Utah’s cannabis cultivators look to move forward after state audit gave program a ‘black eye’

(Photo courtesy of Zion Cultivars) Medical cannabis growing in Zion Cultivars' Weber County greenhouse on Nov. 5, 2020.

Last week’s audit questioning the fairness of Utah’s cannabis cultivation licensing process concluded that regulators should take another look at the companies given the state’s blessing to farm the federally illegal plant.

But despite concerns raised by the investigation, several cultivators told The Salt Lake Tribune that they’re proud of the industry they’ve helped build in Utah and their efforts to keep the promises they made in applying for one of the eight growing licenses. And they’re not especially concerned about losing their state approvals, expressing confidence that they’ll pass an ongoing performance review with flying colors.

Even so, the audit could act as a “huge black eye” for a young medical cannabis program that’s still working to earn the trust of patients, physicians and some politicians, said Narith Panh, chief strategy officer at Dragonfly Wellness.

“It’s always going to be second-guessed now because there’s this narrative out there that this entire program is a hoax and a fraud,” Panh said. “All we can do is really focus on our core values as a company and continue to live by those values.”

Desiree Hennessy, a medical cannabis advocate who heads up the Utah Patients Coalition, said she’s feeling unsure about some of the audit’s findings after noticing that context was missing from certain sections. On balance, though, she said the investigation could help lay to rest some of the unsubstantiated claims that the cannabis program’s critics have made about it.

“I’m glad they did the audit. It needed to be done because they needed to dispel these rumors,” she said. “I have not yet once seen anyone do anything shady or against the best interests of patients, so from the inside looking out, I feel good about the way [the program] is headed.”

Though she’s heard from patients concerned that the program’s current cultivators might lose their state approvals in the audit’s wake, Hennessy said she believes that’s unlikely given the energy that the growers have put into the cannabis program.

“I would be extremely surprised if [state officials] found a mistake that they felt was worthy of not renewing the license,” she said.

The recent investigation conduced by State Auditor John Dougall’s office delved into a laundry list of questionable practices at the Utah Department of Agriculture and Food (UDAF) under the roughly nine-month reign of former Commissioner Kerry Gibson, who resigned to run for Congress. It was during that time period that the agency oversaw the high-stakes scramble for a handful of lucrative cannabis cultivation licenses, a selection process that Dougall’s office found worrisome on several fronts.

(Francisco Kjolseth | Tribune file photo) This Jan. 30, 2020, file photo shows the propagation room at Tryke, a new cannabis farm in Tooele, which contains the genetic makeup of all the plant varieties being grown. At the time of the photo, the company was getting ready to have products available for patients by March as part of Utah's medical cannabis program.

Auditors paid particular attention to the relationship between former agency members and individuals behind True North of Utah, one of the companies that landed a cultivation license.

In response, the company’s attorney decried what he called “false statements” about True North, though he did not explain what those inaccurate assertions were and did not immediately answer an email requesting clarification.

“True North is secure in that it obtained its cultivation license from UDAF in strict compliance with the law and established standards and procedures, beating out dozens of other applicants for 1 of 8 licenses awarded,” Arizona-based attorney Justin Brandt wrote in an email. “True North is proud of this achievement and of everything the company has achieved since then.”

The audit noted that one of True North’s owners was once a client of a public relations firm run by two of Gibson’s senior staffers, Natalie Callahan and Sasha Seegmiller Clark.

Attorneys for Callahan and Seegmiller Clark say that while their clients were employed by the state, they didn’t work with any companies that won cannabis licenses. However, the firm, called the Dicio Group, was providing public relations services for True North earlier this year, after Gibson, Callahan and Seegmiller Clark had exited their state positions.

The audit also questioned a June 2019 visit that Gibson and Callahan made to facilities belonging to True North’s owners. State law restricts communications with applicants in the middle of a procurement process, and Callahan was a member of the six-person evaluation committee that considered cannabis license applicants, the audit notes.

At the time of the visit, agriculture officials hadn’t yet received True North’s submission but had accepted the company’s application fee and could have surmised that it intended to compete for a license, according to the audit.

However, the audit states that True North is just one of the three companies that won cannabis licenses because of “significant adjustments” to the way evaluation committee members graded the roughly 80 applicants.

Those revisions — which brought the overall scores closer to those awarded by Callahan and Deputy Commissioner Kelly Perhson — were unusually large and “could indicate an attempt by senior management to influence other evaluation committee members,” the audit stated.

The identity of the other two companies that won licenses as result of these changes is not clear from the audit, which also pointed out that the process was not blind and that evaluators on the committee knew who the applicants were.

Six of the unsuccessful applicants appealed the state’s license awards. While purchasing officials dismissed those protests, one applicant, JLPR LLC, is still fighting the state’s decision in the Utah Court of Appeals. An attorney representing JLPR declined to comment on the audit.

While Dougall’s office suggested reassessing all the cultivation licenses, sitting UDAF Commissioner Logan Wilde said taking such a drastic step could threaten the supply of cannabis treatment for patients. Instead, he said, his agency is currently leading a mandated annual review of the eight cultivators to make sure they’re living up to the commitments they made in applying for the $100,000-per-year licenses.

The department plans to hold a public hearing on the license renewals in December, he said.

Panh said he’s supportive of reviewing the licenses of select companies if evidence emerges that they won the approvals unfairly. But he argues it would be wrong to punish all the cultivators who have been following the rules.

“We did everything fair and right,” he said. “Dragonfly has delivered on almost every single promise.”

And like Wilde, cannabis growers said pulling licenses from existing cultivators could risk creating shortages of the plant-based treatment that patients rely upon.

(Francisco Kjolseth | Tribune file photo) High pressure sodium lights cast a yellow tint over cannabis plants being triggered to make them flower at Tryke, a new cannabis farm in Tooele, Jan. 30, 2020.

“It wasn’t just an overnight deal, where we were able to get our structure and operation up and growing,” said Matthew Page, chief operating officer and part owner of Oakbridge Greenhouses, which is cultivating cannabis in Garland. “This was months of work and working with local leaders to get us to where we are today.”

Page said his company, owned by a Utah family that has run a garden center for decades, has met its goals for cannabis cultivation this year. Oakbridge has the capacity to ramp up its operation even further, he said, but is holding off until more cannabis pharmacies open their doors.

Only half of the state’s 14 cannabis pharmacies are currently up and running, and Page said Oakbridge wants to avoid growing faster than the market it’s serving.

Seth Gomm of Zion Cultivars, a grower with facilities in Weber and Utah counties, said his company has also fulfilled the commitments it made to the state in its license application. In fact, he said, the business recently won approval to add another 20,000 square feet of cultivation space to the 100,000 square feet it already has.

Gomm said he supports the agriculture department’s ongoing review of the eight licensees and believe that’s the right forum for holding growers accountable for their progress over the last year.

“We don’t want to disrupt any supply to the patients,” he said. “Already, with a new program launching, it’s hard to make sure we keep a constant stream of supply for their medicine.”