Growing licenses subject of suit

LITTLE ROCK — Arkansas’ medical marijuana growers are teaming up in a lawsuit to invalidate the most recent production licenses issued to companies in Fort Smith, Grady and Hot Springs, claiming state regulators exceeded their authority by licensing more growers than the state needs, drastically reducing the value of their operations.

The 33- page lawsuit, filed Wednesday in Carroll County Circuit Court, calls on Circuit Judge Scott Jackson to cancel the licenses

issued to Carpenter Farms Medical Group of Grady, New Day Cultivation of Hot Springs and River Valley Relief Cultivation of Fort Smith before the three can start growing cannabis.

Those three companies, the second set to be licensed since Arkansas legalized medical marijuana in 2016, were granted their licenses over the past month but only because the defendants — the Arkansas Medical Marijuana Commission and the Alcoholic Beverage Control Division of the state Department of Finance and Administration — broke the rules governing marijuana farming licenses, according to the lawsuit, which names the companies as co- defendants with the regulating agencies.

“The [Medical Marijuana Commission] has greatly diluted the plaintiffs’ market share in the medical marijuana industry and disrupted sales of plaintiffs’ medical marijuana to their dispensary customers,” the lawsuit states. “The illegal actions of the [commission] will result in a loss of plaintiffs’ long-term dispensary customs and a reduction in sales of medical marijuana, both of which will have an adverse economic impact on plaintiffs, for which there is no legal means of redress.”

The plaintiffs, represented by attorney Casey Castleberry of the Murphy, Thompson, Arnold, Skinner & Castleberry firm of Batesville and lawyers Eric Gribble and Annie Depper of Little Rock’s Fuqua Campbell firm, are the first

growers to be licensed in July 2018.

They are Bold Team of Cotton Plant, Delta Medical Cannabis Co. of Newport, Natural State Medicinals Cultivation of White Hall, Natural State Wellness Enterprises of Newport and Osage Creek Cultivation of Berryville.

The group says it has “indisputable” evidence regulators failed to follow the rules when granting the new licenses and can present “concrete” proof about how bringing in new growers will damage their businesses.

According to their lawsuit, the state’s rules on marijuana production only allow new growers if there isn’t enough cannabis being produced by the original five producers to supply the state’s dispensaries, which serve the 66,594 medical marijuana card holders that spend an average of $520,000 per day on medical marijuana.

The voter-approved constitutional amendment legalizing medical marijuana allows only eight growers and 40 dispensaries. The commission recently approved awarding additional dispensary permits, bringing the total licensed dispensaries to 37.

Scott Hardin, a spokesman for the Arkansas Department of Finance and Administration, said Friday that Arkansans have spent $109 million on more than 17,445 pounds of medical marijuana since the first dispensary opened in May 2019.

Sales have increased since the covid-19 pandemic has pushed people to spend more time at their homes.

Over the last two weeks, Arkansans have spent an average of $583,000 a day on medical marijuana purchases,

Hardin said.

Authorities don’t have any reason to believe marijuana is in short supply in Arkansas and plenty of proof the state has more than it can easily sell, according to the suit.

Data from regulators show the three farms now growing marijuana — Bold Team, Natural State Medicinals of White Hall and Osage Creek — are currently supplying more than the dispensaries can sell. Delta Medical and Natural State Wellness of Newport are expected to harvest and sell their first crops next month, which will put more of the drug in the supply chain, the suit states.

The lawsuit also points to a survey of the state’s dispensaries — 22 of which also grow some of their own product — that showed no supply issues with the current growers, while commissioners have noted that Arkansas appears to have between one and three months surplus on hand.

But at separate commission meetings June 16 and June 30, commissioners approved issuing the remaining cultivation licenses without ever considering the cannabis supply, according to the lawsuit.

Commissioners have had some legislative encouragement to increase the state’s licensed producers. Democratic state Reps. Vivian Flowers, D-Pine Bluff and Jay Richardson, D-Fort Smith, endorsed adding more growers at a commission hearing last month although a vote by a state senate committee considering calling on the commission to award the remaining licenses failed to pass.

The reasons commissioners have given for licensing

the three new producers aren’t legal justifications to expand the pool of licensed growers from five to the maximum of eight, the suit states. Those reasons included resolving a lawsuit by Carpenter Farms, an attempt to lower the costs to patients, and increase patient access, the suit states.

Further, by holding those votes the way they did, without any warning to the public or the established growers about what they were going to do, commissioners violated the plaintiffs’ constitutional due-process rights, given how much money the growers have invested in their operations based on representations by regulators, the suit states.

According to the lawsuit, the five growers say they each were practically guaranteed 20 percent of the state’s medical marijuana market because only if they failed to produce enough to meet demand is the state allowed to add more growers.

With that understanding of the regulations, the growers say in the suit they’ve invested significant expense — “millions of dollars” — in their operations, mostly from their personal assets since the nature of the marijuana industry severely limits lending opportunities.

But in two weeks — the 14 days between commission meetings — state regulators “drastically reduced the market share of each of the plaintiffs by licensing three additional cultivation facilities. This reduced the market share of plaintiffs from 20 percent to 12.5 percent, a 37.5 percent reduction of their original market share,” the suit states.