Tips for Appealing a Cannabis License Denial

By Jennifer Cabrera, Andrea Golan, Brandon Kurtzman, Jerrico Perez

Feb 3, 2021

Cannabis business licensing can be very competitive in highly sought-after markets. While some states and localities choose to allow unlimited licenses, others opt for merit-based processes and limited license programs, resulting in thousands of applicants applying for a select number of licenses or permits.

Regulatory agencies can deny license applications for various reasons, but that doesn’t mean applicants should give up—especially when so much goes into putting together an application. The process for challenging a denial can be complicated and varies from state to state and locality to locality, but some appeals are successful. Understanding when to appeal is the first step.

When to Appeal

As more states legalize cannabis, current and potential applicants should have a plan for application rejections. As stated before, in limited license programs, sometimes thousands of people apply for licenses and only 2% might be successful. Knowing this, you should build the appeal into your budget.

Common reasons to challenge a cannabis license denial include an unfair or unlawful licensing process, arbitrary and capricious grading, and bias or corruption.

Unfair or unlawful licensing process

These types of challenges often deal with the unconstitutionality of laws

Example: There is an ongoing lawsuit challenging the constitutionality of Florida’s 2017 medical cannabis law. Also, multiple entrepreneurs have sued the City of Los Angeles in 2020.

Arbitrary and capricious grading

Arbitrary and capricious grading includes inconsistent scoring, negligent scoring, and erroneous scoring. Scoring-based appeals often occur in states that bring in third-party graders. These challenges usually have the highest likelihood of success.

Examples: Appeals are ongoing in Iowa, Ohio and Missouri over inconsistent application scoring.

Bias or corruption

Bias or corruption challenges often occur in states that don’t hire independent third-party graders. We often see instances where state regulators conducting scoring end up having a close, usually undisclosed, relationship with successful applicants result in allegations of bias or corruption. These challenges are the least successful.

Example: The very competitive RFP for licenses in Illinois (graded by a third-party) resulted in 98% of the applicants not getting a license. Losing applicants filed lawsuits and the state agreed to issue deficiency notices and rescore applications. This resulted in the license winners filing a lawsuit against the state, which was recently dismissed.

Should You Appeal?

When deciding whether you should appeal a license denial, consider the following:

• Does the licensing agency have the authority to issue additional licenses?

  • Suppose you were denied and have a plausible argument. In that case, you have a higher likelihood of obtaining a license in a state where the law gives the regulators authority to issue additional licenses, like Missouri.

• Do you have time?

  • Typically, applicants have 30-90 days to appeal. Make sure you know the rules and deadlines.

• What are your issues?

  • Do you have an issue with the scoring? If you didn’t receive the points you clearly should have, you have a higher likelihood of success.

• What is your goal?

  • Is the goal of your challenge to rescore your application or for the agency to open a new licensing round the next year?

• Have you performed a cost-benefit analysis?

  • If you challenge the decision, how long will you have to hold on to your property? How much time and money are you willing to spend on an appeal? Make sure you discuss your goals with your counsel.

• Should you purchase an already appealing applicant if success is likely?

  • Purchasing a business from somebody that is already going through an appeal can be a smart move if the applicant has a likelihood of success.

How to Appeal in California, Colorado & Massachusetts

Massachusetts

License denials are rare due to the compliance-based process in Massachusetts. There have been no situations, to our knowledge, where the Cannabis Control Commission (CCC) has denied an application for a Final License. However, there have been two situations where the CCC denied a Provisional License application, to our knowledge.

If the CCC denies your license application, you have two options:

• File an appeal in Superior Court under M.G.L. c. 30A, § 14(1) within 30 days after receipt of notice of the denial; or

• If allowed by the CCC, file a reconsideration of the denial if there is a change of circumstances directly relating to the matter that formed the basis of the CCC’s denial.

View the Massachusetts Cannabis Control Commission licensing guidance.

California

California’s Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) provides a statutory right to an administrative hearing for specified reasons and statutory right to appeal for those specified reasons, which include denial of an application for a license.

MAUCRSA requires hearing and appeal procedures similar to those made by the Alcoholic Beverage Control (ABC) Appeals Board.  There have not been any cannabis appeals yet in California, so ABC decisions are worth looking to for precedent.

Deadlines are extremely important when navigating the cannabis appeals process in California.

If the licensing agency denies your license application, you must request an administrative hearing within 30 days of your denial notification. You can only move forward with an appeal to the Cannabis Control Appeals Panel (CCAP) after the administrative hearing and a written decision. This appeal must be filed within 30 days. Procedures for challenging a cannabis license denial in California are found in 16 CCR 5021.

Essential appeals tips for California (or any state or locality):

• Prepare the record immediately. Gather evidence, documents, etc.

• Read the rules carefully. The Administrative Procedure Act is a highly technical statute, and if you plan to appeal without counsel (we don’t recommend), you should know it inside and out.

• Deadlines are critical. Missing a deadline means you waive your rights.

View the California Cannabis Control Appeals Panel FAQ.

Colorado

Due to Colorado’s unlimited licensing structure and clear criteria, license denials are uncommon. However, the state does have an appeals process in place.

If the Marijuana Enforcement Division (MED) denies your license application, you can file a notice of appeal. After filing the notice of appeal, you may proceed to a hearing or negotiate a settlement agreement order.

If you encounter a disciplinary action, you should negotiate the settlement agreement order as disciplinary actions in Colorado may need to be disclosed if you apply for a cannabis license in another state.

View the MED Code of Colorado Regulations.

A denied cannabis license application is not the end of the line. Our attorneys have a deep understanding of local and state cannabis regulations and denial trends and have successfully represented numerous clients in administrative appeals.

Watch our recorded webinar “Challenging Cannabis License Denials” for a detailed presentation of this subject.