Former Arkansas Lawmakers And Legal Firms File Dueling Medical Marijuana Business License Lawsuits

The original litigation accused lawyers of manufacturing phantom local ownership groups to obtain four of the state’s first 32 medical cannabis dispensary licenses.

By Hunter Field, Arkansas Advocate

A prominent law firm in Arkansas’s medical marijuana industry hit back last week at a former partner and other dispensary owners who accused the firm of fraud and malpractice as the state’s cannabis industry blossomed.

The Little Rock firm of Steel, Wright, Gray was sued last month in Pope and St. Francis counties over fraud and legal malpractice claims regarding the creation of ownership groups in the lucrative cannabis dispensary business.

Steel, Wright, Gray has responded to both lawsuits filed by dispensary groups, and late last week filed a defamation suit of its own against Marshall Wright, a former law partner and state legislator, and Scott Pace, a lobbyist and the former CEO of the Arkansas Pharmacists Association.

Pace and Wright are members of the Enlightened Dispensary groups that filed the explosive lawsuits against Nate Steel, also a former lawmaker, and Alex Gray.

That litigation accused Wright and Gray of manufacturing phantom local ownership groups to obtain four of the state’s first 32 medical cannabis dispensary licenses in 2019.

The local “owners” of two of those dispensaries—Enlightened Dispensary locations in Heber Springs and Morrilton—say they had little control over the businesses, which are instead controlled by out-of-state management companies. Further, they say they received little to no income from Enlightened while taking on hundreds of thousands of dollars in tax liability.

Steel, Wright, Gray denied the allegations and said the suits should be dismissed for a number of procedural reasons.

The firm also claimed that Wright prepared dispensary license application materials for the dispensary group he was a part of as well as the group that included Pace. Both Pace and Wright negotiated with outside management companies and knew those companies would manage their dispensaries, the defamation suit alleges.

Gray and Steel didn’t advise Wright and Pace on how to use their licenses or operate their dispensaries, the suit continues.

At some point, Pace and Wright became “adverse” to the management company running their dispensaries and hired Gray and Steel to find a buyer. Eventually, they hired a different attorney, the suit says.

“Defendants then engaged in a systematic and targeted campaign to defame Gray and Steel, tarnish Gray’s and Steel’s reputations in the Arkansas business and legal communities, and interfere with SWG’s business and law practice with the intent to harm Plaintiffs,” the defamation suit reads.

The suit also claims that Pace disparaged and made false statements about Steel and Gray to the Pharmacists Association, which ended its business relationship with Steel, Wright, Gray. The firm had been retained as the association’s outside general counsel since 2019, according to court documents.

Scott Poynter, an attorney for Pace and Wright as well as several of their dispensary partners, said his clients wanted to battle in court, not the media.

“That said, our clients are confident in the allegations they have made, which they attempted to resolve for well over a year,” Poynter said in an email.

“As to the defamation case, those claims grow out of the very same problems and procedurally should have been filed as counterclaims in the St. Francis and Pope County cases. When we prove our clients’ malpractice claims in Court, this truth will be a complete defense to the recently filed defamation claims.”

Steel, Wright, Gray also moved to disqualify Poynter, who was “of-counsel” at its firm until 2019, from representing Wright, Pace and the other plaintiffs in fraud and malpractice suits. The defamation suit referred to Poynter as “a disgruntled former member of SWG.”

The court filings were the latest in the ugly fight that pushed a number of controversial cannabis industry issues to the forefront.

Chief among them: What is ownership?

The Arkansas Legislative Council’s Medical Marijuana Oversight Subcommittee explored the question in a Monday afternoon hearing, but there were no concrete answers to issues that have arisen between ownership and management companies.

Several legislators expressed frustration that the owners listed on paper for medical cannabis companies were not the ones controlling the companies due to the structure of management agreements.

Under state law, marijuana businesses must be owned at least 60 percent by Arkansas residents.

“Therein lies the rub,” state Sen. Linda Chesterfield, D-Little Rock, said. “I may on paper own 60 percent, but if I don’t control the vote in that company, I don’t control the company.”

This story was first published by Arkansas Advocate.