In the wake of a state audit that raised questions about the way that medical cannabis cultivation licenses had been initially awarded, Utah cannabis regulators renewed all eight of those same licenses on Monday.
The licenses were first awarded in July 2019, the culmination of an extended process that had begun the year before, with the approval of a voter referendum that called for the creation of a medical cannabis system. Then, in November 2018, the legislature, governor, some advocacy groups, and the Mormon church negotiated a controversial compromise bill that was passed as a replacement to the voter-approved plan, and that law in turn set up the process for awarding the licenses in July. Licensees include some of the largest cannabis companies in the US, including Harvest Health & Recreation (cultivation) and Curaleaf (retail).
The audit was released last month. Then last week those regulators—members of the Cannabis Production Establishment Board of the Utah Department of Agriculture and Food—quickly and unanimously approved the renewal applications in a one-hour public hearing, during which they considered cannabis production numbers and projected increases. The audit was not mentioned—even though the Department of Agriculture and Food had referred to this meeting as being for the purposes of “holding participants in the cannabis program accountable” in its response to the audit’s recommendation that it reconsider the awarded licenses in light of the findings.
Back in November, the state auditor’s office took issue with aspects of the way the Department had handled the cultivation licensing process for the program, after investigating some “reports of concern” it had received about the way senior employees at the Department of Agriculture and Food were managing the agency. The audit found that the Department’s former Commissioner, Kerry Gibson, who resigned in January 2020, as well as members of his senior staff, had improperly used state resources for personal travel, didn’t disclose conflicts of interest, and ran a cannabis cultivation license process that raised questions around political favors and cronyism.
The most serious charge was related to the scores on the license applications, as evaluated by members of a five-member committee, all appointed by then-Commissioner Gibson. The audit found that the scores of two committee members were “highly correlated.” With a five percent chance of this level of correlation being accidental, according to the audit, the correlation suggested possible collaboration between committee members. In addition, the scores given to applicants by two other members of the committee were changed to better match those of these two members—both senior Department of Agriculture and Food managers hired by Gibson—according to the audit. (One of those members, Kelly Pehrson, is still employed by the Department of Agriculture and Food as its deputy commissioner, and is a member of the Cannabis Production Establishment Board, which considers applications to renew medical cannabis cultivation and processing licenses or revise operation plans.)
In addition, according to the audit, these score changes resulted in three cultivators receiving licenses who would not have otherwise. There was no discussion at the meeting of the findings of the state audit, including the suggestion that scoring had been coordinated.
“It’s not unusual to come back together and have those folks discuss any significant discrepancies between their raw scores,” State Auditor John “Frugal” Dougall said in a phone interview with Cannabis Wire, adding that it’s similarly not out of the ordinary for scores to change as a part of that process. However, the “magnitude” of these changes, Dougall said, coupled with the fact that the changed scores better correlated with the scores of committee members who were political appointees of Commissioner Gibson, called “into question some of the independence of that process.”
Reactions to the audit’s findings have varied. State Representative Jennifer Dailey-Provost, a Democrat who represents much of downtown Salt Lake City, told Cannabis Wire her main takeaway was, in part, that “Cronyism is unfortunately far too common in our state, and that has certainly reared its ugly head in the medical cannabis world,” which she described as a vulnerable “infant industry.”
Desiree Hennessy, who heads the PAC Utah Patients Coalition that worked to establish the compromise between advocates, the legislature, and the Mormon church that resulted in the state’s current program, called the audit “disappointing”— because she felt that some specific criticisms made of the program were misrepresented—but expected. Regulators setting up the program expected “scrutiny” because of the high demand and limited amount of licenses the law called for, she said, adding: “There would be some retaliation, or an ask for people to review the process.”
The Department of Agriculture and Food declined to answer questions or make Cody James, the current hemp and medical cannabis director, available for an interview, referring Cannabis Wire to a statement saying that it had “asked a third party to review processes for potential irregularities.” In response to a records request for its contract or agreement with this unnamed third party, the Department said it had no responsive records.
Six of the seventy or so cultivation applicants who were not awarded licenses in July 2019 filed appeals with Christopher Hughes, the state’s chief procurement officer, who summarily denied all six. Three of those continued their appeals to the Procurement Policy Board, which similarly denied two of the appeals, but in the third, found that the Department’s decision to only award eight licenses—instead of the ten called for in the law—was improper, and remanded the issue back to the Department, according to records obtained via a records request. (The reasoning the Department gave at the time was concerns about oversupply; the audit identified Gibson as the source of this decision, which is otherwise not considered in the audit.)
The legislature, twelve days after the Procurement Policy Board decision, enacted an amendment which changed the number of cultivation licenses provided for in the law from ten to “at least five but not more than eight.”
Many of the denied applicants that filed appeals made claims about a rushed and shifting RFP process, a perceived bias towards out-of-state applicants (a change to the RFP requirements announced within weeks of the deadline removed a requirement for the majority owners of an applicant to be a state resident), and scoring issues. (The audit does not discuss any of the appeals, or claims made in them.)
One of the denied applicants, JLPR LLC, is still pursuing its appeal before the Utah Court of Appeals; according to court records, the case is currently in mediation.
As for the audit, the Department of Agriculture and Food is seeking assistance from the state Attorney General’s office to implement better licensing procedures.