Terminating Hidden Ownership of a Marijuana Cultivation Facility

Updated: Mar 27, 2020

When does a Landlord or Lender become an unlicensed owner?

Under Colorado law, individuals and businesses must obtain a valid state-issued license before engaging in the privilege of working in the marijuana industry. Any person in control of a licensed business must be individually licensed by the State Licensing Authority. Landlords and lenders, who are not in control of a business, can be exempted from licensure. This case is about a landlord/lender who was denied a state license for unlawfully controlling a marijuana cultivation facility. The case illustrates the deference a court will show when reviewing an agency’s final order and a hearing officer’s determinations of witness credibility.

In 2014, two parties (Landlord and Licensee) entered a business agreement which stipulated that Lender would provide land and facilities for cultivating marijuana. Licensee would operate the facilities as a licensed marijuana cultivator. Throughout the course of their dealings the relationship turned sour, and the parties executed a purchase agreement whereby Lender would purchase Licensee’s marijuana production business. After the purchase, Lender continued to operate the marijuana cultivation business despite the fact that he did not have the associated key license.

After an investigation, the SLA issued an Order of Summary Suspension (OSS) to Licensee to immediately cease business operations based on the Lender’s unlicensed control.

Lender formed a new business, Johnny Cannaseed, which would take over marijuana production at the facility and attempted to obtain the appropriate licenses under that name. The SLA denied Lender’s application on the basis that he engaged in the unlicensed cultivation and sale of marijuana. Lender requested a hearing to contest the denial. After a four-day evidentiary hearing, the Hearing Officer affirmed the denial. Lender filed exceptions with the agency but the SLA affirmed the Hearing Officer’s initial findings of fact and conclusions of law.

On appeal to the Denver District Court, Lender argued the SLA’s denial was arbitrary and capricious and unsupported by the record, and that the agency erroneously interpreted the law and exceed its statutory authority. The District Court affirmed the final order of the agency, denying the licenses to Lender. Judge Martinez found the hearing officer’s findings, as the initial finder of fact, were supported by the record, and that the agency did not exceed its statutory authority.

Click here to visit out Case Brief page, where you can download a full pdf of the case brief for John McKowen & Johnny Cannaseed v. State Licensing Authority, No. 2019CV30531 (Colo. Dist. Oct. 11, 2019).

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