted more than 4,000 applications. So the odds are long – and the State recently awarded KPMG, one of the big four accounting firms, the contract to score the recent round of dispensary applications. The contract provides for a mysterious grading consulting project for two million dollars ($2,000,000).
OUTSIDE CONSULTANTS OFTEN GRADE CANNABIS LICENSE APPLICATIONS
Another interesting note in the State’s contract with KPMG is that it estimates another $500,000 in “legal consulting,” at a bulk rate of $200/hour. In layman’s terms, the State seems poised to hand off hundreds of hours of the review work to “contract” or “project” attorneys. If you don’t already know – then smash them likes and subscribes to learn way more on cannabis laws – but contract attorney work essentially involves cramming a bunch of inexperienced lawyers into a room, where they are paid too little to grind away at monotonous work, resulting in a product that few people like – not even the people doing it. That is who appears to be picking what team wins a license. Which sucks big time when you consider the math of the matter.
The simple math dictates that most applicants will lose. 4,000 applications for only 75 dispensary licenses equates to a 98.125% chance of failure – as the saying goes, hope springs eternal in the green rush of the cannabis industry. If the odds were not long enough, the scoring process set up by the state makes it more likely that some applicants will lose simply due to human error. For good reason, your team may want to sue the State or municipality to get the cannabis business license they believe they’ve earned.
Check Your State’s Law for How to Appeal the Cannabis License Decision
For Illinois, the Cannabis Regulation and Tax Act allows applicants to sue under the state’s Administrative Review Law Stating that “[a]ll final administrative decisions of the Department hereunder shall be subject to judicial review under the provisions of the Administrative Review Law[.]” The Law provides that proceedings for judicial review take place in the county in which the party applying for review (the applicant) resides, or Sangamon County for an out-of-state party. Speaking of out of state viewers, check your teams’ state’s relevant authority, for its specific rights. You need to comply with those requirements to pursue your rights.
Administrative Review Process Procedures Must Be Followed
The Illinois Administrative Review Law has a few noteworthy provisions to do that. It requires that the party seeking review must file a complaint and issue a summons within thirty-five (35) days of the administrative decision in question. The Plaintiff can essentially require the Department of Agriculture or the IDFPR to provide the full record of the review process under Section 3-108(a). However, “[n]o new or additional evidence in support of or in opposition to any finding, order, determination or decision of the administrative agency shall be heard by the court.” The same section provides that “[t]he findings and conclusions of the administrative agency on questions of fact shall be held to be prima facie true and correct.”
Remember all those times I said that you need the most complete and comprehensive application possible – well that may be because your state’s appeal process takes that application as essentially your record on appeal and you cannot add anything new to it to sway their opinion.
Moreover it can get tricky here – which is par for the course in contested complex litigation – cannabis applications often have concrete criteria, with a seemingly comprehensive point system. However, applicants are scored based on not only their compliance with the law, but also their potential and ability as businesses. For example, if the State determines that an applicant’s proformas and capital amounts are good, but not great, is that a determination of law or fact? These applications seem more like the classic mixed questions of law and fact – which is something that will confuse non-litigators, which most applicants are not.
Moreover, the purported objective scoring is actually based on very subjective human decisions. Further complicating the matter is the timeframe for releasing the scores that is built into the statute, which could only be changed by executive order. This has already happened in Illinois, when on March 12, 2020, Governor JB Pritzker issued an executive order related to the coronavirus that extended the application submission deadline by two weeks. Additional delays may be forthcoming for Illinois. They have happened before in other states – without a global pandemic to deal with.
Review of How to Sue for a Cannabis License in Different States
After reviewing other states as our guide, we have a good idea of what comes next as cannabis litigation ramps up. The state of Florida has taken up the practice of simply settling with litigants in exchange for grant of a license. Florida is also going through a separate legal battle because the state requires cannabis companies to be vertically integrated, which has the effect of creating massive barriers to entry. Missouri is also facing severe backlash after its last round of applications. There is a huge number of lawsuits – in the hundreds – pending after many of the hundreds and hundreds of applicants failed to qualify for the state’s 60 cultivation licenses. More troubling in Missouri is that the winners seemed to often be politically connected individuals. In preparing our applicant teams, we’ve witnessed first-hand just how much of a difference local governments can make in supporting or opposing an applicant. You may have heard me say before, and if you subscribe you will hear me say again – all cannabis is local.
Cannabis License Litigation and Lottery Systems
We can’t say for sure how cannabis litigation will go in Illinois. But if Florida and Missouri are any indication, it’s about to be a big business that here’s to stay. Thanks for watching until the end – Now let’s imagine a way that some states may be able to avoid liability for incorrectly scoring applicants for the highest score. Avoiding this litigation could be something a state wants its law to accomplish.
States like Arizona, for example, have proposed cannabis laws that call for certain requirements to be met by an applicant that act as a threshold to be eligible to play a lottery for a license. Illinois’ calls for a lottery if there is a tie amongst the highest scoring applicants. A truly random lottery is just harder to argue that you were wronged, unless it’s rigged. But certainly nothing could be rigged in the cannabis industry, or any industry – right?
Thomas Howard has been in business for years and can help yours navigate towards more profitable waters.
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