All Nat. Herbs, LLC v. Wash. State Liquor & Cannabis Bd.
| Decision Date | 08 June 2021 |
| Docket Number | No. 54083-5-II,54083-5-II |
| Parties | ALL NATURAL HERBS, LLC, Appellant, v. WASHINGTON STATE LIQUOR AND CANNABIS BOARD, Respondent. |
| Court | Court of Appeals of Washington |
WORSWICK, J. — All Natural Herbs, LLC, (ANH) appeals a superior court order denying ANH's petition for review under the Administrative Procedures Act (APA).1 ANH applied for a recreational cannabis license but was assigned a low-priority designation by the State Liquor and Cannabis Board's Licensing and Regulation Division (the agency) and has yet to receive a license. ANH first petitioned for review of the agency's determination in 2016, and disputes a final order of the Liquor and Cannabis Board (the Board). ANH's overarching argument is that the agency missed its 90-day statutory deadline to notify ANH that it had commenced adjudicative proceedings after ANH requested review under RCW 34.05.413 and RCW 34.05.419.2
ANH's 22 assignments of error fall into five categories: (1) the agency failed to commence an adjudicative proceeding within 90 days, and thus, by operation of default, ANH is entitled to a recreational cannabis license; (2) the Board violated ANH's due process rights; (3) RCW 34.05.419 and the agency's licensing rule were unconstitutional as applied; (4) the Board's March 2017 final order was an unconstitutional prior restraint under the First Amendment; and (5) the agency unconstitutionally discriminated on the basis of race. We hold that the agency timely commenced an adjudicative proceeding and that ANH fails to show that the Board or agency violated ANH's constitutional rights. Accordingly, we affirm.
In 2015, Washington merged its existing medical marijuana market with the new retail marijuana industry. Laws of 2015, ch. 70 (). Due to the limited number of licenses available, the Legislature implemented former RCW 69.50.331(1)(a) in 2015, which required the Board to assign Priority 1, 2, or 3 status to applicants for the new licenses. Former RCW 69.50.331(1)(a) (2015); see also former WAC 314-55-081 (2015); WSR 15-19-165. The Board then created rules implementing the priority determination system to specify the criteria for applicants. Former WAC 314-55-020 (2015). Applicants were to be processed for licensure in order of priority and by date of application submission. Former WAC 314-55-020(3) (2015). Priority 1 applicants were more likely to receive a license because the agency processed these applications first. See Top Cat Enters., LLC v. City of Arlington, 11 Wn. App. 2d 754, 756, 455 P.3d 225 (2020).
The Board accepted license applications under this scheme between October 12, 2015 and March 31, 2016, and received more than 2500 applications for 222 available licenses. The agency collected applicants' documentation and assigned a priority determination. It was under this scheme that ANH sought a retail marijuana license. To achieve a Priority 1 designation, an applicant was required to, among other things, operate or be employed by a collective garden before January 1, 2013. Former RCW 69.50.331(a)(i).
Il Yi, the owner of ANH, had experience in the cannabis industry going back to 2011 that was relevant to being able to apply for a license under the 2015 scheme.3 Yi was employed by a cannabis organization doing business as The Healing Center of Tacoma. Yi received a W-2 tax form for 2011 showing him as an employee of The Healing Center of Tacoma.
The Healing Center of Tacoma was a collective cannabis garden. Under the medical marijuana scheme, collective gardens existed "for the purpose of producing, processing, transporting, and delivering cannabis for medical use." Former RCW 69.51A.085(1) (2011). However, the statute governing collective gardens imposed certain conditions, including: "No useable cannabis from the collective garden is delivered to anyone other than one of the qualifying patients participating in the collective garden." Former RCW 69.51A.085(1)(e) (2011).
Although Yi was employed by The Healing Center of Tacoma, the business repeatedly reported to the Secretary of State that it was not doing business between 2011 and 2013. Despite the Department of Revenue reporting that The Healing Center was up to date on its excise taxes,the record also shows that The Healing Center filed no wage information with the State Employment Security Department and paid no taxes before April 2016. The owner of The Healing Center also admitted that he had not paid the company's taxes. Moreover, the Department of Labor and Industries had no account for covered employees on file for The Healing Center of Tacoma.
In 2012, Yi started his own medical cannabis business, Natural 7, LLC. Yi later formed a second LLC, ANH.
On March 27, 2016, four days before the end of the application period, ANH filed an application for a retail marijuana license, which Yi completed by filing a Priority Verification Form and providing other documentation on April 7. Despite personally operating as Natural 7 previously, Yi listed The Healing Center of Tacoma as the predecessor entity on ANH's license application. On April 21, the agency notified ANH it had been assigned Priority 3 status.
On April 27, ANH sent a letter requesting the agency change its status to Priority 1, or in alternative, provide an explanation for its Priority determination. The letter contained a typo conflating Priority 1 and Priority 3 that confused agency staff. As a result, the agency records staff asked for clarification.
On May 4, ANH responded by email and requested documents explaining the Priority determination. A timeline and synopsis of the emails exchanged between ANH and the agency follows:
On May 24, 2016, the agency sent ANH a "Statement of Intent for Priority Determination" that explained the agency's reasoning for assigning Priority 3. The Statement assigned ANH a case number, M-26,119. In this same mailing, the agency also included a standard "Request for Hearing" form that informed ANH of its procedural rights and had a box that the recipient could check to request a hearing. On June 15, the agency received this form from ANH with the box requesting a hearing checked.
On June 17, the agency responded in a letter stating: CP at 388. Following this letter, the parties exchanged emails on July 12, and discussed whether a hearing had been scheduled. When ANH asked the agency if a hearing date had been scheduled, the agency responded:
No . . . there is no hearing scheduled in this case. Cases are typically evaluated and scheduled as soon as possible within the competing priorities, and I know of no reason for inordinate delay in this case. As soon as OAH [Office of Administrative Hearings] assigns a date, I'm sure you'll be contacted.
CP at 420. On August 31, the Attorney General's office (AGO) forwarded case number M-26,119 to the OAH for assignment to an administrative law judge (ALJ).
On September 9, the OAH sent ANH a Notice of Prehearing Conference, which notified ANH that an ALJ would conduct a prehearing conference on October 25. On October 24, ANH moved for summary judgment arguing that the agency had failed to commence adjudicative proceedings within 90 days of ANH's request and therefore lacked jurisdiction over its application. At the October 25 prehearing conference, the parties agreed that the sole issue before the ALJ would be whether the Board or OAH had jurisdiction over the proceedings, given ANH's timeliness claim.
On December 22, the ALJ held a hearing on the summary judgment issue. On January 4, 2017, the ALJ granted ANH's motion for summary judgment, reversed the agency's Statement of Intent for Priority Determination, and remanded the issue to the agency for further review. The ALJ ruled that the agency "lack[ed] subject matter jurisdiction" because it "failed to timely request commencement of an adjudicatory proceeding" under RCWs 34.05.413 and 34.05.419. CP at 41. The ALJ further ruled that neither the May 24, June 17, nor July 12, 2016, communications constituted the commencement of an adjudicative proceeding as required by statute. On January 24, the agency sought Board review.
On March 21, 2017, the Board issued its final order. The Board found that the June 17, 2016 letter marked the commencement of the adjudicative hearing because it began preparationfor a hearing. As for the communication between ANH and the agency before June 17, the Board explained:
The prior communications about the priority determination were informal. Licensing properly did not consider those communications as a request for hearing by the licensee that begins the hearing process. Those communications did provide notice to Licensing that the applicant wanted an appeal, resulting in the preparation of the Statement of Intent for Priority Determination. The Statement of...
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