Pursuant to notice, a formal hearing was held in this case before W. David Watkins, Administrative Law Judge of the Division of Administrative Hearings, on October 14 and 15, 2014,
in Tallahassee, Florida.
For Petitioners: M. Stephen Turner, Esquire
David K. Miller, Esquire Broad and Cassel
Douglas Manson, Esquire Craig D. Varn, Esquire MansonBolves, P.A.
(Plants of Ruskin, Inc. and Florida Medical Cannabis Association)
J. Stephen Menton, Esquire Rutledge Ecenia, P.A.
119 South Monroe Street, Suite 202 Tallahassee, Florida 32301 (Tornello Landscape Corporation)
Chad R. Stevens, Esquire Florida Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399 (Florida Department of Health)
Craig D. Varn, Esquire MansonBolves, P.A.
J. Stephen Menton, Esquire Rutledge Ecenia, P.A.
119 South Monroe Street, Suite 202 Tallahassee, Florida 32301 (Tornello Landscape Corporation)
Adam S. Levine, M.D., J.D.
Law Offices of Luke Lirot, P.A. 2240 Belleair Road, Suite 190
Law Office of Robert Buck Post Office Box 15146 Brooksville, Florida 34604 (Tree King–Tree Farm, Inc.)
Whether the proposed rules that comprise Florida Administrative Code Chapter 64-4 (Proposed Rules) constitute an invalid exercise of delegated legislative authority?
On June 16, 2014, Governor Rick Scott signed the Compassionate Medical Cannabis Act of 2014 (Act). Ch. 2014-157, Laws of Fla. (codified at § 381.986, Fla. Stat.). The next day, the Florida Department of Health (“Department” or “DOH”) commenced the statutory rulemaking process for the regulatory framework necessary to authorize the establishment of five dispensing organizations to grow and dispense low-THC cannabis to qualified patients. On August 14, 2014, the Department published a Notice of Proposed Rule that established a regulatory structure for the selection and regulation of five dispensing organizations for low-THC cannabis as required by section 381.986(5)(b). On September 9, 2014, the Department published a Notice of Change in the Florida Administrative Register, in response to comments from the Joint Administrative Procedures Committee (“JAPC”), testimony received at the public
hearing on September 5, 2014, and additional written comments received from the public after publication of the Notice.
Specific provisions of the proposed rule were challenged by Costa Farms, LLC (“Costa Farms”); Plants of Ruskin, Inc. (“Plants of Ruskin”); the Florida Medical Cannabis Association (“FMCA”); and Tornello Landscape Corp. a/k/a 3 Boys Farm Company (“Tornello Landscape”). FMCA, Tornello Landscape, and Tree King-Tree Farm, Inc., (“Tree King”) were also granted permission to intervene in opposition to the proposed rules. Specifically, the challengers allege the following proposed rule provisions are invalid:
Rule 64-4.002(2)(j), which limits the conditions imposed on the required performance bond;
Rule 64-4.002(4)(a), providing for the use of a lottery to choose the applicants to be approved;
Rule 64-4.002(4)(b), requiring only approved applicants to pay an application fee.
In addition, Costa Farms alleges that the Department’s procedure to screen applications to qualify for the lottery pool is an unadopted rule within the meaning of section 120.52(16) and (20), Florida Statutes.
Finally, Plants of Ruskin alleges that the proposed rules prescribe extensive guidelines for the grant and revocation of
authorization to become a dispensing organization which exceed those authorized by the enabling Act.
All challenges were consolidated for the purpose of final hearing, which was scheduled to commence on October 14, 2014.
On October 6, 2014, the Department moved to dismiss Costa Farms’ Petition for lack of standing, which motion was denied by Order dated October 9, 2014.
On October 13, 2014, the parties filed a Joint Prehearing Stipulation, which was supplemented at the outset of the hearing. To the extent relevant, those stipulations have been incorporated in this Final Order.
The final hearing was convened as scheduled on October 14 and 15, 2014, in Tallahassee, Florida. At the hearing, Plants of Ruskin and FMCA’s Motion for Partial Summary Judgment was denied, and Costa Farms’ Motion to Amend Petition was granted.
Costa Farms presented the deposition testimony of Linda McMullen, Jennifer Tschetter, Pedro Freyre, and David Cooper, Ph.D, as well as the in-person testimony of one witness: Michael Rimland, Director of Research and Development for Costa Farms. Mr. Rimland was accepted as an expert in nursery operations and in the development of new non-native plant varieties for production in Florida. Costa Farms’ Exhibits I – VI and VIII - XII were admitted into evidence. Plants of Ruskin and FMCA called no witnesses. Plants of Ruskin and FMCA’s
Exhibits 1 - 13 and 15 - 38 were admitted into evidence. Tornello Landscape called one witness: Robert Tornello, owner of Tornello Landscape Corp., who was accepted as an expert in nursery operations. Tornello Landscape did not offer any exhibits into evidence. The Department called one witness: Jennifer Tschetter, Agency Representative for the Department. DOH Exhibits 1 – 15 and Costa Farms Exhibit VII were admitted into evidence as part of the Department’s case.
