Cannabis Dispensary Application Properly Denied Under CRC’s Strict 2019 RFA Process, Appellate Division Holds

The Cannabis Regulatory Commission properly denied an application for a medical cannabis dispensary permit because the company did not submit sufficient information for each specific category considered in the agency’s application process, the Appellate Division held on December 20 in In the Matter of the Denial of Dispensary Permit Endorsement for Spectrym Consulting Group, LLC, Docket No. A-1465-21.

The New Jersey Cannabis Regulatory Commission, or CRC, issued a Request for Applications (RFA) in 2019, seeking permittees for five cultivation endorsements, fifteen dispensary endorsements, and four vertically integrated endorsements. The application consisted of two parts: Mandatory Information and Scored Criteria. The Scored Criteria required applicants to describe in detail their experience, proposed operations, security and quality control, financing, and other facets of running a cannabis business. Each application’s Scored Criteria were reviewed by a committee of nine employees from the Department of Health, Department of the Treasury, Department of Environmental Protection, and Department of Labor. The committee was broken up into three teams of three based on expertise, with each team assigned to review a specific group of criteria. Each reviewer’s score was combined with the other reviewers’ scores to create a composite score, and the CRC made permit decisions based on these composite scores.

Spectrym’s dispensary application was denied after it received the fourth-lowest score of all permit applications of the 2019 RFA, and Spectrym submitted an appeal, arguing that the CRC’s scoring was arbitrary and capricious. Spectrym argued that it should have been given higher scores because the CRC “failed to credit” them for certain documentation and information. For example, Spectrym argued that it should have been given all possible points for submitting a Labor Peace Agreement, which it did not submit in the proper section, because it submitted a cover letter to the Agreement in that section but included the full Agreement elsewhere in its application. The Appellate Division held that the CRC’s decision to grant zero points on this criterion was not arbitrary and capricious, because Spectrym failed to submit the correct documentation in the correct section of the application. The Court deferred to the CRC’s determination.

In another part of its appeal, Spectrym argued that it should have been given partial credit for the section which required a MBE/WBE certification or VOB certification, or evidence that those requirements would be met. Spectrym claimed that it was entitled to partial credit because its application showed it currently has a woman on its advisory board and it intended to increase the number of minorities and women on its board. However, they provided no evidence to support that they would be able to quality for a certification in the future. Therefore, the Appellate Division held, the CRC did not err in giving a score of zero for this section and the Court would not second-guess the agency.

In addition, the Appellate Division rejected Spectrym’s argument that the scoring process was arbitrary and capricious. Because the CRC “thoroughly explained its scoring and quality control processes” in two memoranda to applicants, provided detailed information about the expertise of each member of the selection committee, and statistically analyzed the scores to ensure accuracy, the Appellate Division held that the process was not arbitrary and capricious.

The Appellate Division’s decision emphasizes the need for applicants to the CRC to strictly meet all requirements of the application process. The Appellate Division grants significant deference to the agency’s multi-part application and will not easily second-guess its determination.