As we’ve warned marijuana entrepreneurs over and over again, state marijuana regulations change with great frequency. Sometimes, the rules mutate because of industry issues that arise after implementation. And sometimes the rules change because the agency in charge got things wrong. Unfortunately for qualifying patients in Florida, Florida’s Department of Health — specifically its Office of Compassionate Use — got its first draft rules wrong according to Florida Administrative Law Judge David W. Watkins.

In September of this year, Florida’s largest nursery, Costa Farms, successfully sued the Department of Health over its first draft rules under the state’s Compassionate Medical Cannabis Act of 2014 (commonly referred to as its Charlotte’s Web law). Costa Farms filed its action in the state’s Division of Administrative Hearings, mainly protesting, among other things, the Department’s proposed use of a lottery to pick five licensees to grow, manufacture, and distribute high-CBD cannabis throughout the entire state.

The hearing on Costa Farm’s suit wasn’t until October of this year. After that hearing, Judge Watkins ruled that the agency had not done enough in its rule making to address the significant and unique needs posed by the Charlotte’s Web law. Judge Watkins found that the rules drafted by the Department would not enable the most qualified and capable parties to grow and distribute the very selective strains of cannabis for the entire state:

The [Court] rejects as non-credible the proposition that all applicants who meet the minimum initial application requirements set forth in [the rules] are equally qualified to cultivate, process, and dispense low-THC cannabis. Rather, many of the general statutory criteria . . . can be compared on the merits using ordinary business judgment without special knowledge of technical methods of production or preference for any one technical approach. While the Department’s present inexperience in technical program areas may make comparison more difficult, it can avail itself of expert assistance to determine which applicants have superior programs and the best chance of success.

Regarding the lottery, Watkins specifically concluded as follows:

The statute’s language requires the Department to determine, with regard to demonstrable facts, which statutorily qualified applicant for each region best promotes the statutory interests, including ability and financial strength to undertake a new operation, to promote accessibility and availability of low-THC cannabis. This necessarily requires the Department to engage in discretionary evaluation to determine which eligible applicants to approve as a dispensing organization for each region.

The statute’s manifest intent also requires the Department to qualitatively evaluate applicants for each of the five dispensing organizations. There is no discernible reason why the exercise of the Department’s reasonable discretion in applying the criteria should not determine which applicants are approved.

Because arbitrary selection of dispensing organizations [by lottery] . . . is not supported by logic, reason or facts, the proposed rule itself if arbitrary, and invalid.

Judge Watkins ordered the Department to undertake a re-write of a good portion of its promulgated rules. According to SaintPetersBlog, “[Department] officials have been silent about how they intend to resolve the legal problems Judge David W Watkins identified in the department’s first attempt to construct a regulatory framework.” Today, the Department will be hosting a public workshop to address the re-draft of the five provisions of the rules invalidated by Judge Watkins.

What will all of this ultimately mean for patients and expectant nursery applicants? As we have been advising our Florida clients, all of this is going to mean delay, delay, delay. Though the Department will no doubt try its best to satisfy Judge Watkins’ order, we are not convinced that the Department is going to succeed and if it does not, legislative intervention may become necessary to ensure proper implementation of the Charlotte’s Web law.

Stay tuned as Florida continues to (painstakingly slowly) navigate the birth of its medical marijuana industry.