All parties timely filed their Proposed Final Orders on October 27, 2014, each of which has been carefully considered in the preparation of this Final Order.
Based upon the testimony and documentary evidence presented at hearing, the demeanor and credibility of the witnesses, and on the entire record of this proceeding, the following findings of fact are made:
Section 381.986(5)(b)5. requires each dispensing organization to post a $5 million performance bond, with no limiting condition. Yet proposed rule 64-4.002(2)(j) limits the condition of the performance bond to the expense of destroying low-THC cannabis inventory if the dispensing organization fails to perform or fails to destroy its inventory when required. The
performance bond will not guarantee performance or cover costs of default or increased cost to patients. Ms. Tschetter candidly acknowledged that she was uncertain as to why the Legislature chose to require a $5 million performance bond, particularly in light of other states’ bond requirements which are as low as $10,000.00.
The Department’s reason for proposing a rule to limit this bond is that it did not want to force anyone to deliver these services, and that it seemed “illogical” and “unnecessary” to do so because, if one dispensary defaults, the Department can appoint a successor, or consumers can just look to one of the other regional dispensing organizations to fill their prescriptions. The Department’s reasoning ignores the potential that there will be significant delays in appointing a new dispensing organization and having it become operational. In the meantime, other regional dispensing organizations may elect not to serve that territory, or do so only at an increased
price.
CONCLUSIONS OF LAW
Jurisdiction, Standing, and Burden of Proof
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. § 120.56, Fla. Stat.
As stipulated by the parties, the Petitioners and Intervenors have standing pursuant to section 120.56(1), Florida Statutes, to participate in this proceeding as persons substantially affected by the proposed rules.
Petitioners seek a Final Order determining that the Department’s proposed chapter 64-4 constitutes an invalid exercise of delegated legislative authority in violation of section 120.52(8), Florida Statutes. Subsections (1) and (2) of section 120.56, Florida Statutes, provide in pertinent part, as follows:
120.56 Challenges to rules.-
GENERAL PROCEDURES FOR CHALLENGING THE VALIDITY OF A RULE OR A PROPOSED RULE.
Any person substantially affected by a rule or a proposed rule may seek an administrative determination of the invalidity of the rule on the ground that the rule is an invalid exercise of delegated legislative authority.
* * *
(e) Hearings held under this section shall be de novo in nature. The standard of proof shall be the preponderance of the evidence .
. . . Other substantially affected persons may join the proceedings as intervenors on appropriate terms which shall not unduly delay the proceedings . . . .
CHALLENGING PROPOSED RULES/SPECIAL PROVISIONS.
. . . The petitioner has the burden of going forward. The agency then has the
burden to prove by a preponderance of the evidence that the proposed rule is not an invalid exercise of delegated legislative authority as to the objections raised.
* * *
(c) When any substantially affected person seeks determination of the invalidity of a proposed rule pursuant to this section, the proposed rule is not presumed to be valid or invalid.
Petitioners met their initial burden of going forward in this case through the presentation of their cases-in-chief. The burden therefore shifts to the Department to prove by a preponderance of the evidence that the proposed rules are not an invalid exercise of delegated legislative authority. Id.; see also Fla. Bd. of Med. v. Fla. Academy of Cosmetic Surgery, Inc.,
808 So. 2d 243, 251 (Fla. 1st DCA 2002).
Rulemaking Standards
Rulemaking is a legislative function, and as such, it is within the exclusive authority of the Legislature under the separation of powers provision of the Florida Constitution. See
S.W. Fla. Water Mgmt. Dist. v. Save the Manatee Club, Inc., 773 So. 2d 594, 598-99 (Fla. 1st DCA 2000). An administrative rule is valid only if adopted under a proper delegation of legislative authority. See id., Chiles v. Children A, B, C, D, E, and F, 589 So. 2d 260 (Fla. 1991); Askew v. Cross Keys
Waterways, 372 So. 2d 913 (Fla. 1978).
A proposed rule may be challenged pursuant to section 120.56, Florida Statutes, only on the ground that it is an “invalid exercise of delegated legislative authority.” Invalid exercise of delegated legislative authority is defined in section 120.52(8), Florida Statutes, as follows:
“Invalid exercise of delegated legislative authority” means action that goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one of the following applies:
The agency has materially failed to follow the applicable rulemaking procedures or requirements set forth in this chapter;
The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(3)(a)1.;
The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(3)(a)1.;
The rule is vague, fails to establish adequate standards for agency decisions, or vests unbridled discretion in the agency;
The rule is arbitrary or capricious. A rule is arbitrary if it is not supported by logic or the necessary facts; a rule is capricious if it is adopted without thought or reason or is irrational; or
The rule imposes regulatory costs on the regulated person, county, or city which could be reduced by the adoption of less costly alternatives that substantially accomplish the statutory objectives . . . .
