Virginia’s medical cannabis market remains limited to four licenses owned by three vertically integrated operators, but a fifth license could soon be back in play.
PharmaCann Virginia LLC lost an appeal April 4 in the Virginia Court of Appeals, dealing another win to the state’s Board of Pharmacy over a conditional license it rescinded nearly three years ago.
Pending further litigation, the Board of Pharmacy can now move forward with permitting a “pharmaceutical processor”—the overarching term for vertically integrated operators in the commonwealth—in Health Service Area (HSA) I. The HSA I licensee provides sole rights to operate in a 24-county region of more than 1.5 million people.
That license has been disputed since June 2020, when the state’s Board of Pharmacy denied PharmaCann Virginia’s request for an extension to comply with necessary permitting requirements. At its meeting that month, the board rescinded the company’s conditional approval, leaving a vast region of northern Virginia vacant of a commercial medical cannabis program since.
Illinois-based PharmaCann was one of five original conditional license winners in a field of 51 applicants in late 2018. Columbia Care now owns two of those licenses, after its 2021 acquisition of Green Leaf Medical; Green Thumb Industries owns one license after its 2021 acquisition of Dharma Pharmaceuticals; and Jushi Holdings owns the other license.
The Board of Pharmacy’s conditional approval order required the original five awardees to complete certain steps toward becoming operational within one year, including a site construction deadline for their cultivation and processing facilities.
PharmaCann Virginia (now a MedMen subsidiary) purchased a roughly 6.6-acre site for $212,352 in May 2019 in Staunton, Va., the Staunton News Leader reported. The company planned to use that land as a starting point for cultivation and retail operations for the HSA I license.
PharmaCann Virginia officials knew that a gas line was running through that property when they purchased the land but did not realize it would prevent construction, according to background information provided in last week’s appeals court decision.
MedMen Enterprises Inc. ended up acquiring PharmaCann Virginia’s assets, including the HSA I conditional permit, in a terminated business merger settlement with PharmaCann in October 2019—the same month the gas line was relocated. PharmaCann Virginia remains the current name of the subsidiary.
“But PharmaCann [Virginia] still did not start construction,” the court decision states. “Instead, internal documents show PharmaCann decided in September 2019 to not take any further steps on the project without ‘additional direction’ from the Board [of Pharmacy].”
In November 2019, the board notified PharmaCann Virginia of its pending site inspection for the following month, when the company was to demonstrate progress toward becoming operational. But there was “nothing to inspect” because PharmaCann Virginia had not yet started construction, according to the court decision.
PharmaCann Virginia submitted a corrective action plan by January, estimating that the construction would be complete by October 2020, and requested a reinspection date for November 2020.
The Board of Pharmacy intended to review the corrective action plan at its March 2020 meeting, which never took place because of public health concerns related to COVID-19. It wasn’t until June 2020 that the board reviewed PharmaCann Virgina’s action plan, at which time the state’s authoritative body decided to rescind the company’s conditional license.
PharmaCann Virginia filed a lawsuit in September 2020 in the Henrico County Circuit Court in an effort to reclaim the license. Among its arguments, PharmaCann Virginia alleged that the Board of Pharmacy exceeded its statutory authority and unjustifiably treated the company differently from similarly situated applicants.
With only one of the original five conditional license awardees passing the first inspection, three others joined PharmaCann Virginia in having to submit corrective action plans.
“Unlike PharmaCann, however, each of these applicants met many of the applicable requirements and had made substantial progress in constructing their facilities,” Judge Lisa Lorish wrote in her appeals court opinion.
After following through on their corrective actions, the other three applicants were granted permanent licenses from the board in April, May and August 2020.
The circuit court rejected the argument that the Board of Pharmacy unjustifiably treated PharmaCann Virginia differently than the other applicants, which the appeals court affirmed. The circuit court also ruled that the board used proper discretion to rescind the conditional license and acted within its statutory authority.
Lorish opined that “the need for strict deadlines is unsurprising,” given that the board is allowed to grant only one vertically integrated license per HSA region. In addition, the appeals court decision noted that the statute governing the operation of pharmaceutical processors and cannabis retail facilities in Virginia “vests the board with the authority to promulgate regulations” of such operations, including the process to obtain a permit.
“We agree with the board that the regulations authorize it to terminate an applicant’s ‘conditional approval,’” Lorish wrote. “The receipt of ‘conditional approval’ clears a pathway for an applicant to receive a permit, removing competitors for the time being, but subjects the applicant to many requirements. A hopeful processor with conditional approval is still an ‘applicant’ for a permit under the regulations.”
Per the appeals court decision, PharmaCann Virginia’s status as a license “applicant” was lawfully revoked, and the Board of Pharmacy can move forward with permitting a different pharmaceutical processor in HSA I.
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