Ohio Department of Commerce Awards PharmaCann a Provisional Medical Marijuana Cultivation License Amid Legal Dispute

Ohio Department of Commerce Awards PharmaCann a Provisional Medical Marijuana Cultivation License Amid Legal Dispute

An application scoring error caused the company to rank as the No. 12 finisher when it should have been in eighth place, Ohio officials say.

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May 17, 2018

Vertically integrated medical cannabis company PharmaCann LLC has walked a tumultuous path to winning its provisional Level-1 medical marijuana cultivation license in Ohio.

In February, state commerce officials discovered that an employee had accidentally downloaded one set of application scores twice—an error that affected the scores of 10 Level-1 cultivation applicants. The Department of Commerce hired accounting firm Ernst & Young to review the medical marijuana cultivator scoring process and recalculate the indicated score for each application. Ernst & Young found that PharmaCann should have been the eighth highest scorer, despite ranking twelfth after initial scoring was completed in November. PharmaCann was the only company affected by the error.

“We brought [Ernst & Young] on to verify and validate our scoring process to move forward with [a lawsuit hearing] process to ensure everybody is not only comfortable but are certain moving forward that these are the accurate scores,” said the Department of Commerce’s assistant director of communications, Stephanie Gostomski.

Ernst & Young has completed an initial review, and the Department of Commerce will release a full report once its validation is complete, Gostomski said, adding that she is unsure how long it will take the company to finish. 

Prior to the discovery of the scoring error, PharmaCann sued the Department of Commerce over what PharmaCann’s director of regulatory affairs, Jeremy Unruh, called a “constitutionally impermissible race-based quota” that the state put in place when scoring the medical marijuana business applications.

State regulators were to initially award 24 cultivation licenses—12 for up to 25,000 square feet of grow space and 12 for up to 3,000 square feet—and the state’s medical marijuana law required state regulators to issue at least 15 percent of the licenses to businesses that are majority-owned by “economically disadvantaged” groups.

When PharmaCann was originally scored No. 12, the top 10 scorers received provisional licenses and the bottom two scorers, including PharmaCann, were bumped to accommodate lower-scoring applicants who qualified as economically disadvantaged, Unruh said. PharmaCann’s complaint challenged this process under the equal protection clause of the U.S. Constitution and claimed that lawmakers added the minority requirement without examining whether it was necessary.

“‘Economically disadvantaged’ has a definition in Ohio’s law that it’s essentially you’re economically disadvantaged if you’re a member of one of these racial groups,” Unruh told Cannabis Business Times. “So, we had been bumped as a result of this race-based quota out of getting a license.  … We had sued the Department of Commerce because in our view, their race-based quotas are wrong, no matter how you slice it and no matter who you apply it to. So, that dispute was going on when the department realized they had made a scoring error.” 

The Department of Commerce filed a motion to dismiss the lawsuit, arguing that PharmaCann has failed to pursue an appeal with the department and that the quota does not violate the Constitution because “there is no federal right to receive an Ohio license to cultivate marijuana.”

PharmaCann will no longer pursue the lawsuit now that they have been awarded a provisional license. “Our differences with the Department of Commerce are resolved,” Unruh said.

The No. 11 scorer, Greenleaf Gardens, may continue the lawsuit without PharmaCann.

PharmaCann also sued the New York Department of Health last year to halt the licensing of additional operators, arguing that patient demand did not warrant the expansion of the current supply market.

PharmaCann will locate its Ohio operation in the Buckeye Lake area (due east of Columbus) and will continue conversations with community officials now that it has officially been awarded a license, Unruh said. “Now that we have been … fortunate enough to be awarded one of the provisional licenses, we need to get back out there and really freshen up that relationship and really begin work in earnest to bring relief to the patients of Ohio, and jobs to the community of Buckeye Lake,” he said.

With the provisional license, PharmaCann has nine months to build out its facility. Before it can become operational, the state must do a final walkthrough and grant the company a final license.

“There are some lawsuits that are asking the court to bar the department from issuing those final licenses until their issues are resolved, and so I think it remains to be seen [whether the program will roll out on time in September], though I can assure you that the patients of Ohio won’t be waiting on PharmaCann to be up and ready in a timely manner,” Unruh said.

The Department of Commerce is still committed to the Sept. 8 operational date for the state’s medical marijuana program, Gostomski said. 

“We are delighted and excited to be moving into Ohio,” Unruh said. “Ohio has a platform that, if it’s executed properly, can be a showcase for other states for their medical cannabis programs, and it’s exciting. And frankly, the people of Ohio have waited long enough.”

Read Cannabis Business Times’ 2017 guest interview with PharmaCann’s Jeremy Unruh here.

Top photo courtesy of PharmaCann LLC