Hartford Cannabis Co. sues CT Social Equity Council after it fails to gain cultivator license

A cannabis company has filed an appeal in Superior Court challenging the Social Equity Council’s determination that the company did not qualify as a social equity applicant for the purposes of obtaining a provisional cultivator license.

The Hartford Cannabis Co., through its attorney, Michael Donnelly of Murtha Cullina, claims in its 22-page complaint filed July 22 that the state and the SEC changed the requirements for the license midstream, and that the company did not have an opportunity to amend or supplement its application to meet those new requirements.

To qualify for social equity status under state law, an applicant must meet residency, income, ownership and control requirements.

The SEC’s decision said the Hartford Cannabis Co. met the residency and income requirements, but did not meet the ownership requirement.

“Conflicting documentation was provided regarding who has control of the Company and who their officers are,” the state said in its July 13 denial to Hartford Cannabis Co, .

In addition, the denial letter says there was “no evidence that the [Social Equity Applicant’s] influence at least 65% of daily affairs.”

The complaint alleges the SEC did not have the 65% control rule when it posted its documentation requirements for a cultivator’s preliminary permit on Jan. 14.

Instead, that requirement was briefly mentioned at an April 5 meeting of the SEC — about two months after the application period opened (it closed on May 4) — during a presentation of CohnReznick, a consultant hired by the state to help with the application process, the complaint says.

“[T]he modification of required daily control is so small on the screen that it is literally illegible … and was only displayed for two minutes and ten seconds,” the lawsuit says. “During that short period, they describe the change in criteria as merely a ‘tool’ for the reviewers and not the material alteration of approval criteria which it was. It was this very change which resulted in the denial of Hartford Cannabis’s application.”

The complaint says the SEC did not debate, discuss or provide any update to its online checklist to the level of control needed by an SEA applicant.

Komla Matrevi, staff attorney at the Social Equity Council, wrote in a March memorandum that the social equity applicant had to have daily operational control of the company, but the memorandum did not specify that level of control be 65%, or any percentage, of such matters, the lawsuit says.

Further, the change to the control rule was in contravention to assurances SEC Executive Director Ginne-Ray Clay made to applicants in March 2022, the complaint claims.

“The failure of the Council to debate and vote on this material change in the control criteria not only constituted an improper retrospective regulatory change but violated the very enabling statute regarding such review,” the complaint says.

Hartford Cannabis Co. submitted its application for a provisional cultivator license on April 29. It argues that it did not have an opportunity to revise, supplement or refine its application to ensure compliance with the control requirement that was adopted during the application process.

In addition, the company argues that it still met the 65% control requirement, even if it were legal, and that the decision was “clearly erroneous,” the legal standard necessary for the company to overturn the decision.

Among other things, the complaint alleges social equity applicants own 65.10% of the shares of the company, and company President Gloribel Diaz, a social equity applicant, owns 59.38%.

In addition, TJ Clarke, Hartford’s City Council majority leader, is a social equity applicant and is also the general manager of the company, according to the complaint.

“President Diaz controls the Board and another Social Equity applicant, Thomas Clarke controls the ‘general and active management of the business of the corporation’ and ‘shall devote his full attention and time’ to running the company,” the complaint says. “Therefore, the SEAs have operational authority over daily affairs of the business and the voting power to direct the management, agents, policies and beneficial interests of the business.”

There is a question whether the social equity licensing process is one time only, or if there will be other opportunities to obtain a license.

However, Hartford Cannabis Co. says the SEC’s July 13 denial will result in a delay in being able to obtain a final license “for a cultivation facility to be located in a disproportionately impacted area.”

“The SEC’s denial and delay of Hartford Cannabis’s permit places the company at a very significant disadvantage at competing with other applicants for such properties,” the complaint says.

The company, the complaint says, will also jeopardize an agreement it has with another company for “exclusive use of … proprietary cannabis genetics, brand name, recipes, packaging, logos and merchandise in Connecticut.”

The state and the SEC are being represented by Attorney General Andrew Tong’s office, which said Monday that it did not have a comment on the appeal.

The General Assembly and Gov. Ned Lamont enacted legislation last year allowing adult-use cannabis. The law includes a social equity initiative to recognize the government’s war on drugs that disproportionately prosecuted suspects in Black and other communities of color.

Applicants are being reviewed for licenses as cultivator, producer, manufacturer, food and beverage manufacturer, sales, dispensary facilities, delivery service and transporters.