Same slip-up that got rival disqualified found in 1 winning application for Arkansas medical pot growing license

Posted: June 12, 2018 at 4:30 a.m.
Updated: June 12, 2018 at 4:54 p.m.

One of the winning applications for Arkansas' first medical-marijuana growing licenses contained the same discrepancies that disqualified at least one other applicant.

Delta Medical Cannabis Co. of Newport reported different ownership percentages for one stakeholder in separate sections of its application, but the mistake went either unnoticed or unpunished as the group was selected to receive one of five cultivation permits.

However, Carpenter Farms Medical Group of Grady was disqualified from the process after regulators found the same error on its application.

Scott Hardin, a spokesman for the Arkansas Department of Finance and Administration, said that any disqualifying information brought forth will be investigated, and that the Carpenter Farms error was discovered before a judge stopped all medical-marijuana licensing.

"We have been unable to investigate several items brought to our attention due to the injunction issued in March," Hardin said in an email. "Regarding Carpenter Farms, we were made aware of information (prior to March 14) that demanded the application be disqualified. If additional, similar information is discovered, we will take action to maintain the integrity of the process but to do so now would be inappropriate due to unresolved litigation."

Attorneys and representatives for Delta Medical Cannabis Co. didn't respond to phone messages and emailed questions on Monday about the ownership discrepancy.

[DOCUMENTS: Read complaints filed + winning applications from top five growers]

Both Delta and Carpenter Farms are intervening parties in a lawsuit filed by an unsuccessful applicant -- Naturalis Health -- challenging the state's process for awarding the first cannabis growing permits. Pulaski County Circuit Judge Wendell Griffen in March sided with Naturalis, tossing the procedure the Arkansas Medical Marijuana Commission used to select the first five licensees.

That ruling has been appealed to the Arkansas Supreme Court, which is expected to rule soon. Its decision will drastically affect when the drug, which Arkansans voted to legalize in 2016, will be available in the Natural State.

Unsuccessful applicants have pointed to a handful of inconsistencies in the scoring process. Those claims have ranged from regulators failing to verify that applicants are compliant with key requirements, to allegations of attempted bribery.

If regulators determined that Delta's application too should be rejected, it would shuffle which companies stand to receive licenses if the process is upheld by the high court. The two companies behind Delta Medical in the rankings received identical scores.

The commission elected to award five growing permits, but Amendment 98 to the Arkansas Constitution allows for up to eight cultivation facilities.

In Delta Medical's case, four individuals and three limited liability companies comprise the marijuana growing company's ownership.

One of those companies, 420 Grow LLC, is shared by Balbir "Bill" Mangat (whose name is also spelled as "Magnat" in the application) and Mississippi County Justice of the Peace Ken Kennemore. The company holds 14.8 percent of Delta Medical.

Mangat claims a 50 percent ownership stake in 420 Grow at the front of Delta's application, but later in the application, he claims only 25 percent.

Similarly, Carpenter Farms, which is owned by a pair of limited liability companies, misreported the ownership structure of one of the companies later in its application after reporting it correctly near the front.

The first section of Carpenter's application lists three owners, William H. Murphy Jr., William H. Murphy III and Seth Murphy, as holding 11.66 percent each. However, they report their interests in Carpenter Farms as 5.83 percent each in one location of the application and then each was listed as having 4.06 percent interest in another section.

Mary Robin Casteel, director of the Alcoholic Beverage Control Administration Division, said the discrepancy made it impossible to confirm who owned the company.

"Without all ownership interest accounted for, there is no way for the commission to determine and verify that ownership in the application is only held by qualified individuals," Casteel wrote in a Feb. 28 email to Abraham Carpenter Jr., one of the company's owners.

Carpenter acknowledged the "scrivener's error," but he said it shouldn't have disqualified his company from consideration because the ownership percentages were correctly recorded in the first section of the application.

"Had the application failed to include the correct total individual ownership of Carpenter Farms Medical Group anywhere in the application, the staff's decision to exclude our application could be considered grounds for disqualification," Carpenter wrote in a letter to the commission. "However, the correct ownership information for the application was, in fact, included."

Carpenter's group was one of several scheduled to appear before the commission on March 14 to have their cases heard. The meeting -- which was called to formally award the five cultivation permits -- was canceled after Griffen issued an injunction, barring the commission from issuing licenses.

Carpenter Farms would have ranked sixth, two points behind Delta, if its application had been included in the rankings. Although it wouldn't stand to receive a license, Carpenter said he'd like his company to be there in case one of the top five groups is disqualified or otherwise withdraws from consideration.

Ninety-five companies submitted applications to cultivate medical cannabis, which must be grown in Arkansas. The applications were redacted to remove any information that would allow the five commissioners to identify the people behind the companies, but several unsuccessful applicants have challenged whether the redactions were adequate.

The commissioners then scored each application, and the five highest-scoring groups were selected for a license.

Medical marijuana can also be grown in small quantities in dispensaries; 227 groups applied for one of 32 permits to sell the drug. The commission started grading those proposals, but the court's injunction halted that process as well.

The state Department of Health has approved more than 4,000 applications for medical-marijuana registry ID cards. The cards will allow patients with one of 18 qualifying conditions to purchase medical cannabis.

A Section on 06/12/2018