Green Healthcare Solutions, LLC v. Natalie M. Laprade Md. Med. Cannabis Comm'n

254 Md.App. 547

274 A.3d 530

GREEN HEALTHCARE SOLUTIONS, LLC

v.NATALIE M. LAPRADE MARYLAND MEDICAL CANNABIS COMMISSION

No. 766, Sept. Term, 2021

Court of Special Appeals of Maryland.

April 28, 2022

Argued by: Justin E. Tepe (Goodell, DeVries, Leech & Dann, LLP, on the brief) Baltimore, MD, for Appellant.

Argued by: James N. Tansey (Heather B. Nelson, Brian E. Frosh, Atty. Gen., on the brief) Baltimore, MD, for Appellee.

Panel: Graeff, Nazarian, James R. Eyler (Senior Judge, Specially Assigned), JJ.^*

Graeff, J. Green Healthcare Solutions, LLC ("GHS"), appellant, appeals from the order issued by the Circuit Court for Anne Arundel County dismissing its Petition for a Writ of Mandamus, or in the alternative, for a Declaratory Judgment. The petition requested that the court order that the Natalie M. LaPrade Medical Cannabis Commission (the "Commission"), appellee, award stage-one preapproval of GHS's application for a medical cannabis processor license.

On appeal, GHS presents the following questions for this Court's review, which we have rephrased slightly, as follows:

1. Did the circuit court err in granting the Commission's motion to dismiss GHS's petition on the ground that it failed to exhaust administrative remedies?

2. Did the circuit court err in dismissing GHS's petition for administrative mandamus on the ground that there was an administrative remedy available to GHS?

For the reasons set forth below, we shall vacate the judgment of the circuit court.

FACTUAL AND PROCEDURAL BACKGROUND¹

I.Parties and the Application Process

GHS is a limited liability company with a principal place of business in Greensboro, Maryland. The company is led by an African-American female, Chief Executive Officer Celine Krishack. GHS submitted an application with the Commission for a medical cannabis processor license in 2019.

The Commission is an independent commission that functions within the Maryland Department of Health, and its purpose is to "develop policies, procedures, guidelines, and regulations to implement programs to make medical cannabis available to qualifying patients in a safe and effective manner." Md. Code Ann., Health-Gen. Art. ("HG") § 13-3302(a) – (c) (2019 Repl. Vol.). The statute authorizes the Commission, in addition to other things, to issue licenses to growers, processors, and dispensaries of medical cannabis in Maryland. HG §§ 13-3306, 13-3307, 13-3309.

Subject to exceptions, the statute provides for no more than 28 licensed processors. HG § 13-3309(c)(1)(i).² The Commission has authority to "establish an application review process for granting processor licenses in which applications are reviewed, evaluated, and ranked based on criteria established by the Commission." HG § 13-3309(c)(3). In issuing processor licenses, the Commission shall "actively seek to achieve racial, ethnic, gender, and geographic diversity" and encourage minority or women-owned business entities to apply for licensure as processors. HG § 13-3309(c)(4)(i)(1)–(2).

The Maryland Code of Regulations ("COMAR") sets forth the application requirements for a medical cannabis processor license. COMAR 10.62.19.02. It also sets forth the weighted criteria on which the applications would be ranked for a preapproval license. COMAR 10.62.19.04I. Consideration was given, up to five percent, for applicants who had a certain percentage of ownership interest held by those who qualified as a Disadvantaged Equity Applicant ("DEA"), i.e., an applicant who is a member of a minority group or a woman and met certain requirements, including having a personal net worth that does not exceed $1,713,333. COMAR 10.62.19.04I(6), 10.62.01.B(12); see also Maryland Medical Cannabis Commission, Grower and Processor License Applications, Guidance for the Diversity and Socioeconomic Equity Questions. Each processor license applicant bears the burden of proving their qualifications. COMAR 10.62.19.04A.

GHS's 2019 application identified Mrs. Krishack as a DEA. In July 2019, the Commission staff conducted an initial review of the applications to determine whether they met the minimum requirements for evaluation. The applications were then transferred to Morgan State University ("MSU") as an independent evaluator to analyze, score, and rank applicants based on the qualifications represented in their applications. The MSU evaluators were not responsible for reviewing and scoring sections of the applications related to DEA status, which were reviewed by the Commission staff. The scores and ranking submitted by the MSU evaluators were compiled with the sections scored by the Commission staff, and an adjusted ranking of applicants was produced.

On September 18, 2019, the Commission voted to adopt the rankings for the purpose of investigating the highest-ranking applicants. This next-level investigation was designed to ascertain the veracity of the responses and information provided in the applications, i.e., to investigate the ownership interests of members who represented themselves as a DEA. On September 21, 2019, the Commission notified GHS that it was among the highest-ranking applicants for a processor license. GHS had the second-highest ranking, including five points for identifying a 51 percent owner who was a minority woman that met the personal net worth threshold.

The Commission requested that GHS provide additional information necessary for further evaluation of its application. The top 14 ranked processor applicants were invited to be part of the ownership investigation.

On February 10, 2020, as part of the investigatory process, the Commission contracted with an independent firm, Verity, LLC ("Verity"), to review for validity and truthfulness the documents submitted by high-ranking grower and processor applicants that related to their claims regarding DEA status. On February 21, 2020, the Commission again requested additional information from highly-ranked applicants, including GHS, who were awarded points as a DEA. The Commission requested documents relevant to determining whether the purported DEA member(s) satisfied the regulatory requirements and whether their ownership interests were real, substantial, and continued as required. Among the documents requested were "copies of any agreements pertaining to operation, management or funding of the applicant entity, by-laws and articles of incorporation, and tax returns." Verity conducted a comprehensive review of the materials submitted by the applicants and provided its analysis and recommendations concerning DEA status.

The Commission chair later appointed a subcommittee that reviewed the "ownership claims and supporting documentation provided by the high-ranking applicants, and the report and recommendations provided by Verity." Thereafter, the subcommittee developed and submitted to the entire Commission its proposed findings for each applicant.

II.The Commission's Findings and Determination

On October 1, 2020, the Commission adopted "findings regarding the accuracy and truthfulness of ownership claims made by high-ranking applicants, including any representations that ownership interests were held by disadvantaged minority and women owners," and it announced its award of stage-one preapproval for licenses to eight processor applicants. The Commission noted that it had received more than 200 applications for grower and processor licenses.

In a letter dated October 2, 2020, the Commission advised GHS/Mrs. Krishack that "the application for a medical cannabis processor license submitted by [GHS] [was] denied." The letter advised that GHS had not met its burden of demonstrating that Mrs. Krishack met the personal net worth requirement to qualify as a DEA, noting that GHS did not properly account for assets that Mrs. Krishack owned jointly with her husband. The letter continued:

Further [GHS] has not met its burden of demonstrating that the ownership interest of Mrs. Krishack is real, substantial and continuing, as required by the [Commission's] regulations and as described in the Guidance for the Diversity and Socioeconomic Equity Questions . Although Mrs. Krishack holds the majority of the Class B (voting) units, she holds only 27.11 percent of the total units and receives less than 51 percent of the total profits of [GHS]. Additionally, the terms of the line of credit from Jacobs Capital Management were not provided to the [Commission]. For these reasons, [GHS] has not demonstrated that Mrs. Krishack holds control over maintaining her ownership interest and/or that her ownership interest cannot be diluted or extinguished in a manner that is beyond her control.

Accordingly, [GHS] has not met its burden to demonstrate that it is entitled to the five (5) points previously awarded for [DEA] ownership. Without these five (5) points added to its application score, [GHS] would have ranked 24th in the processor applicant ranking list based on the proposed scoring that the [Commission] reviewed and voted to adopt in September 2019.

Additionally, the [Commission] found that the application materials and supporting documentation submitted by [GHS] contain a misstatement, misrepresentation, omission or untruth.

The letter advised that GHS had a right to request an administrative hearing to contest the Commission's decision to deny its application for a processor license, in accordance with COMAR 10.62.34.05 and 10.01.03.³ On October 16, 2020, GHS submitted a request to the Commission for an administrative hearing.

William Tilburg, the Commission's Executive Director, subsequently submitted an affidavit explaining that the Commission had delegated authority to the Office of Administrative Hearings ("OAH") to conduct administrative hearings on the five requests for hearings from highly-ranked processor applicants that were not awarded preapprovals. After the OAH gave "the Commission proposed findings of facts and conclusions of law," the Commission would consider them and then enter a final order regarding the applications.

III.GHS ...