Petitioners do not allege that the Department’s rules deviate from procedural requirements or impose impermissible regulatory costs.
There are limits on judicial authority to invalidate agency rules. Thus, for example, an ALJ may not invalidate a proposed rule simply because, in the judge’s opinion, it does not present the wisest or best policy choice. See Citizens of
Fla. v. Mayo, 357 So. 2d 731, 733 (Fla. 1970)(“[T]he agency
rulemaking function involves the exercise of agency discretion and this Court will not substitute its judgment for that of the agency on an issue of discretion.”); Bd. of Trs. of Internal Improvement Trust Fund v. Levy, 656 So. 2d 1359, 1364 (Fla. 1st
DCA 1995)(“The issue before the hearing officer in this [rule challenge] case was not whether the Trustees made the best choice in limiting the lengths of docks within the preserve, or whether their choice is one that the appellee finds desirable for his particular location.”); Dravo Basic Materials Co. v.
State, Dep’t. of Transp., 602 So. 2d 632, 634 (Fla. 2d DCA 1992)(“It is not our task, however, to write the best rule for DOT. That was not the task of the hearing officer.”). Courts have no authority to compel an agency to adopt a rule which represents a policy choice in the area of the agency’s statutory concern. Mayo, 357 So. 2d at 733 (citing FEA/United v. PERC,
346 So. 2d 551 (Fla. 1st DCA 1977)).
The Department’s interpretation of section 381.986, a statute it is charged with administering, is entitled to great deference. Verizon Fla., Inc. v. Jacobs, 810 So. 2d 906, 908
(Fla. 2002); BellSouth Telecomms., Inc. v. Johnson, 708 So. 2d 594, 596 (Fla. 1998). The deference to an agency interpretation of a statute it is charged with enforcing applies even if other interpretations or alternative rules exist. Atlantic Shores
Resort v. 507 S. St. Corp., 937 So. 2d 1239, 1245 (Fla. 3d DCA
2006); Miles v. Fla. A & M Univ., 813 So. 2d 242, 245 (Fla. 1st DCA 2002); Board of Trustees, 656 So. 2d at 1363.
Likewise, agency rulemaking efforts are afforded deference. Agrico Chemical Co. v. State, 365 So. 2d 759 (Fla.
1st DCA 1978). “Agencies are accorded wide deference in the exercise of lawful rulemaking authority which is clearly conferred or fairly implied and consistent with the agency’s general statutory duties.” Charity v. Fla. State Univ., 680 So.
2d 463, 466 (Fla. 1st DCA 1996). Petitioner’s burden to establish that an agency’s rulemaking efforts are an invalid exercise of delegated legislative authority “is a stringent one indeed.” Agrico, 365 So. 2d at 763.
Proposed Rule 64-4.002(4)(a) - Lottery Selection
Proposed rule 64-4.002(4)(a) provides for random selection of minimally qualified dispensing organizations, rather than selection by reasonable discretionary evaluation of
applications in consideration of the statutory objectives and general criteria provided. Considering the general statutory criteria to be demonstrated by a qualified applicant, the statute necessarily delegates reasonable discretion to the Department to select the five dispensing organizations consistent with these stated parameters to further the statutory objective of ensuring accessibility and availability of low-THC cannabis to needy patients. See N. Broward Hosp. Dist. v.
Mizell, 148 So. 2d 1, 4, n.11 (Fla. 1962)(courts infer standard of reasonableness to be applied where the statute protects public safety and general welfare).
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. See Shands Jacksonville Med. Center, Inc. v. State Dep’t. of Health, 123 So. 3d 86, 93 (Fla. 1st DCA 2013)(statute
requires agency to engage in evaluation functions that are more than ministerial).
The statute’s manifest intent also requires the Department to qualitatively evaluate applicants for each of the five dispensing organizations. See State Bd. of Optometry v.
Fla. Soc. of Ophthalmology, 538 So. 2d 878, 886, 888 (Fla. 1st DCA 1988)(the statute must be read with reference to its manifest intent and spirit and interpreted according to the ordinary sense in which the words of common usage were employed; agency cannot invoke its “expertise” to supplant the plain intent of the statute). There is no discernable reason why the exercise of the Department’s reasonable discretion in applying the criteria should not determine which applicants are approved.
The proposed rule for selection of dispensing organizations also contravenes a basic expectation of law for reasoned agency decision-making. See Agrico Chem. Co. v. State
Dep’t of Env. Reg., 365 So. 2d 759, 763 (Fla. 1st DCA 1979)(“[a]dministrative discretion must be reasoned and based on substantial evidence,” and “[a]n arbitrary decision is one not supported by facts or logic.”); § 120.60(3), Fla. Stat., (applicant for licensure must be informed with particularity of the grounds or basis for the agency’s decision for license denial).
