Closer Look: Federal Lawsuit Alleges City Favored Cannabis Applicant's Fudged Application

Published : Thursday, September 5, 2019 | 4:49 AM

The federal lawsuit filed Sept. 3 by Westlake Village-based Atrium Group in part against City officials asserted not only that the commercial cannabis application approved for Harvest of Pasadena was erroneous, but that Harvest has played it fast and loose with the facts.

See a copy of the lawsuit filed Tuesday in U.S. District Court against the City of Pasadena by marijuana retailer The Atrium Group, LLC

Although Atrium was ultimately selected as one of the top six applicants, its ability to open a cannabis store in Pasadena has been effectively blocked due to the illegitimate participation of Harvest in the permitting process, according to the suit.

The lawsuit filed in U.S. Court for the Central District of California in Los Angeles focuses almost exclusively on alleged falsities in Harvest’s application and the assertion they were intentional.

According to the complaint, Harvest of Pasadena’s application identified its “100 percent” owner as Steve White and included a cover letter written by the same man saying day-to-day managing a Harvest of Pasadena retail store would fall to Harvest Health & Recreation (HHR), Inc.

The Atrium operates a high-end cannabis store located at 5441 Topanga Canyon Blvd. in Woodland Hills. Courtesy photo.

“HHR,” the complaint stated, “is a giant in the cannabis industry with more than 1,580 employees.” White, plaintiff continued, owns the company, which is based in Tempe, Ariz., and publicly traded on the Canadian Stock Exchange.

The problem with HHR’s application, Atrium contends, is that none of the above vital information was properly included in the application, when it should have been.

The City’s “applicant/owner information form” required the identity of an applying entities owner, the owner of the application, the applicant — all of which apparently could be distinct — and non-owners with a financial interest in the application.

“Contrary to these mandates,” the complaint states, “and despite claiming 100 percent ownership of Harvest, there was no disclosure submitted for Mr. White. This omission constitutes a significant breach of the City’s filing rules, which clearly require a disclosure for each owner of a cannabis business.”

Other company officers, the complaint alleges, were also omitted from the same form.

These omissions thereby rendered Harvest’s submission false, misleading, and incomplete, or so the plaintiffs would have the court rule.

Meanwhile, HHR’s public pronouncements portray White’s duties as “custodial,” and blur the lines between HHR and Harvest of Pasadena, it alleges.

The complaint lays out Atrium’s description of White’s blue chip credentials in the marijuana business as chief executive officer of a large cannabis concern with years of regulatory wrangling to his credit.

“In short, Mr. White does not appear to be the type of person who would file a cannabis business application without reviewing it to ensure that it fully complies with submission requirements,” plaintiff contended. “And while intent is not a necessary element of a mandatory rejection of an application containing incomplete information or false and misleading content, it would appear such intent is manifest on the facts of this case.”

Which seems a lawyerly way of saying White knew his application was skirting the pure truth about Harvest of Pasadena and his role therein.

The lawsuit accuses City officials of “unjustly favoring” Harvest’s application and doing Atrium harm in the process.

Both companies, it is noted, had wanted locations in Council District Three for their stores.

In late July, the City of Pasadena said three cannabis finalists had properly submitted paperwork needed to win Pasadena store locations. Harvest won a plum location at 169 West Colorado Boulevard, on the northeast corner with Pasadena Avenue, and the other successful applications were all also located on Colorado Boulevard.

Harvest reportedly submitted their application five hours before Atrium did and Pasadena’s limit of one marijuana business per Council District meant Atrium was left out in the cold with an unprocessed application.

The lawsuit charges City officials alone with a violation of state law by failing to discharge a “mandatory duty” under California code. It alleges that all defendants violated Atrium’s right to due process under the Fifth and Fourteenth amendments to the U.S. Constitution.

Atrium seeks a court order that agrees with the above assertions, an injunction against the further processing of Harvest’s application, and relief both compensatory and consequential.

Defendants named in the suit include City Manager Steve Mermell; Planning Director David Reyes; the consultant hired by the City to handle the application process, HdL; and Harvest of Pasadena.

“We can confirm that late this afternoon we were served with a lawsuit filed by The Atrium Group,” said City Press Information Officer Lisa Derderian on Sept 3. “We have no comment on the lawsuit at this time.”

HHR spokesman Alex Howe told Pasadena Now, “We just received the complaint and will defend the lawsuit vigorously. We are confident our application was sufficient and appropriate and the City agreed with us, selecting us as one of six out of hundreds of applicants.

Among the questions taking shape following the filing are why plaintiffs filed in U.S. District Court, when marijuana is still illegal in the eyes of the federal government, and whether court intervention could invalidate the entire application process mounted by the City to meet the exigencies of a voter-approved marijuana initiative.

Atrium’s attorney Jonathan Freund did not return a call for comment on some of these questions.

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