Arkansas medical marijuana legal wranglings

When the applications were scored and ranked in 2017, River Valley Sales LLC, the owner of River Valley Relief Dispensary, was ranked seventh in Zone 4 and 3J Investments was ranked eighth. Two applicants ranked ahead of them chose to pursue applications in other zones and pulled their applications from Zone 4.

The commission, which has divided the state into eight zones, allows a maximum of five dispensaries in each zone. Zone 4 consists of eight counties between Conway County and the Oklahoma border.

Before the Dec. 8 commission meeting, 3J Investments’ attorney Michael Goswami submitted a letter stating that River Valley was not eligible to receive a license because the company was dissolved and not registered with the secretary of state’s office. The letter cited language in Amendment 98 of the state constitution that states “A dispensary and a cultivation facility shall be an entity incorporated in the State of Arkansas.”

Commissioners were unsure whether to consider River Valley or 3J Investments as the next applicant in line to receive the license.

“You’re probably going to get sued no matter what you do,” Sara Faris of the state attorney general’s office advised the commission.

Stephen Smith, a representative for River Valley, attended the meeting via Zoom and attempted to speak, but commission chairwoman Dr. Ronda Henry-Tillman did not recognize him. Before the meeting, River Valley submitted a letter arguing its case for the license based on access and need in the area but did not address the issues of dissolution or eligibility. The commission voted 4-1 to consider awarding a license in Zone 4 and then voted 5-0 to award it to 3J, making it the state’s 38th dispensary to be licensed.

Storm Nolan, who submitted the application for River Valley, said after the meeting that he believes his application was wrongly passed over and hopes to settle the disagreement with the commission “amicably” rather than through a lawsuit.

Nolan said he dissolved River Valley Sales because he was following guidance from the secretary of state’s office on inactive businesses. The commission accepted applications for dispensaries in 2017 and has held them in reserve until a Jan. 9 expiration date.

Nolan also said the commission was violating its own rules by recognizing the corporation rather than the individual (Nolan) as the applicant.

The commission’s rules and regulations define the “applicant” as “the natural person in whose name a license would be issued and any entity: (a) the natural person represents; or (b) on whose behalf the application is being submitted.”

“We followed the commission’s guidelines,” Nolan said. “We followed the secretary of state’s guidelines. For this to happen on a very minor technicality and counter to their rules and regulations, it’s a sad deal.”

Fort Smith, the state’s second largest city, is home to one dispensary, Fort Cannabis. Nolan’s letter to the commission pointed out that Sebastian County has the most medical marijuana patients of any county, yet has only one dispensary.

Nolan said he has held onto the retail space in Fort Smith that he intended to use for the dispensary.

“We were ready, willing and able and we still hope that we can bring this home to Fort Smith,” he said.

After an initially slow rollout, there are now 31 dispensaries operating in Arkansas. The other seven are said to be working toward opening. Voters approved the medical marijuana amendment in 2016, but the state did not open its first dispensary until May 10, 2019, when Doctor’s Orders (now known as Suite 443) opened in Hot Springs. Fourteen dispensaries open that year and 17 opened in 2020.

As of Dec. 17,  the state’s dispensaries had sold 30,648 pounds of medical marijuana for $200.7 million since the first dispensary opened in 2019. Last year, the state’s dispensaries sold 4,200 pounds of medical marijuana for $28 million.

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The commission passed on the opportunity to award the final two licenses, in Zones 6 and 8, during its December meeting. Unless the commission holds an emergency meeting before the Jan. 9 expiration date, it will have to open a new application process.

The next dispensary in line for a license in Zone 6 is Green Remedies Group and the next in line in Zone 8 is T&C Management.

Will the commission solicit new applications next year?

“I think it really depends on where we see the industry,” Scott Hardin, spokesman for the  commission, said.

The commission licensed three additional cultivators earlier this year, giving the state the maximum eight cultivators to provide products to the dispensaries. Hardin believes the introduction of more product from additional cultivation facilities will help shape the industry in 2021.