By definition, “lottery” is a device whereby value is allotted by chance, or where result is reached by means in which human choice or will has no part, and human reason does not
enable determination of results. Black’s Law Dictionary (5th
ed. 1979). Because arbitrary selection of dispensing organizations as provided by proposed rule 64-4.002(4)(a) is not supported by logic, reason or facts, the proposed rule itself is arbitrary, and invalid. § 120.52(8)(e), Fla. Stat. See Fla.
Inst. of Neurologic Rehab. v. Dep’t. of Health, Case No. 12- 3463RX (Fla. DOAH Jan. 25, 2013)(holding rule invalid as arbitrary where agency offered no factual support for the rule other than its incorrect interpretation of law).
The Department’s position that it is unable to score or comparatively evaluate dispensing organization applications because they will advance different approaches is unsupported and illogical. Different proposals can be evaluated in the exercise of reasoned judgment as to which will best serve the need identified consistent with the statutory objectives and criteria. If necessary, the Department can recruit or engage expertise (paid from application fees) to evaluate aspects that are harder to judge, such as technical methods and business models.
Proposed rule 64-4.002(4)(a) is also invalid because it modifies or enlarges the enabling statute. First, as discussed above, the proposed rule creates a lottery selection of dispensing organizations instead of approval of applicants pursuant to statutory objectives and criteria, as contemplated
by the statute. Second, the proposed rule imposes a “qualification” regime for applicants that is not part of the statute. The statute’s only specified qualification for an applicant to be considered for approval as a dispensing organization is 30 years of continuous operation as a nursery with large certified plant capacity. The proposed rule requires another qualification based on application feasibility and sufficiency determined by the Department in order for an applicant to be considered for random selection approval. This additional “qualification” of applicants modifies or enlarges the statute. § 120.52(8)(c), Fla. Stat. See Subirats v.
Fidelity National Property, 106 So. 3d 997, 1001 (Fla. 3d DCA
2013)(scope of the statute cannot be enlarged by adding a manner to proceed not authorized in the statute)(citing Lamar Outdoor
Advertising–Lakeland v. Fla. Dept. of Transp., 17 So. 3d 799 (Fla. 1st DCA 2009)(rule invalid where statute confers certain duties but does not authorize particular rule)).
Even assuming the proposed rule’s additional “qualification” of applicants were valid, the proposed rule fails to establish adequate standards for the Department’s decision to qualify applicants for lottery selection. This vests unbridled discretion in the agency to qualify applicants for selection, including the ability to discriminate among applicants as to what is sufficient to qualify for lottery
selection. Without specific standards as to how a nursery will be deemed qualified to participate in the random selection process, the Department is free to qualify applicants for such selection as it sees fit. The proposed rule is thus vague in respect to its requirement for applicant qualification, and is invalid for that reason as well. § 120.52(8)(d), Fla. Stat.
See Cortes v. State Bd. of Regents, 655 So. 2d 132, 138 (Fla.
1st DCA 1995)(challenged rule that confers unbridled discretion not given by statute and creates standardless discretion not implicit in the statute is invalid); Grove Isle, Ltd. v. State
Dep’t of Env. Prot., 454 So. 2d 571, 574 (Fla. 1st DCA 1984)(rule is vague because criteria are not provided to enable determination whether requirement for permit applicant is satisfied).
Costa Farms argues that proposed rule 64-4.002(4)(a) is also invalid because the Department failed to follow rulemaking procedures as to the qualification review procedure for random selection. It asserts that the procedure is not established by the proposed rules, but rather, is left for invalid non-rule policy. DBPR Const. Lic. Bd. v. Harden, 10 So. 3d 647, 648-49 (Fla. 1st DCA 2009)(review committee procedures must be adopted as rule where neither statute nor rule authorizes application review committee). Costa Farms argues that an agency cannot fail to adopt an integral element of a
rule, such as how the process of application review qualification is given effect, by instead relying on non-rule policy. In its allegation, Costa Farms admits that “[i]t is unclear how the panel will be constituted and proceed; and whether panel decisions (however reached) will be final administrative action or whether such decisions will be in essence a recommendation subject to final internal review at some supervisory level in the Department, and if so, what review process and standards will be applied.” In effect, Costa Farms is challenging a process that does not yet exist. As such, Costa Farms has failed to meet the requirements for an unpromulgated rule challenge as established by section 120.56(4), Florida Statutes, as it cannot identify the “statement” that constitutes an unpromulgated rule. Moreover, even had Costa Farms been able to identify the suspect “statement,” it has not established that its interests have been substantially affected by an agency statement, at least at this juncture. While the undersigned has concluded that proposed rule 64-4.002(4)(a) is invalid on several other grounds, the challenge brought by Costa Farms pursuant to section 120.56(4) is not yet ripe.
Proposed rule 64-4.002(4)(a) is also invalid because lottery selection for entitlement to licensure is contrary to established law that requires reasoned licensure decisions, and
due process and comparative review. There is no question the licensure requirements of section 120.60, Florida Statutes, are controlling with respect to dispensing organizations.
