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Illinois Cannabis Litigation Update

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Illinois Cannabis Litigation Update

illinois cannabis litigation update.jpgThe Illinois cannabis license application process has been a lot of things but perfect. Resulting in many lawsuits and a lot of general discontent.

We decided to update you on everything going on with the process in depth, why it has unleashed a firestorm of criticism and what is to expect in the following months

The Cannabis Regulation and Tax Act calls for the award of 75 conditional adult- use cannabis dispensary licenses throughout the State. The IDFPR was designated to implement and oversee the process for the submission and evaluation and scoring of the applications for the licenses.

This scoring process makes you compete for a license. You pay a lot of money for your application and then the state or whoever they designate for the job – in this case KPMG – picks the winners and the losers.

The thing about the chosen scoring process is that there are very few spots to enter the cannabis industry in the State, which means those few who get in have complete control over a highly estimated industry. It is a very competitive application, where only the best ones win and get a license.

So, when the one that decides who wins and who loses is the State, it is understandable that many are questioning where is the freedom of market America so hardly stands for.

Other states, like Michigan and Oklahoma, have different and probably more “fair” application processes, where they have standards instead of scoring, and if there are more applicants who meet the standards than licenses available they, then, do a lottery process.

The Settlement 20 C 5264

After the State announced the first round of winners it generated a lot of discontent and criticism. It also made dozens of Social Equity Applicants sue the state in Federal Court. The case finally got dismissed but they did manage to get a Settlement on September 22nd menat to provide new opportunities for applicants.

The problem with this settlement is that it was too vague in certain critical considerations. By saying “Applicants that did not received the maximum number of points on any exhibit” Does that mean all applicants? Even disqualified ones?? And those open questions plus the general discomfort from many applicants resulted in several lawsuits.

Illinois-cannabis-litigation-update-Supplemental-Deficiency-Notice-Process

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Here Are The Main Complaints Filed Against The IDFPR and the State of Illinois:

The non-vets, Hazehaus LLC v IDFPR 

Issue

Plaintiffs seek a temporary restraining order and preliminary injunction to stop IDFPR from proceeding with a lottery to award 75 Conditional Adult Use Dispensing Organization Licenses to the companies 


Plaintiffs

Hazehaus LLC, BDMT LLC, FARMHOUSE IL LLC, JENNY’S OF  ILLINOIS I, LLC, MINT VENTURES LLC, THE FLOWERSHOP DISPENSARY LLC, and 2068 INVESTMENTS, LLC

What it is about:

  • Only winners were veterans
  • It is a special porpuse law that exclusively benefits them
  • Vets, that are only 7% of the population, get 100% of the licenses

Main Arguments:           

Violation of the Illinois Constitution

Nearly everyone involved in the creation and implementation of the Act promised the citizens of Illinois that the issuance of new cannabis licenses was specifically designed to diversify the Illinois cannabis industry with individuals who had traditionally been excluded from the Illinois cannabis industry and disproportionately impacted by the war on drugs and the criminal justice system, denominated as “Social Equity Applicants”

Most of the 900-plus groups who applied, which collectively submitted around 4,500 applications, were indeed Social Equity Applicants.

The Act specifically spelled out the importance of insuring licenses be issued to individuals who have been disproportionately impacted by the previous illegality of cannabis

Requiring that 5 points be awarded to applicants that qualify for Veteran status is an impermissible special law because it confers a privilege to military veterans in the adult-use dispensary license application process to the exclusion of those who qualify as Social Equity Applicants under the Act.

There is no rational basis, legitimate purpose, or expressed intent in the Act or any legislative history that supports giving military veterans an advantage in the Illinois cannabis industry, let alone a decisive advantage..   

The “Special Legislation Clause” of the Illinois Constitution (Art. IV, § 13) provides: “The General Assembly shall pass no special or local law when a general law is or can be made applicable. Whether a general law is or can be made applicable shall be a matter for judicial determination.”

Meaning special legislation clause expressly prohibits the General Assembly from conferring the special benefit of an exclusive privilege on a person or group of persons to the exclusion of others similarly situated.   

As a result of the point advantage conferred to military veterans in the Act, veterans received a monopoly over all newly issued dispensary licenses leaving out other Social Equity Applicants, a group which the Act expressly aims to benefit.   

