September 23, 2021

Marijuana company sues Chula Vista over business license denial

A marijuana company is suing Chula Vista after the city rejected its business license application. If successful, the lawsuit could put an abrupt halt to the city’s permitting process.

The lawsuit, filed in San Diego Superior Court this week by Caligrown, claims that consultants hired by Chula Vista to evaluate applicants didn’t follow the city’s own rules and therefore unfairly rejected the company’s application.

Attorneys representing the company are asking a judge to order the city to stop issuing any licenses to dispensaries and to re-evaluate all of the dispensary applications. Other businesses such as delivery services, testing sites, cultivation facilities or manufacturing operations would not be impacted.

“The suit demonstrates the city’s process is fatally flawed, and will not serve the citizens of Chula Vista in their desire to permit the ‘best and most qualified candidates,’ and thereby eliminate the dangerous, illegal operators that have plagued the city for years,” lawyer David Damien wrote in a statement.

The idea of legal marijuana in Chula Vista has been controversial since the city began drafting regulations in 2018. Prohibitionists spoke out against their perceived dangers of marijuana and pressured City Council members to oppose a legal cannabis marketplace.

To appease prohibitionists and ensure the city attracted qualified applicants, the City Council established a strenuous two-tier permitting process that included thorough vetting and criminal background checks. The city also limited the number of certain types of businesses; for example, only eight dispensaries are allowed to receive a business license and only two in each of the city’s four districts.

Under the city’s merit-based evaluation system, each applicant was scored on four different categories and applicants with the highest total scores moved on to the second phase of the process. Chula Vista outsourced the review process to a company called HdL Consulting Services.

The city began accepting applications in January 2019. It received 136 applications, including 84 for dispensaries. Nearly two years later, the city has not issued any licenses. However, city officials said they expect the first round of businesses to open before the end of this year.

Through its spokesperson, Chula Vista declined to comment on Caligrown’s lawsuit.

“The City of Chula Vista has not been served with the complaint or otherwise reviewed it, and does not have any public comment in accordance with the City’s general policy not to comment on pending litigation,” Anne Steinberger wrote in a statement.

Caligrown submitted three separate applications to open a marijuana dispensary in Districts 1, 3, and 5. Each application was for a dispensary in a different district.

Caligrown claims HdL Consulting Services did not follow the city’s rules while evaluating application. Instead, the consultants used an “arbitrary and capricious” method that evaluated the applications on form instead of substance.

HdL declined an interview request for this story.

Specifically, the consultants deducted points from Caligrown’s application because of “poor formatting and disorganization,” despite the fact that the company followed the city’s directions. Caligrown appealed.

During the appeal, then-City Manager Gary Halbert said Caligrown’s application should be rescored and that “the scoring should be based solely on the city-established criteria around the applicant’s qualifications and ability to operate a top-quality retail cannabis establishment, rather than application form,” according to a report of the appeal hearing.

Caligrown’s lawsuit claims HdL only rescored one of the four evaluation categories. As a result, Caligrown still did not score high enough to qualify for a business license.

Since Caligrown cannot appeal a second time, the company is taking Chula Vista to court.

The complaint argues that Halbert’s “directive to the city could not have been more clear: ‘[Halbert] directs the city to reassess the appellant’s score without regard to formatting or organization of the application, in conformance with this statement of decision.’ In failing to follow this directive, the city abused its discretion.”

“Although the city has discretion in its licensing decisions, including how to evaluate and score cannabis business licensing applications, the city is still legally obligated to at least follow its own rules,” the complaint states.

The lawsuit requests a temporary restraining order to prohibit Chula Vista from issuing any business licenses in Districts 1, 3 and 4.

Laura Wilkinson Sinton, Caligrown’s CEO, referred all questions about the lawsuit to her lawyer.

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