“License” is defined in section 120.52(10) to mean a franchise, permit, certification . . . or similar form of authorization required by law (not including a ministerially- issued revenue license). Section 120.60(3) requires a written notice by the agency to an applicant (for licensing) that must state with particularity the grounds or basis for issuance or denial of the license (except when a ministerial act), and that informs of the right to an administrative hearing. Pursuant to that statute, an agency denying a license has the burden to produce substantial evidence at hearing to support denial. Comprehensive Med. Access, Inc. v. Ofc. of Ins. Reg., 983 So. 2d
45, 46 (Fla. 1st DCA 2008).
Where the substantial interest of an applicant is determined by denial upon review of mutually exclusive applications, applicants are entitled to a comparative review hearing. Bio-Med. Applications of Clearwater, Inc. v. Dep’t. of
Health & Rehab. Servs., Office of Cmty. Med. Facilities, 370 So. 2d 19 (Fla. 2d DCA 1979). Applications are “mutually exclusive” where the decision on one application will substantially prejudice another pending application because all applicants are competing for the right to serve a market that only one of them
can in practical effect be authorized to serve. Id. at 23.
Thus, when an applicant is able to show that the granting of authority to some other applicant would substantially prejudice his or her application, fairness requires that the agency conduct a comparative hearing pursuant to section 120.57 at which the competing applications are considered simultaneously. Id.
Chapter 120 requires that reasoned justification be given for denial of licensure, with opportunity for hearing at which the agency must support its denial with substantial evidence. The proposed rule’s lottery selection precludes such review, including required comparative review of mutually exclusive applications, and thereby deprives the losing applicant of the due process opportunity which the Legislature saw fit to extend. See Ashbacker Radio Corp. v. F.C.C.,
326 U.S. 327, 333 (1945)(deprives the loser of the opportunity Congress chose to give the applicant). See also Fed. Prop.
Mgmt. Corp. v. Health Care & Ret. Corp. of Am., 462 So. 2d 493,
496 (Fla. 1st DCA 1984)(intervention required in later batched applications to prevent “circumvention of the fundamental doctrine of fair play laid down by the Supreme Court in Ashbacker ‘which administrative agencies must diligently respect and the courts must be ever alert to enforce.’”).
In its Proposed Final Order, the Department argues that there are significant distinctions between the factual scenario that led to the Supreme Court’s decision in Ashbacker
and the factual scenarios that are likely to result from the implementation of the proposed rules. The Department asserts that unless there are only two applicants in a dispensing region, it would be difficult for an applicant to prove that any two applications share mutual exclusivity, which is fundamental to the Supreme Court’s analysis in Ashbacker. According to the Department, courts that have distinguished Ashbacker have done
so for lack of mutual exclusivity of the applications. See Keystone Raceway Corp. v. State Harness Racing Comm’n, 173 A.2d
97, 102, (Pa. 1961)(distinguishing Ashbacker in a case involving four available licenses by holding that a hearing was not required to challenge the approval of one license when there were still three licenses available).
The Department’s reliance on Keystone in support of
its argument is misplaced. While the Keystone Court did distinguish Ashbacker from the factual scenario before it, the
court’s opinion clearly reaffirmed the right of comparative review when multiple applicants are competing for a single
license:
Considering all of the relevant facts and the pertinent language of the Act, we believe that the present appellant does not
have a direct, immediate and substantial interest in the grant of a license to Liberty Bell Racing Association. This is not the case of two or more persons (or corporations) applying for a license when only one license is available. Three licenses are still available for issuance by the Commission. Moreover, since the Philadelphia metropolitan area contains a very large percentage of the Commonwealth’s population, it is not unlikely that the Commission would allocate another license to this area. In this respect Ashbacker Radio Corp. v. F.C.C., 326 U.S. 327, relied on by appellants, is readily distinguishable. In that case only one license was available and the Federal Communications Commission conceded that the two applications for that one radio license were mutually
exclusive. No such situation arises in the present case. There is nothing in the record in this case which demonstrates or indicates that the grant of a license to Liberty Bell automatically excludes Keystone from consideration for a license. We believe this case is ruled in principle
by Ritter Finance Company, Inc. v. Myers, 401 Pa., supra.
(Id. at 102). (emphasis added).
The Department’s argument that unless there are only two applicants in a dispensing region, it would be difficult for an applicant to prove that any two applications share mutual exclusivity, is not persuasive. To the contrary, any time there are two or more applications competing for a single license or
franchise, all applications share mutual exclusivity with one another, since the approval of one necessarily results in the denial of all others. Such is the situation with the
Department’s proposed lottery which would approve but a single license for each of the five designated regions. In any of the five regions in which more than a single application is submitted, Ashbacker and its Florida progeny mandate comparative review of all competing applications. As Florida’s First District Court of Appeal noted in Federal Property Management Corporation v. Health Care and Retirement Corporation, 462 So.