Violation of Due Process

The IDFPR exceeded its jurisdiction in the review and scoring of applications for Conditional Adult Use Dispensing Organization Licenses.

The IDFPR set up a structure where nearly half of the application exhibits were scored on a binary basis.

Points were allocated as follows:

  • Social Equity Applicant (50 points)
  • Veteran (5 points)
  • Illinois Resident (5 points)
  • Suitability of Employee Training Plan (15 points)
  • Security and Recordkeeping Plan (65 points)
  • Business Plan, Financial, Operating Plan, and Floor Plan (65 points)
  • Knowledge and Experience (30 points);
  • Labor and Employment Plan (5 points);
  • Environmental Plan (5 points); and
  • Diversity Plan (5 points).

On information and belief, the IDFPR did not properly scrutinize the exhibits, which were graded on applied a check-the-box type approach, instead of binary, and awarded full points for products that merely met minimum rubric requirements.               

The deficiency notice process was used to assist certain applicants instead of all applicants. Plaintiffs lost points on Exhibits for which others received deficiency notices and opportunities to cure.

Veterans do not fall into the definition of Social Equity Applicant. Military veterans were never identified to be a group that was adversely impacted by the war on drugs or required a leg up in the Illinois cannabis industry. 

The IDFPR’s improper exercise of its discretion under the Act in the implementation and grading of the applications for Licenses led to the absurd result of perfect scores for 21 applicants, all of them at least 51% owned by Veterans.               

Plaintiffs have been denied a fair opportunity to challenge the decision to exclude them from the lottery in a meaningful way at a meaningful time. As a result they are being deprived of property rights without due process of law and lack an effective remedy.           

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The DQd – Regiment-Latino Veterans’ Unit LLC et al v IDFPR

Plaintiffs submitted a total of 79 applications for adult-use licenses. Each Plaintiff qualifies as “Social Equity Applicants”    

Plaintiffs’ applications were received and reviewed by the Department. The Department issued deficiency notices in response to these applications, identifying information in each that had been deemed insufficient or missing from the application. The Department’s issuance of deficiency notices to Plaintiffs confirms that Plaintiffs submitted timely applications.

Issue

Plaintiffs seek injunctive and declaratory relief and, in the alternative, administrative review against Defendants

What it is about:

  • Lawsuit to confirm DQ’d applicants are included in the do-over
  • The settlement was broad
  • Many scores said in very fine print they were not scored because they failed to respond to their first 10-day notice.
  • Asks court to declare all applicants to be eligible for the do over.
  • Cook County 2020-CH-06142

Main argumentsillinois cannabis litigation update-2

The deficiency notices provided by the Department identified Plaintiffs’ statutory right to submit additional information within 10 calendar days to cure the identified deficiencies.

However, the department have not confirmed that Plaintiffs will have the right to participate in the supplemental process.

Plaintiffs’ exclusion from the supplemental process is contrary to the terms of the announced “do-over,” will deprive them of due process, and will subject them to unequal protection in violation of their constitutional rights

Supplemental Process

Plaintiffs were not listed among the applicants who had submitted highest-scored applications, although they met the criteria. They have not received confirmation from IDFPR that their applications will be considered in its intended new supplemental evaluation process.

The Defendants’ current stance is that applicants like Plaintiffs who were summarily disqualified and not scored are not eligible for the supplemental

When IDFPR abandoned its original process in favor of the supplemental process, it conceded that real concerns about the cure process had been raised by applicants who did not qualify for the lottery and that providing a supplemental process to cure deficiencies was necessary in order to provide fairness to all applicants. IDFPR had failed to provide Plaintiffs the Act’s mandated fair and sufficient opportunity to cure the deficiencies that had been identified by excluding them from the supplemental process

Nothing in the Notice excludes Plaintiffs from receipt of supplemental deficiency notices or the right to present applications for consideration, evaluation, and potential award.

Plaintiffs will suffer irreparable harm if Defendants proceed to evaluate other applications for the 75 adult-use licenses without also evaluating plaintiffs’ applications and affording Plaintiffs a fair opportunity to qualify for the lottery for an award of a license.

Violations of Due Process       

Plaintiffs are guaranteed due process before they can be deprived of their property under both the United States Constitution, Amd. XIV, Sec. 1

“No state shall . . . deprive any person of life, liberty, or property, without due process of law…”

and the Illinois Constitution. Ill. Const. Art. 1, Sec. 2

“No person shall be deprived of life, liberty or property without due process of law nor be denied the equal protection of the laws.”

