Rejected for a coveted cannabis retail license in an affluent California wine country town, a small marijuana retail chain is alleging in a lawsuit that political contributions from competing applicants “tainted” the process.
Mercy Wellness’ legal claims against the Healdsburg City Council and Councilor Ariel Kelley come as Kelley is in a competitive three-way race for a California state Assembly seat.
But the situation also highlights the inherent complications with “limited-license” jurisdictions, where elected officials in communities that cap the number of MJ businesses allowed can choose who enters the $34 billion U.S. marijuana industry.
Cities or counties with such license caps can be found throughout the United States, including older markets such as California as well as newer entrants such as Maryland, Michigan, New Jersey and New York.
Executives from small businesses as well as large, publicly traded multistate operators have said that limited-license markets improve operators’ chances of profitability.
But empowering local officials to select those winners also can create a situation that federal law enforcement has warned is ripe for corruption, or at the very least, “some problematic optics,” Robert Eyler, a professor of economics at Sonoma State University, told MJBizDaily.
Prized location
Last year, Mercy Wellness – which operates three marijuana stores elsewhere in Sonoma County – was one of eight applicants vying for two retail permits in Healdsburg, a popular tourist destination about 70 miles north of San Francisco.
In November, despite city staffers scoring Mercy Wellness’ application at 97 out of 100 – the highest of the eight applicants – Kelley and her City Council colleagues unanimously voted to award licenses to the second- and third-highest scoring applicants: Solful and Jane, which scored 94 and 90, respectively.
However, that scoring is not binding. The City Council “is the final word on how things are run in the city,” Councilmember Ron Edwards, who did his own scoring of the applicants, told MJBizDaily.
In contrast to the marathon public meetings that often presage license awards, the City Council made its decision relatively quickly, in less than a half-hour.
In comments to The Healdsburg Tribune the day after the vote, Kelley, a former mayor of the town, said she was “surprised by how quickly we reached consensus … but applaud a very thorough process led by our staff, which provided all of the information we needed.”
But as Mercy Wellness pointed out in a lawsuit filed Feb. 8 in Sonoma County Superior Court, Kelley had also accepted political contributions from individuals associated with both Jane and Solful.
Kelley also accepted a campaign contribution from her third-place choice, which was rejected for a license, the lawsuit alleges.
Those claims are backed up by campaign finance records.
The Mercy Wellness lawsuit alleges the contributions to Kelley’s campaign represent a violation of California’s Levine Act, which requires public officials to refuse political contributions greater than $250 from any entity that might seek a permit from them or to recuse themselves from votes involving the contributor.
Transparency defense
Mercy Wellness’ suit – which names the parent companies of Jane and Solful as well as the city of Healdsburg and its City Council as defendants – also alleges violations of California open-government law, claiming the City Council debated which companies to select in closed session instead of a public forum.
The lawsuit seeks a judge’s ruling to void the two licenses issued to Jane and Solful and to force the city to redo the permitting process.
Raina Allan, Healdsburg’s public information officer, told MJBizDaily on Monday that the city has yet to be served with the suit.
“If the City is served with a lawsuit, we will review and provide additional information as appropriate,” she said via email.
In a statement emailed to MJBizDaily last week, Kelley defended the city’s licensing process, saying Healdsburg “set a new standard for public input, transparency and efficiency.”
“Our staff, the council and the public evaluated the merits of eight applications,” she wrote.
“The council voted to select two operators to award permits to, and that vote was unanimous.”
Kelley did not address questions about the political contributions, and she did not respond to further requests for comment.
According to campaign finance records, on Dec. 7, 2023 – about a month after the store licensing vote – Kelley’s Assembly campaign received $5,500 from Laura Ubben of Healdsburg.
Mercy’s lawsuit claims Laura Ubben is the mother of Theodore Ubben, one of Solful’s minority owners.
Before the vote, Kelley’s City Council campaign received $250 from Jamie Shira, listed in finance records as Jane’s creative director, as well as $100 from a Solful employee, the lawsuit alleges.
‘No reason’ for rejection
In an interview with MJBizDaily, Brandon Levine, Mercy Wellness’ majority owner, said the City Council “gave no reason why they didn’t choose us.”
“We followed the rules to a T,” he said, adding that Mercy attempted to make inroads in Healdsburg.
“We’ve been extremely involved in the community up here, more than all the other applicants together,” Levine added, noting that he attended high school in Healdsburg and that Mercy Wellness sponsored Chamber of Commerce events.
Mercy’s three Sonoma County locations – one in Cotati and two in Santa Rosa, the county seat – see “800 to 1,000 people a day,” Levine said.
Healdsburg “makes even more sense,” he added.
Edwards, the city councilor, told MJBizDaily via email that “we could have done better in (explaining) WHY we did not select an applicant.”
“But,” he added, “we did do a good job of explaining WHY we picked the two who were awarded.”
Though it’s not mentioned in the lawsuit, Edwards accepted a political contribution during his 2022 City Council campaign from Anthony Shira, husband of Jane’s executive Jamie Shira.
All of this is a far cry from the pay-to-play schemes that have landed other elected officials in serious trouble, such as the former mayor of a Massachusetts town caught soliciting bribes.
Whether the result is a criminal allegation in Massachusetts or a civil suit such as Mercy Wellness’, the furor over license rejections demonstrates the high stakes involved when municipalities limit the number of cannabis businesses.
And, of course, marijuana businesses in limited-license jurisdictions stand a better chance of turning a profit, said Eyler, the Sonoma State economics professor.
“That does make whatever limited licenses you have much more coveted,” he said.
For that reason, Eyler added, whether it’s sour grapes or a legitimate concern about graft, local elected officials risk allegations such as Mercy Wellness’ when those coveted permits go to someone else.
“The more transparent, the more fair, the more obvious the pathway is with a limited set of licenses, the better everybody is at the end of the day,” Eyler said.
Chris Roberts can be reached at chris.roberts@mjbizdaily.com.
