Economic Development

Ohio Auditor Questions Medical Marijuana Program

YOUNGSTOWN, Ohio – The Ohio Department of Commerce “exceeded its authority” when it awarded additional licenses to cultivators as part of the state’s medical marijuana program.

That’s just one of the mistakes found in a scathing report issued By Ohio Auditor of State Dave Yost’s office Thursday, criticizing the Commerce Department’s handling of the state’s medical marijuana program.

“The department didn’t do a very good job in launching this program,” Yost said in a statement. “It did not exercise due diligence to make sure Ohioans could have complete confidence in the process. The department’s work was sloppy. Ohioans deserved better.”

According to state law, the department was limited to issuing just 12 licenses for large-scale Level I cultivators and 12 licenses for smaller Level II growers before Sept. 8, 2018.

Regardless, the department issued two additional licenses — one for each level — in order to correct mistakes that were made during the scoring process.

One of those awarded an additional license was Pure OH LLC, which wants to build a Level II grow center in East Palestine. According to its application, Pure OH is looking to develop a cultivation site in a building at the corner of state Route 46 and Kemple Drive.

Level II licenses were awarded to growers with a smaller cultivation footprint than those with Level I certificates. Level II sites are permitted to harvest up to 3,000 square feet, with the option to expand to 6,000 square feet in the coming years.

Level I permits allow growers to cultivate up to 25,000 square feet initially with options to expand up to 75,000 square feet.

However, the auditor’s office found “dozens of errors and inconsistencies” in its review of the state program and the process used to score, evaluate and award provisional licenses to applicants.

Among the weaknesses the auditor’s office discovered were security issues involving passwords, system folders and summary scoring sheets. Auditors found no evidence of intentional manipulation, but noted that the opportunity to manipulate scores did exist.

Auditors found errors in final score calculations that affected 13 applicants and in-reviewer score sheets that affected 15 applications – errors which could have disqualified two Level II provisional applications, Yost’s office said.

“The Department should have conducted this additional and more-thorough review before it awarded any licenses,” Yost said. “In an attempt to make up for the initial errors, the Department compounded the problem by awarding additional licenses outside the bounds of its authority.”

Commerce said that it acted legally in awarding additional Level I and Level II provisional licenses, citing a May 18, 2018 Franklin County Common Pleas Court ruling on a temporary order. However, the judge in the case also wrote that, “nothing in this opinion should be taken as binding,” the auditor’s office pointed out.

In a letter to Yost that was attached with the auditor’s report, Ohio Department of Commerce Director Jacqueline Williams said that while there are opportunities for improvement in several areas of the program, she disagrees with the report’s conclusion that the agency overstepped its authority when it awarded additional licenses.

“The courts have already upheld that the department does have this authority,” she said. Plus, Williams noted that the legal strategy was addressed in concert with the Ohio Attorney General’s office and the department’s general counsel.

Auditors also found that although the department intended personal information about applicants to be redacted from scoring materials, identifying information remained available to evaluators in five of 11 applications reviewed – or nearly 50% of those tested.

In addition, auditors found the department applied inconsistent standards in determining if cultivators met zoning requirements. This had the material effect of awarding a license to an applicant who could have otherwise been disqualified, auditors said.

“For some applicants, the Department accepted letters from local zoning officials as sufficient evidence that the applicants met the standard for compliance. But for others, who had the same type of letters, the Department did not,” Auditor Yost said. “There was no rhyme or reason for the disparate treatment.”

The Commerce Department commissioned Ernst & Young to review the process it used to evaluate, score and award provisional licenses. Ernst & Young was to produce two reports, one for Level I licenses and the other for Level II. Additionally, auditors were told Ernst & Young would make attempts to completely rescore sheets by reassembling the teams that initially produced scores. To date, the Department said it has never seen the Level II report.

Auditors did not attempt to rescore the applications, as they did not have the specialized expertise in marijuana cultivation that the department said was necessary for scoring, Yost’s office said. Instead, Commerce hired consultants and used specialized state employees to conduct the scoring.

The deadline for cultivators to begin operation was Sept. 8, which the program has not met. To date, just four cultivators have been issued certificates of operation, while other provisional licensees are working to prepare for the auditing process.

Riviera Creek LLC is in the process of renovating a 100,000-square-foot building in Youngstown to accommodate a Level I cultivation operation.

Brian Kessler, one of the partners in the venture, said the company is preparing for its state audit so the operation could obtain its certificate of operation.

“We’re working away to make sure everything is done right,” he said. Once the state is finished with its due diligence, then the operation would have more information as to when it could begin cultivation.

Provisional licenses have also been issued to dispensaries – including three in the Mahoning Valley – and thus far to 12 processing operations, according to the Ohio Marijuana Control Board’s website.

A full copy of the auditor’s report is available online.

Published by The Business Journal, Youngstown, Ohio.