Plaintiffs received deficiency notices and availed themselves of the opportunity to respond to them with corrections and additional information in strict compliance with the cure procedures set forth in the Act and the directives in the deficiency notices they received. Plaintiffs submitted complete applications and believe that those applications fully met the criteria to qualify for the lottery.

Plaintiffs are entitled to be notified of the basis, if any, underlying the Department’s decision that they are disqualified. 

They are being deprived of property rights without due process of law and lack an effective remedy.

Violations of Equal Protection

Both the United States Constitution and the Illinois Constitution forbid depriving a person of the equal protection of the laws.                       

Plaintiffs were treated differently than other similarly situated applicants in that other applicants who responded timely and completely to deficiency notices, as done by plaintiffs, were afforded a chance to qualify for the lottery.

Plaintiffs also will be treated differently than other applicants who were denied the right to cure if they are excluded from the revised process identified in the September 22, 2020, notice while other similar applicants are allowed to participate.

The state is not furthering any legitimate government interest by treating Plaintiffs differently than other applicants by deeming them disqualified for reasons unknown and then excluding them from the supplemental process.   

Plaintiffs will suffer irreparable harm if they are not allowed to participate in the supplemental process identified in the September 22, 2020, notice.

Once the supplemental process goes forward and the lottery is conducted and the licenses awarded, Plaintiff’s chance for a remedy is lost.

Illinois-cannabis-litigation-update-DQd

Illinois Cannabis Litigation Update

IL Craft Cannabis Assoc. V. Illinois et al.

What is it about:

  • Mandamus action asking the state to release the licenses.
  • Make them comply with the July 1 deadline set by the Act.
  • Pritzker is name because of his executive order related to COVID
  • Asks the state to enjoin its expenses related to employees and real state

 

Plaintiff

Hazehaus LLC, BDMT LLC , FARMHOUSE IL LLC, JENNY’S OF  ILLINOIS I, LLC, MINT VENTURES LLC, THE FLOWERSHOP DISPENSARY LLC, and 2068 INVESTMENTS, LLC

Issue

Plaintiff seeks an expedited Writ of Mandamus compelling Defendants to issue Craft Grower, Infuser and Transporting licenses immediately and announce the scores and provide the scoresheets to applicants. Plaintiff also seeks a Declaratory Judgment that Order 2020-45 improperly suspended the July 1, 2020 deadline indefinitely and without sufficiently stated cause.

A writ of mandamus is an order from a court to an inferior government official ordering the government official to properly fulfill their official duties or correct an abuse of discretion.

Main arguments

On June 29, 2020, Governor Pritzker issued Executive Order 2020-45 which attempted to legally suspend the awarding of licenses to awaiting applicants, without any definite new deadline. It was improper for at least two reasons:

  •  It indefinitely suspended the mandatory deadline for awarding the licenses without any definite new deadline, and
  • It failed to identify a sufficient basis for the suspension as required under Section 7(1) of the Illinois Emergency Management Agency Act, 20 ILCS 3305/7(1).

Every day that passes without the licenses being awarded causes significant ongoing damage to the license applicants, since these license applicants had a specific legal obligation, under the CRTA, to locate, secure and properly zone real property for a complete application at a tremendous cost for extending leases or purchase contracts, extensions of now more than an additional 3 months.

To date, the state has failed to inform the license applicants and the public in general of the current status of their review of the applications.

A conservative estimate of the total unexpected cost for the 455 Craft Grower applicants and 115 Infuser applicants due to the suspension is $5 million monthly or $20 million as of this filing. This includes costs to extend leases and purchase contracts approximately 4 months, to at least November 1, 2020, based upon a survey of Plaintiff’s members.

Plaintiff also seeks injunctive relief to relieve license applicants of statutory and/or regulatory obligations that have become overly burdensome as a direct result of Defendants’ improper delays.

For a Writ of Mandamus Compelling the Defendants to Issue Craft Grower, Infuser and Transporting Licenses Immediately

The ICCA and its membership have a clear right and expectation that the state issue Craft Grower, Infuser and Transporting licenses to qualified applicants by July 1, 2020.

The state has a clear, explicit and non-discretionary duty to issue Craft Grower, Infuser and Transporting licenses to qualified applicants in a timely manner as required in the CRTA.