“That will be the point at which everyone can look at this industry and understand exactly where it stands from a patient and product perspective,” Hardin said. “You’re still going to have this issue of lack of adequate product from dispensaries, but until these other three cultivators come on, it’s hard to tell where we stand.”

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Pine Bluff will soon be home to a medical marijuana cultivation facility.

Good Day Farm LLC has purchased Natural State Wellness LLC of Newport and will operate out of an indoor facility in Jefferson Industrial Park in Pine Bluff. The ownership group expects to open the facility in April 2021, creating 170 new jobs with an average wage of $18-$19 per hour and an annual payroll and benefits totaling about $10 million, according to owner Alex Gray, a lawyer at Steel Wright Gray of Little Rock. Good Day Farm’s investment in the Pine Bluff operation will be $25 million, Gray said.

Natural State Wellness operated a greenhouse in Newport, which Good Day Farm will continue to operate as it constructs its Pine Bluff facility. Once the indoor facility is constructed and approved, the operation will move to Pine Bluff.

An indoor space is important for controlling the environment to create pharmaceutical grade cannabis, Gray said. The facility will be better able to control the humidity, temperature, sunlight, darkness, water, nutrients and soil than a greenhouse.

“It’s just almost impossible to do that if you do not have an indoor facility,” Gray said. “That’s why it’s important for us. “We believe that this will allow us to have much higher yields and have a more consistent product.

“We believe this is going to be pharmaceutical grade cannabis that the patients of Arkansas are going to be able to buy. And we’re going to make sure that the dispensaries have the product that they need. We think this is going to be a real positive for the state.”

The sale included a 100 percent change in ownership and the new ownership group includes prominent Arkansas businessman Warren Stephens as well as his sons, Miles Stephens and John Stephens.

“This  group of investors are people that believe, first and foremost, in the medical efficacies of cannabis, and I think they are excited to have the opportunity to invest in Arkansas, in Jefferson County and in Pine Bluff,” Gray said. “Many people who are on the investor list, it’s their first investment in this space.”

The state’s cultivators continue to wrangle over who gets to grow the medical marijuana that the state’s patients consume.

In June, the commission issued the final three permits for cultivation facilities to New Day Cultivation of Garland County, Carpenter Farms Medical Group of Grady and River Valley Relief of Fort Smith.

In July, the five initially licensed cultivators filed a lawsuit in Carroll County, arguing that the commission did not follow its own rules when it awarded the three additional licenses.

Plaintiffs are Osage Creek Cultivation LLC; Delta Medical Cannabis Company LLC; Bold Team LLC; Natural State Medicinals Cultivation LLC; and Natural State Wellness Enterprises LLC (since purchased by Good Day Farm).

Defendants in the suit are the three new cultivators along with the Arkansas Department of Finance and Administration, the Arkansas Alcoholic Beverage Control Division and the Arkansas Medical Marijuana Commission.

The 190-page amended complaint argues that the commission should have followed its rules and made its decision on whether to issue additional permits based on whether the existing facilities were capable of supplying the state’s dispensaries. The suit claims that the commission acted “arbitrarily, capriciously, in bad faith and/or in a wantonly injurious manner” when it issued the licenses to Carpenter Farms and New Day.

“Our argument is that they failed to apply that rule when they decided to issue licenses 6, 7, and 8,” said Casey Castleberry, the Batesville attorney who represents the plaintiffs.

The suit also alleges that the entity that was awarded the River Valley cultivation license was dissolved earlier this year and was not eligible to receive a license. The River Valley cultivation center is also owned by Storm Noland. The issue is similar to the one that caused the commission to discard an application from River Valley for a dispensary license earlier this month.

On Dec. 4, Berryville Circuit Judge Scott Jackson heard arguments from the defendants to dismiss the case; three of them argued in favor of moving the case to Pulaski County.

Jackson is expected to rule some time after Jan. 4. If the case is not dismissed, Castleberry said, the case will proceed to the discovery phase.

“We’re still at the very early stage of this case,” Castleberry said.