When (And How) to Challenge a Cannabis License Denial

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Cannabis licensing can be extremely competitive, and with new states legalizing this fall and potentially more to come as we head into next year, applicants should know when—and how—to challenge a cannabis license denial, which can occur for a variety of reasons.

Vicente Sederberg hosted a Nov. 12 webinar on just this topic, where experts outlined when to consider a licensing appeal and how to navigate the appeals process in various markets.

Here are some key takeaways from the webinar, from appeal-worthy issues to details on specific appeals processes in Massachusetts, California and Colorado.

When to Appeal

Common reasons to challenge a cannabis license denial include an unfair or unlawful licensing process, arbitrary and capricious grading, and bias or corruption, according to Jerrico Perez, senior associate with Vicente Sederberg.

Perez pointed to Florida as an example of an unfair or unlawful licensing process, where the Florida Supreme Court heard a second round of arguments last month in a lawsuit that challenges the constitutionality of the state’s 2017 medical cannabis law.

Examples of arbitrary and capricious grading include inconsistent scoring, negligent scoring and erroneous scoring, and can often occur in states that bring in third-party consultants to score cannabis applications, Perez said, adding that this is often the most successful grounds for appeal.

Bias or corruption can occur if a state’s regulators have a close relationship with one of the successful applicants, for example, but Perez said that this is often the least successful grounds for appealing a license denial.

Perez pointed to real-world examples of these issues playing out in the cannabis industry today, including the legal challenges in Illinois, where applicants have sued the state over its process to issue 75 new dispensary licenses in a case that alleges arbitrary and capricious scoring, as well as bias and corruption.

Ultimately, when deciding whether to appeal a license denial, Perez said applicants should consider the following questions:

  • Does the licensing agency have the authority to issue additional licenses?
  • Do you have time?
  • What are your issues? (i.e. scoring)
  • What is your goal? (i.e. rescoring, new licensing round)
  • Have you performed a cost-benefit analysis?
  • Should you purchase an already appealing applicant if there is a likelihood that the appeal will be successful?

How to Appeal

Just as each state has its own unique set of cannabis regulations, each state also typically has its own unique appeals process to challenge license denials. The following are key takeaways from Vicente Sederberg on how to navigate the appeals process in Massachusetts, California and Colorado.

Massachusetts

License denials are rare in Massachusetts, where the licensing process is compliance-based rather than merit-based, according to Vicente Sederberg Partner Brandon Kurtzman. There have been no situations to the firm’s knowledge where the Cannabis Control Commission (CCC) has denied an application for a final license, although there have been two situations where the CCC has denied a provisional license.

In those cases, applicants have two options: file an appeal in Superior Court within 30 days after receipt of the notice of the denial, or file a reconsideration of the denial if there is a change in the circumstances related to the denial and if allowed by the CCC.

Rather than denying a cannabis license, the CCC more often will suspend or revoke licenses if a licensee violates state regulations. In this case, regulators will send a Notice of Deficiency, and the licensee has 10 days to submit a Plan of Correction. The CCC must approve or deny the Plan of Correction, and can then initiate an Informal Dispute Resolution, suspend or revoke the license, or invoke monetary fines.

An Informal Dispute Resolution may involve multiple hearings, conference calls and the production of documents to settle the dispute before proceeding to an administrative hearing, Kurtzman said. A stipulated agreement may include suspension or revocation of the license, imposition of a fine, or a combination thereof, and it becomes a permanent part of the licensee’s record.

If a licensee is unable to resolve the dispute in an Informal Dispute Resolution, the issue will proceed to a formal hearing, Kurtzman said. A hearing request must be submitted to the CCC, which will designate a hearing officer. The CCC must prove the licensee’s violation of the law and conduct a formal hearing, after which the parties will reach a settlement that must be approved by the CCC.

California

The Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) provides California’s cannabis licensees with a statutory right to an administrative hearing for specified reasons, as well as a statutory right to appeal, according to Vicente Sederberg Associate Andrea Golan.

MAUCRSA allows administrative hearings for the following reasons, as outlined by Golan:

  • Denial of an application for a license;
  • denial of the renewal of a license;
  • the placement of a license on probation;
  • imposition of conditions on a license;
  • imposition of a fine or assessing a penalty; or
  • canceling, suspending, revoking or otherwise disciplining any license.

In the case of a license denial, regulators must notify the applicant of a right to a hearing, and the applicant must request an administrative hearing within 30 days of the denial, Golan said.

When a hearing is requested, the licensing agency must file and serve the licensee a “statement of issues,” and the licensee has the right to representation at the hearing, as well as a record of the hearing in the form of a transcription or electronic recording, Golan said.

After an administrative hearing, any party involved in the decision may appeal that decision with the Cannabis Control Appeals Panel (CCAP), Golan said, but timing is critical—there is a 30-day window to file and serve a Notice of Appeal.

The CCAP’s decision can also be appealed, she added, by filing a writ of review in either the California Supreme Court or the California Court of Appeal. Applicants have 30 days after the filing of the final order to appeal.

The CCAP has yet to hear any appeals in California, Golan said.

When navigating the appeals process in California, Golan said it is critical for applicants to read the rules carefully and adhere to deadlines.

Colorado

While Colorado has unlimited licensing on the state level and a license denial is unlikely, Perez said the state still has a set appeal process in the event of a denial.

To get an administrative appeal, an applicant must appeal to the Colorado Department of Revenue licensing authority, which is the Marijuana Enforcement Division (MED). The applicant must file a Notice of Appeal and then proceed to a hearing in front of an administrative judge or negotiate a Settlement Agreement Order.

If a licensee has a disciplinary action against them, Perez said the licensee or its counsel should negotiate that disciplinary action, as the state is generally receptive to negotiations.

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