The ICCA and its members have suffered significant monetary and other damages and will continue to suffer additional monetary and other damages as a result of the Defendants’ noncompliance with their legal obligations under the CRTA.

The underlying emergency basis being the COVID-19 pandemic no longer exists to the extent it should further delay the mandated and non-discretionary act of immediately issuing Craft Grower, Infuser and Transporting licenses.

On October 5, 2020, Plaintiff delivered a written letter to Defendants, accompanied by a draft complaint, identifying the issues and demanding that the mandate of the CRTA to issue the licenses be undertaken immediately and additional relief be provided accordingly. The Department did respond with vague references to possible solutions, Defendants refused to provide any specific responses to Plaintiff’s demands as of the date of this filing.

For Declaratory Judgment That Order 2020-45 Improperly Suspended the Mandated Deadline of July 1, 2020 Indefinitely and Without Sufficient Support From the IEMA

illinois cannabis litigation update-3Plaintiffs have no adequate remedy at law because the only current remedy is to compel the state to comply with the mandated deadline of the CRTA.

 

The ICCA members have incurred, and will continue to incur, monetary and other damages as a result of the delay in issuance of Craft Grower, Infuser and Transporting licenses

 

Illinois-Cannabis-Litigation-update-ICCA-v-State-of-Illinois-et-al-001-Verified-Complaint-for-Writ-of-Mandamus-and-Other-Relief-Filed

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Illinois Cannabis Litigation Update

The Winning Teams

What it is about:illinois cannabis litigation update

  • They believe they won fair and square, they don’t want a do-over
  • Writ Mandamus to issue the licenses
  • The state has the duty to hold the lottery
  • Was filled in the Supreme Court – 126450

Issue

Petitioners seek a writ of mandamus to compel the State to comply with the statutory process for awarding licenses to adult use cannabis dispensaries.

Plaintiffs

SB IL LLC; VERTICAL MANAGEMENT LLC; and GRI HOLDINGS, LLC,

Main Arguments

The Governor initially admitted that the Act required him to allocate licenses to the 21 applicants who received perfect scores. He publicly admitted that postponing that allocation was not allowed by the Act.

All the elements of mandamus relief are met here:

  • An unequivocal right to the requested relief,
  • An unequivocal duty on the defendant to act, and
  • Defendant’s unequivocal authority to comply with an order granting mandamus relief.

The issue presented here is a pure question of law that is incredibly important to the public interest: namely, do the Respondents have the authority to change the application process specified in the Act? Clear precedent shows that the answer is no.

Indeed, if the General Assembly had intended to give the Governor or the other Respondents discretion to extend the mandatory deadlines in the Act for any reason, or if it intended to permit the Respondents to totally reinvent the “deficiency notice” process that the Act specifies in great detail, it would have said so in clear and unmistakable language. It chose not to do so, and instead imposed clear requirements that cannot simply be violated or ignored due to political pressure

It is also a matter of great public importance. It will determine the opening stages of a long and complex process through which the cannabis industry will operate legitimately and under careful regulation by the State.

It affects businesses throughout the State that wish to enter this newly legitimate industry, the consumers those businesses will serve, and ancillary businesses, all of whom will benefit from the timely issuance of licenses.

In addition, indefinitely stalling the statutorily-mandated application process will seriously delay the State’s receipt of tax revenue from the sale of cannabis at licensed dispensaries.

IL-Lottery-Dispensary-Mandamus-illinois-cannabis-litigation-update

What Can You do Next

  • Get a “Perfect Application” for next time
  • Do not change your team in review process
  • Amend your applications
  • Stay on top of cases – we’ll be updating the status of the pending litigation, so make sure you’re subscribed.
  • Advise tour elected officials of more need for an “open & freer” market

 

Don’t miss out on our Marijuana Legalization Map where you can browse the current status of laws in every state in the United States and see all our posts on each of them.

Check Out:

Interested in coming on as a guest? Email our producer at lauryn@cannabislegalizationnews.com.

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316 SW Washington St, Suite 1A Peoria,
IL 61602, USA
Call Us 309-740-4033 || e-Mail Us tom@collateralbase.com

cannabis industry lawyer

150 S. Wacker Drive,
Suite 2400 Chicago IL, 60606, USA
Call Us 312-741-1009  || e-Mail Us tom@collateralbase.com
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