Don’t Pay for an Agency’s Mistakes

By: Chris Mincher


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It’s just a fact that administrative law is pretty friendly to government agencies, even when they mess up, and even when messing up is unfair to the companies they’re regulating. Relying on what agencies say and do, without independently getting the lay of the legal land, can be perilous. Let the matter of In re Green Thumb Industries, Inc. be a cautionary tale.

Green Thumb Industries is in the cannabis processing and distribution business, meaning that almost everything about its products needs to be approved by the Maryland Medical Cannabis Commission. Accordingly, when Green Thumb wanted to sell its “Incredibles” cannabis-infused chocolate bars (presumably unrelated to the Pixar movie franchise), it submitted them to the Commission in January 2021 and was approved. Green Thumb put them out in stores. Simple enough, right?

Well… the administrative process is rarely that easy, and it wasn’t here, either. At the time of the approval, the Commission had proposed regulations for edible cannabis but hadn’t adopted them yet. Four months later, in May, the Commission approved those regulations, and Green Thumb’s chocolate bars didn’t comply with them.

The issue was how the bars were separated into servings. Much like a Hershey’s, the bars were demarcated into smaller rectangles, in this case (and much unlike a Hershey’s) having 10 milligrams of THC in each. But the Commission’s new regulations said that “each single serving contained in a package of a multiple-serving solid edible cannabis product shall be” — here’s the kicker — “physically separated.” Though one could tell by looking at a bar how big the servings were, the Commission took the position that they weren’t physically separated.

When the Commission gave Green Thumb the heads-up that it didn’t consider the bars legal anymore — even though that had just been approved earlier that year — Green Thumb went to court. And lost.

The mechanism for challenging an agency decision like this is called a “writ of administrative mandamus,” and winning them isn’t easy. As described in Md. Rule 7-403, the writ issues only if the agency basically does something illegal, arbitrary, or unsupported by evidence, or if it abuses its discretion. Not surprisingly, the reviewing courts give the agencies a healthy dose of deference as well.

How did the Commission explain approving the products mere months before disapproving them? This, um, happened “erroneously.” On review at the Appellate Court of Maryland, “whoops!” proved to be a convincing argument, given prior cases granting agencies an “inherent power of reconsideration” of previous actions done by mistake. Here, the Court found, the agency didn’t randomly change its mind — that wouldn’t have been allowed — rather, the initial approval was just a flub that the Commission was permitted to fix.

The analysis then turned to the correctness of the Commission’s later interpretation of the meaning of “physically separated.” Notably, the regulation refers to servings within “a multiple-serving solid edible cannabis product.” The use of the singular suggests one product like one chocolate bar — is allowed to have multiple servings. On the other hand, “physically separated” wouldn’t normally be understood to encompass things that are physically connected, as each serving in the bars was.

Faced with an uncertainty, the Court followed established Maryland case law and deferred to the agency’s interpretation of its own regulations. This was deemed especially appropriate given that the agency issued a guidance document contemporaneously with the regulations, so companies were never faced with shifting or inconsistent enforcement. In sum, the Commission’s understanding of its own regulations wasn’t a wildly unreasonable reading of the text and was likely what was intended all along, so the Court wasn’t going to interfere.

That doesn’t mean the Court wasn’t sympathetic to the plight of Green Thumb, which, authoring Judge Douglas Nazarian acknowledged, “relied to its financial detriment” such that “its sense of administrative grievance and aggravation here is understandable (and not at all unwarranted).” But the Court wasn’t going to let those concerns override the Commission’s responsibility to ensure cannabis products are produced and packaged in a way it deems to be safe.

So, what lessons does this case hold for companies trying to fulfill their regulatory responsibilities and move on? Well, for one, when dealing with state agencies, businesses need to develop an independent analysis of the legality of what they want to do. Here, the Commission’s regulations had been proposed but weren’t adopted yet, so Green Thumb should have been on notice to tread lightly.

If there are ambiguities in proposed regulations, stakeholders should use the comment and approval process to raise questions and flush out the agency’s interpretations and plans for enforcement. If necessary, bring concerns to the Joint Committee on Administrative, Executive, and Legislative Review before things are finalized.

This also seems like a good time to mention Sec. 10-304 of the State Government Article, a provision that helps protect regulated parties from uncertain enforcement and isn’t used nearly enough. The statute grants regulated entities the power to submit to the regulating agency a “petition for a declaratory ruling” through which the agency explains how it interprets a regulation and how it would apply the regulation in those circumstances.

The regulating agency’s decision binds said agency; if the regulated entity thinks the agency is wrong, the decision is reviewable in circuit court. That way, the business and agency can hash this all out on the front end, before a bunch of money is wasted and with confidence that the rules won’t unexpectedly change down the road. It’s important to get as much protection as possible, because, as the Green Thumb matter demonstrates, very little is guaranteed in the administrative law context — and the agency is always going to have the upper hand.