2d 493 (Fla. 1st DCA 1984):
In Bio-Medical Applications of Clearwater, Inc. v. Department of Health and Rehabilitative Services, Office of Community Medical Facilities, 370 So. 2d 19 (Fla. 2d DCA 1979), the court relied upon the “Ashbacker” doctrine in holding that denial of a competing applicant’s motion for consolidation constituted a material error in procedure requiring that the matter be remanded for further agency action.
In Ashbacker Radio Corporation v. Federal Communications Commission, 326 U.S. 327, 66
S. Ct. 148, 90 L. Ed. 108 (1945), the
Supreme Court laid down a general principle that an administrative agency is not to grant one application for a license without some appropriate consideration of another bona fide and timely filed application to render the same service. The Second District Court of Appeal observed that where a need is determined in accordance with a quantitative standard, opposing applicants necessarily become competitors for the fixed pool of needed investments, so that their applications are mutually exclusive within the meaning of Ashbacker.
(Id. at 495) (emphasis added).
Need is fixed by the Act for only one dispensing organization in each of the five designated areas of the State. Under the proposed rule, an applicant can only apply for one of the franchises, and when approval is granted, the right to be a dispensing organization is renewable indefinitely, absent default or non-compliance. As a practical matter, the opportunity to enter the new medical cannabis market is foregone if the applicant is not among the five applicants initially selected. Especially given these circumstances, the Department must offer a comparative review hearing on the merits of an application pursuant to section 120.57, so each applicant has a fair opportunity to persuade the agency that its application should be granted over competing applicants. See Gulf Court Nursing Center v. Dep’t of HRS, 483 So. 2d 700, 705 (Fla. 1st
DCA 1985)(citing BioMedical)(where need is quantitatively set, opposing applications necessarily become competitors and filling the established need effectively denies pending applications, entitling comparative review which advances the public interest to assure that the agency makes the best choice when several alternatives are available).
Because the proposed lottery selection rule contravenes rights conferred by law, it is invalid as contrary to law. § 120.52(8)(c), and (e), Fla. Stat. See Willette v.
Air Prods., 700 So. 2d 397, 399 (Fla. 1st DCA
1997)(administrative rule “must give way . . . to any contradictory statute that applied”). See also Ariz. State Bd. of Regents v. Ariz. State Pers. Bd., 985 P. 2d 1032, 1034-35
(Ariz. 1999)(agency rule must yield; while agency rule may grant rights in addition to Administrative Procedure Act, it may not diminish rights conferred by the Act or any provision of law).
See generally, 2 Am. Jur. 2d Admin. Law § 218 (a rule may not
contravene, conflict with, or be contrary to an existing statute; rules that violate, conflict with or contravene statutory enactments governing the same subject matter are invalid as a matter of law and generally declared void).
The express intent of the Act was to ensure that low- THC cannabis is reasonably available and accessible to patients needing this medicine. The evidence adduced at hearing supports the common sense notion that this objective requires selecting the most dependable, most qualified dispensing organizations to cultivate, process, and dispense low-THC cannabis as prescribed by physicians. The proposed lottery rule to select these special franchises by chance creates risks that substantially reduce the likelihood of this objective being met.
The danger that the Department’s lottery system will not result in the selection of qualified dispensing organizations is exacerbated by the fact that the proposed rules would not impose an initial application fee for applicants vying
for lottery approval. Thus, with little or no investment, a marginally-qualified applicant who barely meets the general minimum requirements is equally as likely to be approved as a clearly superior applicant. This scenario is made all the more likely by the lack of clear standards and criteria that will be used by the Department to evaluate the applications and determine whether the minimum requirements for entry into the lottery have been met by an applicant.
The Department’s representative testified that all applicants that meet the minimum qualifications (however that is ultimately determined) would qualify for the lottery. This approach does not ensure that the most qualified candidates will be approved, only that the luckiest five applicants that meet the minimum requirements will be approved. Assuring the dependable delivery of consistently high-quality, low-THC medicine is too important to be left to chance. Rather than minimally qualified applicants, citizens of the State of Florida, including sick and vulnerable children, deserve approval of the most qualified growers, processors and dispensers of low-THC cannabis.
The Department’s lottery selection process set forth in proposed rule 64-4.002(4)(a) is invalid because it is vague, fails to establish adequate standards for agency decisions, and vests unbridled discretion in the agency, in contravention of
section 120.52(8)(d). In addition, the proposed rule is arbitrary, in contravention of section 120.52(8)(e), in that the ultimate decision as to which applicant will be approved is left to chance, rather than logic and an evaluation of all necessary facts.
Proposed Rule 64-4.001(1) - Definition of Applicant
Section 381.986 provides the specific requirements for an applicant seeking approval as a dispensing organization. Section 381.986(5)(b) states in relevant part:
An applicant for approval as a dispensing organization must be able to demonstrate:
1. The technical and technological ability to cultivate and produce low-THC cannabis. The applicant must possess a valid certificate of registration issued by the Department of Agriculture and Consumer Services pursuant to s. 581.131 that is issued for the cultivation of more than 400,000 plants, be operated by a nurseryman as defined in s. 581.011, and have been operated as a registered nursery in this state for at least 30 continuous years.
