Key Points: 

• Judge dismisses lawsuit over alleged improper dispensary license

• Court finds plaintiffs lacked standing and rejected two claims on merits 

• Plaintiffs attorney declines to say whether they plan to appeal 

A judge dismissed a lawsuit alleging the state health department, governor and her chief of staff worked to improperly award a dispensary license outside deadlines set in state law. 

Mason Cave, owner of Arizona Wellness Center Springerville, sued the Arizona Department of Health Services, Gov. Katie Hobbs, chief of staff Chad Campbell and rival marijuana company Sherri Dunn, LLC for alleged violations of state law and past court orders. 

In a ruling from the bench, Judge Joseph Kreamer found Cave and his company lacked standing to file in the first place. And, even if successful in establishing standing, he rejected the allegation that a license awarded via a settlement violated the Gift Clause or any prior court order.

“I agree with the defendant’s arguments down the line,” Kreamer said. 

The voter measure legalizing adult-use cannabis in 2020 set off a statutory process to award dual-use licenses, which would allow existing medical marijuana dispensaries or an applicant operating a dispensary in a county with fewer than two existing dispensaries to sell to both medical and adult-use customers. 

Under state law, the Department of Health Services could only accept applications for licenses from early applicants between Jan. 19, 2021, and March 9, 2021. 

But before securing a dual-use license, an applicant first must have a Dispensary Registration Certificate. Sherri Dunn, LLC, first applied for a certificate in 2016 to operate in La Paz County, alongside three other applicants. 

The department declined to award a certificate to any of the three applicants, as there was an existing dispensary in La Paz County. One of the applicants then sued the department over the decision after the single dispensary in La Paz moved outside county lines.

A ruling from the Arizona Supreme Court eventually concluded the Department of Health Services had violated state law by denying certificates to qualified applicants from a county without a dispensary. 

Though Sherri Dunn, LLC, never joined the suit, the company was still issued a delayed certificate in December 2021. The company then applied for an establishment license on Jan. 3, 2022. 

The Department of Health Services accepted the application and its attached $25,000 application fee, but denied the license because it was submitted outside the statutory window. 

Sherri Dunn, LLC, litigated the issue, arguing that it should have initially received its certificate in 2016, rather than in 2021, but to no avail. An administrative law judge and a superior court judge found no exemptions from the January to March 2021 window. 

The legal battle then escalated to the Arizona Court of Appeals. But in weighing the Arizona Supreme Court’s decision to issue Sherri Dunn, LLC a certificate, the Department of Health Services anticipated an eventual loss on appeal and agreed to enter a settlement agreement awarding an establishment license to Sherri Dunn, LLC. 

Cave alleged a lobbyist for Sherri Dunn, LLC’s parent company, Trulieve, was in communication with the governor’s chief of staff, Chad Campbell, over the issue prior to the license award, which Cave alleges ultimately culminated in the settlement. 

The complaint from Cave alleged the license award violated the Gift Clause and court orders, or an ultra vires claim. 

In a hearing today, Kreamer began with the issue of standing, stating that he did not necessarily see Cave and his company demonstrating a personal stake with a concrete harm or a warranted claim as taxpayers. 

“It appears to me that the plaintiffs have a generalized desire to compete, that’s not good enough,” Kreamer said. “I just don’t see you getting there either way. I don’t see the concrete personal stake, and I don’t see, under the taxpayer standing doctrine, you getting there.” 

Ross Meyer, attorney for Cave, alleged Arizona Wellness Center Springerville suffered harm in being denied the same license because they were not afforded the same application process as Sherri Dunn, LLC. 

And, in the taxpayer vein, he noted Cave had both benefitted from programs funded by tax revenues from cannabis sales and bought recreational marijuana himself, making him both a contributor and recipient.

As for the Gift Clause, Kreamer said the language contained no mention of regulatory licenses and could lead to a complicated precedent if the court greenlit the challenge. 

“They give out professional licenses all the time, and they don’t get challenged. That’s just part of what happens if we open up the door to challenging licenses like this. You want to challenge a driver’s license?” Kreamer said. 

Kreamer was also unconvinced by the alleged court order violation, noting that no ultra vires claim exists under Arizona law. He added agreement via settlement to be a standard part of any litigation. 

“Isn’t that the point in litigation?” Kreamer said. “It happens all the time in litigation where the parties have to say, ‘You know what, we may resolve this, because if we get beat at the appellate level, we’re going to owe attorney’s fees, and the pain associated with resolving is less than the pain associated with trying to see that through and perhaps losing it’ … I just see that as normal litigation.” 

Meyer said he would agree with the court if it involved private parties, but he claimed ADHS could not enter a settlement in conflict with state law. 

“The department is not free to ignore statutes,” Meyer said. “Whether it’s part of an application that is not allowed, or in a settlement conference, when the government is settling, it has statutory regulations that it must follow.” 

Kreamer said the plaintiffs were not necessarily moving him in any direction on standing, nor the two claims. And he said he was not feeling any better after hearing from an attorney for ADHS. 

“In order to challenge something, you have to have a claim. We’ll start there. They don’t have one. I’ve never been in a situation where you don’t have a claim, but you also don’t have standing anyway. And things are unripe, but they’re also moot,” Craig Morgan, attorney for ADHS, said. “We are in a legal quagmire in that way.” 

Throughout the hearing, the court and attorneys only briefly touched on the allegations of Campbell putting a thumb on the scale in the settlement agreement. 

Kelly Mull, attorney for Hobbs and Campbell, said there was no real claim against the governor or her chief of staff. She called the allegations “insulting” and “specious.” 

In his ruling from the bench, Kreamer said he remained unconvinced by the plaintiffs’ arguments in court. 

He agreed Cave and Arizona Wellness Center Springerville did not have standing on either front. 

“That personal stake is missing. I don’t think that the plaintiffs have established that they were ever in a position to receive the license that Sherri Dunn received. I don’t believe that they have set forth reasonably that they could, in the future, be in that position, or that there will be another license available,” Kreamer said. “The plaintiff’s relying on a chain of hypotheticals.” 

He concluded a regulatory license could not fall under the Gift Clause, and the lack of an existing ultra vires route in state law defeated the claim of an improper settlement.

Kreamer granted all motions to dismiss, though acknowledged the likelihood of appeal. 

Meyer declined to comment on the ruling, nor the route forward following the hearing. A spokesperson for the governor declined to comment as well.