With $50K Check From Verano in Hand, Alabama Cannabis Regulators Plan Another Licensing Do-Over

Alabama medical cannabis regulators are at risk of an endless circle of lawsuits should they move forward with yet another licensing do-over this month, despite that being their intention after a temporary restraining order gets lifted.

This potentially endless loop of re-awarding licenses and facing the litigation that follows could end up delaying the state’s program launch for years to come, which in turn would impact patient access to the medicinal benefits of cannabis.

These potential consequences are at the heart of Chicago-based multistate operator Verano Holdings’ legal position, after its subsidiary, Verano Alabama LLC, was originally awarded a vertically integrated license from a third-party, blind scoring process on June 12 only to be told four days later by the Alabama Medical Cannabis Commission (AMCC) that the process was in question over scoring inconsistences.

Leventis

“Essentially, it wasn’t a problem with how each section was scored,” James Leventis, the executive vice president of Legal, Regulatory and Government Affairs at Verano, told Cannabis Business Times. “It was a problem with compiling all those different scores for all the sections, and there were some math errors in that, so that’s why you saw some small changes.”

When the scores were re-tabulated, Verano Alabama actually picked up an extra 16 points and the company remained the highest-scoring applicant in the field, according to a lawsuit the company filed last month. Despite this, when AMCC regulators decided Aug. 10 to “void” the original licensing process altogether and deliberate behind closed doors before re-awarding the licenses in a do-over that same day, Verano Alabama was left out.

Personal opinions “had to have played a role” in the Aug. 10 re-awarding process, otherwise there would not have been a deviation from the blind, third-party scores, Leventis said.

In an Aug. 24 letter to Gov. Kay Ivey, Verano CEO George Archos said Verano Alabama getting snubbed in the re-awarding process was a result of commission members “casting aside the objective licensing system Alabama’s elected representatives created.”

RELATED: Verano CEO Says Alabama Patients Deserve Better Than ‘Years of Litigation’ in Open Letter to Governor

Adding another layer to the increasingly convoluted licensing process, Montgomery County Circuit Court Judge James Anderson extended a temporary restraining order Aug. 28 amid a lawsuit filed June 22 by unsuccessful applicant Alabama Always. In addition to arguing that AMCC’s reliance on the third-party scoring for the June 12 awards was flawed, Alabama Always’ legal team claims AMCC members violated the state’s Open Meetings Act when they met behind closed doors to discuss the nominations for re-awardees Aug. 10.

As a result of Anderson’s extended order, AMCC members voted at an Aug. 31 public meeting to put a stay on their current list of licensees. Once the restraining order is lifted, the AMCC intends to conduct yet another licensing do-over, which potentially could yield the same results as the first do-over held on Aug. 10.

“Who knows where this ends?” questioned Leventis, who authored Verano’s top-scoring application. “Is there going to be a fourth, a fifth do-over? A 20th one? I don't know.”

This is where Verano’s legal position differs from Alabama Always and other litigants involved in Alabama’s licensing process. In a lawsuit filed Aug. 21, Verano Alabama argues that the AMCC does not have the statutory authority, as provided by the Alabama Legislature, to “void” awarded licenses and that the commission needs to uphold its initial June 12 awards and allow the administrative process to play out for unsuccessful applicants who wish to challenge their denial of a license.

In other words, the actions taken by the commissioners following June 12 deviate from due process and the rule of law, Leventis said. The entire voiding process was created out of thin air and represents a legal avenue that doesn’t exist, he said.

“This all got derailed when the commission decided it was going to make up a term and ‘void’ licenses and redo the process,” he said. “If they go back to June [12], the way that we’re asking the court to intervene and to set this thing back on track, you can get back to that place and there is an avenue for folks to file an administrative suit or an appeal.”

While the AMCC awarded licenses June 12, the commission did not plan to officially issue those licenses until July 10, after it had collected the necessary fees from the awardees. When asked whether it makes a difference if the “voided” licenses in question were formally issued or merely awarded, Leventis said, “No, it absolutely does not. You still need authority to void an award, and that authority does not exist under law.”

After the initial licensing awards were announced June 12, the AMCC issued Verano Alabama an invoice for its licensing fee later that afternoon, which the company paid immediately, Leventis said.

“We as Verano Alabama paid the commission our $50,000 licensing fee that same day,” he said. “As it stands today, the commission still has our $50,000.”

An AMCC spokesperson confirmed with CBT Sept. 5 that it still has the company’s licensing fee, but that’s not because the commission plans on keeping the money. On Aug. 11, the day after the commission voided the initial licensing awards, state regulators contacted Verano Alabama to confirm the name and mailing address for a refund check, but “AMCC has not received any response to date,” according to the spokesperson.

Regardless, Leventis said the money is not what’s at issue but rather a representation of what took place. In fact, Verano’s financial capability was reflected in Archos’ letter to the governor stating the company remains ready to invest at least $40 million into Alabama from day one, specifically in the communities where it plans to operate, and to support both prospective employees and medical cannabis patients.

In its second quarter 2023 financial results, Verano, which employs roughly 3,700 team members across 13 states, reported $234 million in revenue and a gross profit of $115 million (49% of revenue), as well as $24 million in cash flow from operations for the period.

And while Verano Alabama is pursuing the opportunity to capitalize on cultivation, processing and five retail operations should it retain one of the five vertically integrated licenses awarded June 12 (out of a pool of 38 applicants for that category), Verano’s track record of serving various state medical markets will help propel a successful program rollout in Alabama, Leventis said.

“We’re not trying to blow things up. We’re not trying to stall or delay the program. We as a company are medically focused. We’re built on our core as a medical operator, focused on the medical patients of the states where we operate,” he said. “[We want] to help launch this program and support these medical cannabis patients. What we don’t want to see happen is for this litigation to continue to spiral out of control.”

While Verano Alabama’s lawsuit is in its beginning phases—as the AMCC has yet to answer the company’s complaint—Verano continues to be a name mentioned in hearings connected to other litigation. But other legal proceedings now appear to be intertwined with Verano’s lawsuit as it pertains to the state’s licensing process.

Specifically, should a judge rule in Verano Alabama’s favor and uphold the initial licensing awards from June 12, such a decision could preempt litigation unfolding that pertains to the Aug. 10 do-over as well as any future rounds of voiding and re-awarding carried out by the AMCC.

While Leventis, an attorney by trade, said he tends to agree that the proper process was not followed by the AMCC during its Aug. 10 meeting with respect to the Open Meetings Act, Verano Alabama’s legal position is that it “really doesn’t matter.”

“It’s a complete moot point for us because there was no authority for the commission to void the licenses at the beginning of that August hearing,” he said. “So, anything that took place thereafter, including the re-award of licenses, is a complete moot point.”

Despite Verano Alabama’s lawsuit seeking to reset the licensing process back to June 12, the company continues to support the commission, AMCC Director John McMillan and the rest of the staff, Leventis said.

He added that Verano is a company that was built on blind, third-party licensing applications, just like the one that originally took place in Alabama. Before joining the team at Verano, Leventis said he was involved in licensing processes in dozens of states where objective scoring was key to successful program launches.

“In the states that follow that process and don’t veer from that process and stick to the rule of law and stick to due process, there’s always going to be some form of litigation from folks that were not awarded licenses. That’s almost a given in this industry,” he said. “But what happens is the program launches while administrative procedures are taking place in the background and different things can happen thereafter. Sometimes more licenses are awarded down the line. Not always, but different things can happen.

“But the point is, when you stick to the rule of law, you can actually launch that program and you can start to give patients their medicine very quickly.”

The last place where the law was followed in Alabama was June 12, Leventis said.

VeranoAlabama Filing8.21.23 by Tony Lange on Scribd