Specifically, section 381.986(5)(b)1. provides three limiting requirements: (1) the applicant must possess a valid certificate of registration issued by the Department of Agriculture and Consumer Services for the cultivation of more than 400,000 plants; (2) the applicant must be operated by a nurseryman; and, (3) the applicant must have been operated as a registered nursery in Florida for at least 30 continuous years.
In effect, section 381.986(5)(b)1. excludes all businesses that are not prequalified as or do not meet the requirements of being a high volume, certified nursery in the State of Florida for at least 30 years. Proposed rule 64-4.001(1) contravenes the statutory requirements and arbitrarily deviates from those requirements, proposing criteria beyond the statutorily- delegated authority, and opens the application process to entities that are not nurseries. Despite the express statutory language, the Department proposes to relax the statutory mandate that the applicant meet the three requirements in order to allow entities that otherwise do not qualify to be approved as “dispensing organizations” by redefining the qualification for applicants as follows:
(1) Applicant – An organization with at least 25% ownership by either a nursery that meets the requirements of Section 381.986(5)(b)1., Florida Statutes, or 100% of the owners of a nursery that meets the requirements of Section 381.986(5)(b)1., Florida Statutes, that applies for approval as a dispensing organization and identifies a nurseryman as defined in Section 581.011, Florida Statutes, who will serve as the operator.
As explained by Ms. Tschetter, the proposed definition makes “it possible for the [applicant] to be something other than just a nursery, but instead an organization owned by a nursery.” While the proposed definition is intended to facilitate dispensing organizations’ relationships with entities
squeamish about doing business with cannabis growers, the Act does not authorize an “organization” owned at any level by a nursery to be an applicant. The Legislature expressly required the “applicant” to be the party possessing “a valid certificate of registration issued by the Department of Agriculture and Consumer Services issued for the cultivation of more than 400,000 plants . . . and have been operated as a registered nursery in this state for at least 30 continuous years,” in other words, a nursery.
When construing a statute, one looks first to the statute’s plain meaning. Moonlit Waters Apartments, Inc. v. Cauley, 666 So. 2d 898, 900 (Fla. 1996). Furthermore, “[w]hen
the language of the statute is clear and unambiguous and conveys a clear and definite meaning, there is no occasion for resorting to the rules of statutory interpretation and construction; the statute must be given its plain and obvious meaning.” Holly v.
Auld, 450 So. 2d 217, 219 (Fla. 1984), citing A.R. Douglass,
Inc., v. McRainey, 137 So. 157, 159 (1931). Fla. Hosp. v. Ag.
for Health Care Admin., 823 So. 2d 844, 848 (Fla. 1st DCA 2002).
In this instance, the clear meaning of the statute is that the applicant, to be a dispensing organization, must be the entity that possesses the certificate of registration and has been operating as a nursery for 30 years. Because the proposed
rule contravenes the express statutory requirements as to who may be an applicant, the proposed rule is invalid.
§ 120.52(8)(c), Fla. Stat.
Proposed Rule 64-4.002(4)(b) – Application Fee
Proposed rule 64-4.002(4)(b) provides for an application fee of $150,000 to be paid only by approved applicants. There is no provision to assess an initial application fee on each applicant.
Section 381.986(5)(b) requires the Department to impose initial application and biennial renewal fees sufficient to cover the cost of administering the statute.
The word “initial” means “of or related to the beginning; placed at the beginning; first.” Webster’s 9th New Collegiate Dictionary (1983). An application fee charged to an
applicant after approval is not an initial application fee. It is a license fee. An initial application fee is charged at the beginning of the application process for all applications submitted. It is commonplace to require such application fees to assure the applicant is serious and to cover the cost of processing and review. The Department cannot change the statutory requirement to assess an initial application fee as required by the statute.
The proposed rule places the recovery of the cost of administering the new program only on those entities that were
successful in obtaining a license. The Department estimated that the cost of setting up the “robust regulatory structure” was in the range of $750 thousand to $1.5 million dollars.
Instead of calculating the cost per “application,” the Department calculated the cost per license of the five approved nurseries, charging each $150,000 to fund the program. The Department was not authorized to adopt a licensure fee. Had the Legislature intended there to be a licensure fee, it would have adopted such language as it has done in numerous other statutes. See, e.g., §§ 457.015, 466.0067, 468.508, 478.55, 480.044 and
484.0447, Fla. Stat.
The omission of an initial application fee and provision only for a license approval fee modifies the statutory requirement, and is thus invalid. § 120.52(8)(c), Fla. Stat.
