Ohio Marijuana Company Loses Bid to Challenge Competitors & Award Process

An Ohio appellate court declined to entertain cannabis company Aphira’s challenge to the way the state awards marijuana licenses, noting any issues Aphira had with the process should have been resolved through administrative procedures.

Canadian marijuana company Aphira’s Ohio licensing entity Schottenstein Aphira, LLC first sued the Ohio Department of Commerce in 2018 alleging flaws in the licensing process after Aphira’s application for a provisional level 1 medical marijuana cultivation license was denied.  Under Ohio’s Medical Marijuana Control Program (“MMCP”) the Ohio Department of Commerce is tasked with grading applications and awarding licenses.  The level 1 license sought by Aphira would have allowed the cultivation company to operate 25,000 square feet of growing space.

The MMCP permits applicants to appeal denials of cultivation licenses. Aphira, however, did not take its opportunity for a hearing prior to suing the Department of Commerce.

In a ruling acknowledging Aphira’s arguments about the licensing process, Ohio’s Tenth Appellate District stated Aphira was nonetheless required to exhaust available administrative processes before bringing suit against the state.  “If the appropriate remedy is for Aphria to receive a cultivator provisional license, the department has the power to award it,” the court said.

Aphira also brought novel state law claims against the successful cultivator applicants, alleging breach of an implied contract and tortious interference with prospective contractual relationships.  The court denied Aphira’s claims, noting that involvement in a governmental licensing scheme is not a business relationship sufficient to support tortious and quasi-contractual claims.  In doing so, it relied heavily on the trial court’s finding that “a license is not a contract or property right but a condition precedent to conducting business.”

The ruling suggests that courts may be reluctant to interfere with the discretionary powers afforded to administrative bodies under the MMCP.  As Ohio’s medical marijuana system continues to advance, observers may expect to see significant developments come from regulators and the legislature rather than the courts.

The case is State ex rel. CannAscend Ohio, L.L.C. v. Williams, 10th Dist. Franklin No. 18AP-820 2020-Ohio-359.

*Disclaimer: Mac Murray & Shuster represents Harvest Grows, LLC, one of the defendants in the lawsuit.