County’s pot permit process found wanting by some

Early this month medical marijuana entrepreneurs were given six minutes to make their case for one of 18 pot dispensary licenses up for grabs in Clark County.

County commissioners gave themselves half that time to cross-examine applicants before sending three-quarters of them packing.

Jean Matherly isn’t sure they took enough time to pick out all the bad apples, and she’s not alone.

Rejected pot license applicants, pundits and industry observers have in recent weeks sounded the alarm over Clark County’s approach to the green rush, calling for reform of a selection process they say failed to produce the best outcome for patients.

Matherly, an Arizona-based medical marijuana entrepreneur, says a cohort of former Wall Street bankers — including an owner of Clark County dispensary license-winner Columbia Care LLC — bilked her and a business partner out of $400,000 last year.

She and former dispensary co-owner Linda Shaughnessy have in recent months sent complaint letters about New York-based Columbia Care partners Michael Abbott and Nicholas Vita to medical pot regulators in four states.

They still are waiting for a response.

“These individuals defrauded my partner and I out of our medical marijuana company in Arizona, depleted us of our life savings on false promises and badly impaired our futures as we embark on our retirement years,” Matherly, 63, wrote in a March letter to Nevada Public and Behavioral Health deputy chief Marla McDade Williams. “I am told that they have likewise taken advantage of medical marijuana business founders in other jurisdictions through deceptive practices, including wrestling control of a medical cannabis operation in Washington, D.C., and are being sued accordingly in connection with those medical marijuana programs.”

County Commission Chairman Steve Sisolak said he received a handful of letters raising concerns about specific applicants. If the letters were signed, applicants were given the chance to respond to the complaint, he said, adding that he was satisfied with the answers.

“They submitted lengthy applications that we all had a chance to review and read,” Sisolak said of the county’s vetting process. “I’m very pleased with the way it turned out.”

Neither Sisolak nor Williams said they could recall receiving a letter about Columbia Care.

Williams said the state will look at applicant disclosures, and any information the state receives will need to be verified from publicly available information, regardless of its source. Factors such as past bankruptcies and lawsuits aren’t disqualifiers under the state law, which requires a background check showing no felony convictions.

The state law also requires applicants to disclose at least $250,000 in financial backing per application.

COLUMBIA CARE HISTORY

Documents obtained by the Review-Journal show that in 2012 Abbott and Vita drew up a preliminary agreement committing up to $1.2 million to Matherly and Shaughnessy’s dispensary, in part to help the pair pay off loans from investor Thanh Pham.

Matherly, in a letter to Arizona’s Department of Health Services in February, alleged the New York investors never followed through with the arrangement, inviting a lawsuit from Pham that eventually threw the company into receivership.

A company owned by Abbott and Vita subsequently was named as the dispensary’s manager by a court-appointed receiver. Matherly and Shaughnessy were booted off the dispensary’s board of directors two months later.

Shaughnessy said she plans to sue the pair as soon as she can scratch up the cash. She would not be the first to do so.

Court papers filed in Maricopa County, Ariz., in February allege Abbott and Vita failed to pay the consulting firm that helped broker the deal between Matherly and the New York investors. Plaintiffs in that lawsuit seek $50,000 and 5 percent of dispensary revenues.

A separate lawsuit filed in Massachusetts in March alleges a medical marijuana license awarded there to Patriot Care Corp. — a company co-managed by Vita and financed through Abbott’s Columbia Care LLC — omitted relevant fraud and tax charges against company executives and overlooked a bankruptcy Vita filed as chairman of a Texas company in 2010.

A third suit filed in Washington, D.C., alleges the pair “breached their fiduciary duties” in engineering a plan to have an ex-business partner removed from his company’s board.

Company spokesman Dennis Kunian chalked up that litigation to “disgruntled competition.” He said applicants such as Columbia Care are bound to take a few lumps from those looking to stake their own claim in the green rush.

“We have passed every sniff test,” Kunian said Tuesday. “You’re talking to a group that’s clean.”

Company representatives say Matherly and Shaughnessy were fired in August after they were accused of theft. The women said the allegations came after they used dispensary money to pay business bills. No charges were filed.

Columbia Care was awarded a Clark County dispensary license June 6.

The company, represented by the law firm of longtime lobbyist Jay Brown, went on to pick up two medical pot cultivation and production licenses awarded this past week.

“I’m appalled that no one is acting on this, or even getting back to me,” Matherly said Tuesday. “Allowing people already involved in a lawsuit in Arizona to get a license (in Nevada) is just appalling to me.”

UNFAIR INFLUENCE?

MediFarm LLC didn’t get a dispensary license, but the company did win commissioners’ unanimous support Tuesday for a growhouse and bakery permit.

If not for a 15-page “hit piece” aimed at its management, MediFarm executive Derek Peterson believes his company would have made it a clean sweep.

Peterson, a former Wall Street investment banker and the CEO of MediFarm parent company Terra Tech Corp., said at least one county commissioner opposed his dispensary bid after reading a scathing blog post about Terra Tech on the stock market blog Seeking Alpha.

The article’s anonymous author suggested the company could be complicit in a complex scheme meant to unjustifiably enrich its executives. The author also disclosed holding a short position in Terra Tech stock, meaning he or she would profit if the value of the stock falls.

The blog post, published just hours before county commissioners kicked off a first round of hearings on the city’s pot shop applicants, lambastes company executives and former business partners for past run-ins with securities fraud investigators and bankruptcy court judges.

The company’s stock took a 26 percent nosedive just hours after it was announced MediFarm had lost its Southern Nevada pot shop bid.

“I’ve never seen anybody try and get in front of business being done like that,” Peterson said. “I just don’t know what other motivation they would have except being short (on company stock).

“I’ve had one commissioner tell me that they pulled a vote because of this information. … It’s disappointing, but I think most people know who the victim is here.”

Peterson said the FBI and the Securities and Exchange Commission are looking into the source of the article.

Commissioner Sisolak declined to comment on Peterson’s dispensary application as well as any investigations into the matter.

AHEAD OF THE STATE

Clark County commissioners have been forced to defend their controversial decision to move ahead with the county’s permitting process before applicants are vetted by the state, a move Sisolak and others have touted as a tool to ensure transparency and effectiveness in the county’s “merit-based” selection process.

Terra Tech’s Peterson said he felt the county’s process was fair, even “refreshing,” compared to California’s permit process.

He might be in the minority.

“I’m a little disturbed by the way the county got involved in the process,” said a spurned dispensary applicant, Tim Schick. “The county got in front of (the state) and screwed it up for a lot of people. Now we’re just hoping it’ll be different in Las Vegas and North Las Vegas.”

Schick, who heads California-based dispensary giant Berkeley Patients Group, said he’s taken dozens of sympathetic calls from fellow applicants since being denied a dispensary permit.

“We were told it was a merit-based process and we gave what I’m told was an outstanding presentation,” Schick said. “I know our experience was far superior to those (applicants) who were selected, but our team was built around the state requirements.”

Reporter Ben Botkin contributed to this report. Contact James DeHaven at jdehaven@reviewjournal.com or 702-477-3839. Find him on Twitter: @JamesDeHaven.