Proposed Rule 64-4.002(2)(i) – Financial Statements
Section 381.986(5)(b)5. requires “certified financials” to demonstrate the applicant’s financial ability to maintain operations for the 2-year approval cycle. The term “certified” means the financials must be attested, i.e., verified by audit or sworn. See U.S. v. Mateo-Mendez, 215 F.3d 1039, 1043 (9th Cir. 2000)(certify means “to attest as being true,” citing Black’s Law Dictionary). This requirement must be construed with subparagraph (5)(b)1. requiring that the applicant be a nursery with 30 years’ experience. Proposed rule
64-4.002(2)(i) requiring that a CPA prepare the financials in accordance with GAAP does not meet this standard. Financials must certify (attest) that the applicant has the financial stability, resources and capability to maintain low-THC cannabis operations for at least a minimum of two years from approval.
Because the proposed rule eliminates the requirement for certified financial statements the proposed rule modifies the statute and is invalid.
Proposed Rule 64-4.002(2)(j) – Performance Bond Condition
Section 381.986(5)(b)5. requires as part of financial ability that “upon approval the applicant must post a $5 million performance bond.”
Proposed rule 64-4.002(2)(j) modifies this requirement by providing: “[t]he condition of the bond shall be that in the event the dispensing organization fails to renew its approval or its approval is revoked, it shall destroy all low- THC cannabis remaining under its control. The bond . . . shall be paid to the Office of Compassionate Use in an amount necessary to cover the costs of securing and destroying all low- THC cannabis not so destroyed and remaining under the control of the dispensing organization.”
The proposed rule condition dilutes the purpose and effect of the required performance bond to the point that “performance” is not being bonded. The condition provided by
the proposed rule is readily met simply by destroying inventory. This is not the same as assuring performance by fulfilling approved application responsibilities and not defaulting, as a “performance bond” would be expected to do. See Black’s Law Dictionary (5th ed. 1979) (“performance bond” guarantees
contractor will perform); Wikipedia, “Surety Bond” (license and permit bonds are required by law as prerequisites to receipt of a license or permit to engage in certain business activities, and “function as a guaranty from a surety to government . . . that a company (Principal) will comply with an underlying statute . . . or regulation.”).
By requiring a performance bond in the amount of
$5 million – an amount much greater than is likely to be needed for the destruction of inventory – the Legislature obviously intended the bond to cover losses to cure default and to ensure complete performance of the license term obligation, including loss to consumers whose needs may otherwise not be met.
The proposed rule cannot lessen the explicit statutory financial requirement of a $5 million performance bond by diluting its effect through an easily satisfied condition of destroying inventory. This changes what the statute intended to require. An administrative rule must comply with the particular requirements in the authorizing statute; it is not enough that a rule be reasonably related to the statutory provision. See GB
v. Ag. for Pers. with Disab., 143 So. 3d 454, 457 (Fla. 1st DCA
2014). There is no room for deviation from the particular requirement contemplated by the statute, Id. at 458. The
proposed rule’s attempt to do so is invalid. § 150.52(8)(c), Fla. Stat.
Proposed Rules 64-4.002, .004 and .005 - Lack of Statutory Authority
The enabling Act authorizes the Department to adopt rules in furtherance of the programmatic requirements listed in section 381.986(5). These requirements include such matters as the ability to secure the premises, resources, and personnel necessary to operate as a dispensing organization; the ability to maintain accountability of all raw materials, finished products and by-products; to maintain the infrastructure reasonably located to dispense low-THC cannabis to registered patients statewide or regionally; the financial ability to maintain operations for the duration of the 2-year approval cycle, including the posting of a $5 million performance bond; the fingerprinting and background checks of all owners and managers; and the employment of a medical director.
§ 381.986(5), Fla. Stat. However, on its own initiative and without statutory authority, the Department has prescribed extensive guidelines for the grant and revocation of authorization to become a dispensing organization which far
exceed those authorized by the enabling Act. See proposed rules
64-4.002 and .004. Specifically, the requirements which are not supported by statutory authority are:
limiting nursery ownership to only one application [proposed rule 64-4.002(1)]
requiring cultivation, processing and dispensing to occur on the same, or contiguous, property [proposed rule 64- 4.002(1)]
Level-2 background screening for employees [proposed rules 64- 4.002(2)(e)4.c. and .008(7)]
limitations on the activities of medical directors [proposed rule 64- 4.002(2)(m)]
setback requirements [proposed rule 64- 4.004(1)(a)]
limitations on ownership and management [proposed rules 64-4.004(1)(b), (2)(b) and .008(7)]
warrantless entry and searches by law enforcement officials and agents [proposed rule 64-4.005(1)]
In support of these additional requirements and prohibitions, the Department asserts that it holds an “inherent authority” and “general rulemaking authority” from “the State of Florida’s decision to legalize cannabis in some form and [its] responsibility to set up a robust regulatory structure.” However, it is well settled that agencies do not have inherent rulemaking authority. § 120.54(1)(e), Fla. Stat.; see also,
Fla. Elec. