Cannabis Business Owners: You Can Fight City Hall

Business

By Michael McGrory

Cannabis business owners must quickly become accustomed to living in a world where nearly every aspect of their operation is meticulously regulated. Most states have issued hundreds of pages of rules, along with procedures for amending and enforcing the rules. A state’s enforcement options range from issuing warnings for non-compliance to revoking a cannabis business’s license. Rule-breakers are also more likely to find themselves the subject of a criminal prosecution. Compliance can be a headache, but a well-regulated cannabis program has many benefits, which include promoting a healthy workplace, ensuring consumer safety and deterring criminal activity.

Industry members must also keep abreast of any changes in a state’s rules, which can occur frequently and will not necessarily be well-publicized. A state agency may adopt a new rule, rescind an existing rule, or publish an interpretation intended to explain a rule. The manner in which a state agency enforces its rules—and the penalties it imposes for violations—can also change with time. Some prominent regulatory issues in the news lately include the Illinois Department of Public Health’s refusal to approve new health conditions for its medical cannabis program, Washington State’s Liquor and Cannabis Board’s enforcement activity with respect to prohibited pesticides, and the Massachusetts Department of Public Health’s increase of marijuana purchase limits. Regulatory developments like these can have a profound effect—negative or positive—on the marijuana industry.

Cannabis businesses should bear in mind that they need not passively accept a regulatory agency’s new rules, or even a regulatory agency’s enforcement efforts. Regulatory agencies have their own rules to follow, which can generally be found in a state’s administrative procedure act or similarly titled law. This act typically requires an agency to publish its proposed rules and amendments, and consider any public comment, prior to officially putting the rules on the books. This public comment period is the cannabis industry’s first, and perhaps best, opportunity to object to potentially adverse rules or promote potentially beneficial rules.

A state’s administrative procedure act will also provide a mechanism for interested parties to challenge a new rule they view as improper. Perhaps the state agency failed to follow proper procedure, exceeded its own jurisdiction, or created a rule that was inconsistent with overriding legislation. The affected entity could file a lawsuit and ask a court to scrap the rule. Likewise, a cannabis business penalized for regulatory violations can appeal an agency’s decision and punishment in a court of law. In other words, you can fight city hall.

That is not to say that it will be an easy fight. The theory behind the existence of regulatory agencies is that the regulation of some industries is best left to subject matter experts, not generalist legislators. In the federal government, for example, the FAA regulates aviation, the SEC regulates the securities market, and the EPA regulates environmental matters. Because of this assumed expertise, regulatory agencies have broad authority to create and enforce their own rules, and judges will show a certain amount of deference to agency decisions. In many states, a court will undo an agency action only under limited circumstances, such as when the agency fails to follow proper procedure, exceeds the scope of its authority, acts contrary to law, or makes a decision that is against the manifest weight of the evidence.

Administrative procedure laws are also highly technical and replete with traps for the unwary. They may impose strict time limits; the time within which to bring a traditional lawsuit is measured in years, but administrative proceedings often must be filed within a matter of weeks or even days of an agency decision. They may also limit the types of decisions that can be reviewed by a court, specify the appropriate court for filing, and restrict who the plaintiff can be. Those challenging an administrative action, though, are often less frustrated by the steps in the process than what they perceive as the unfairness built into the process. The agency creates the rules, the agency chooses whom to penalize, the agency hands down the punishment, and the agency’s decisions are accorded a certain amount of deference in the courts.

So there can be no doubt that appealing a state regulatory agency’s action is going to be an uphill battle. But under the right circumstances, it can be a winnable battle. Suing an agency is not going to be quick and cheap, but it should not be as expensive or as time-consuming as a traditional lawsuit. After all, discovery should be relatively limited, and the issues are more legal than factual, meaning that there is unlikely to be a need for a traditional trial.

Certainly, all cannabis industry businesses should strive for complete regulatory compliance and strong relationships with their regulators. But the interests of the industry and agencies are bound to diverge at some point. When that occurs, industry members should not hesitate to stick up for themselves by taking advantage of every tool available under state law and demanding their day in court.

 

MJIN_McGrory-110px-WebMichael McGrory is a partner in the Chicago office of SmithAmundsen. He writes and speaks frequently on legal topics related to medical cannabis, including the licensing process, regulatory compliance and banking issues. Mike was recently named a “40 Under 40 Illinois Attorney to Watch” by the Chicago Daily Law Bulletin, and sits on the board of directors of Mental Health America of Illinois.

Guest Contributor designates a writer who is guest publishing content with MJINews.

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