Utah cannabis lawsuit alleges impropriety in how state doled out grower licenses

Agriculture officials played favorites and licensing process gave preference to out-of-state companies, complaint claims.

(Francisco Kjolseth | Tribune file photo) Mature cannabis plants are dried at Tryke, a new cannabis farm in Tooele, on Thursday, Jan. 30, 2020. The company is one of eight cultivators approved by the state. A rejected company is now suing the state over the selection process.

A new lawsuit claims that multistate cannabis cultivators had an unfair advantage in the competition for one of Utah’s lucrative marijuana growing licenses — and that state officials “coached” certain applicants in how to win.

Officials at the Utah Department of Agriculture and Food (UDAF) allowed their personal connections to sway them as they doled out the eight licenses in 2019, according to the federal complaint filed Monday by one of the rejected applicants.

Not only was this unfair to plaintiff JLPR LLC, the lawsuit claims, but it also damaged the state’s medical cannabis program in its infancy.

“Rather than selecting truly capable and qualified companies to successfully operate an emerging Utah cannabis market company, politically connected companies were selected,” the complaint states. “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.”

JLPR is demanding that the court order UDAF to grant it a growing license or put it first in line for a license when the next one becomes available. The company is also asking for unspecified monetary damages to cover its “lost profits” and attorney and consulting fees.

UDAF officials said they don’t have a comment on the lawsuit because they hadn’t yet received or reviewed it.

As an example of the flaws in the licensing process, the lawsuit points out that the department made a last-minute rule change that opened the door for out-of-state cultivators. Originally, only Utah-based companies were eligible to secure a growing license, a requirement that UDAF announced in mid-July 2019 that it was scrapping.

Though that tweak came a couple of weeks after the application deadline, several out-of-state companies had already put their names in for consideration, according to the suit.

JLPR suspects that means those out-of-state applicants were tipped off about the impending rule change, especially given the amount of time these companies had put into preparing their proposals.

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

The complaint further alleges, without giving specifics, that agriculture agency officials in charge of evaluating the submissions gave certain companies an unfair advantage by sharing inside information. And the fact that multistate growers secured four of the eight available cultivation licenses demonstrates that officials were biased in their favor, according to JLPR.

The lawsuit notes that Scott Ericson, a former UDAF deputy commissioner, left his state job a few weeks before the application deadline and began doing consulting for Standard Wellness, one of the winning companies.

Ericson also reached out to Cody James, a UDAF employee who served on the six-person panel evaluating submissions, to report that he was working on behalf of Standard Wellness, JLPR claims.

Based in Ohio, Standard Wellness is one of the growers that entered the running and looked into buying land in Utah before the state got rid of the residency requirement, the suit claims.

Documentation of communication between Ericson and James is not attached to the federal lawsuit. When asked for these records, an attorney for JLPR said his clients want to “let the lawsuit speak for itself” for the time being.

Representatives for Standard Wellness declined to comment on the allegations by JLPR.

While the lawsuit claims Ericson met Standard Wellness representatives while still employed at UDAF, he said in an interview that he was unaware of the company’s existence until after he left his state job in April 2019. He was not involved in setting the parameters for awarding cultivation licenses and learned the state’s criteria for judging applicants at the same time as everyone else, he said.

“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 continues to work for the cultivation company. “It just did not happen.”

The JLPR complaint also leans heavily on a recent state audit that raised concerns about collaboration between members of the evaluation panel, made up of James; UDAF deputy commissioner Kelly Pehrson; former UDAF cannabis program director Andrew Rigby; former UDAF director Natalie Callahan; former UDAF staffer Melissa Ure; and Brandy Grace of the Utah Association of Counties.

Pehrson and Callahan, two members of then-UDAF Commissioner Kerry Gibson’s senior staff, ranked the same seven applicants in a similar order among their top picks, according to the audit. The likelihood of that happening by chance is less than 5%, the auditors determined, suggesting the possibility of collaboration between the two.

And there were later “significant adjustments” to the scores awarded by the remaining panelists that brought them into closer alignment with those of the two senior staffers, auditors found.

Furthermore, Gibson and Callahan visited facilities linked to True North, another successful applicant, in June 2019. That was after the company was already in the running for a cannabis cultivation license — and during the “blackout period” that restricted communications between evaluation committee members and bidders for the license.

Although the auditors recommended that UDAF reassess the cannabis cultivations, the agency renewed all eight shortly thereafter.

JLPR argues it’s more qualified than some of these current growers and that it would’ve landed a license if its company were given a fair shake.

Collectively, the four unnamed owners of JLPR say they have “over 150 years of successful business experience” that includes running a brine shrimp operation on the Great Salt Lake, ranching, restaurants and working in the hemp industry. The company also has access to cannabis industry experts and the financial resources to buy land and set up a marijuana farm, the suit claims.

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

JLPR has been waging its battle over cannabis licensing for a couple of years, appealing first to the department and later to the Utah Division of Purchasing and General Services. Both denied JLPR’s complaint.

The company also took its complaint to the Utah Court of Appeals, which rejected it earlier this year after ruling it could not consider new information that JLPR had obtained through a public records request. The appeals court indicated it couldn’t overrule state officials based on information that hadn’t been available to them at the time.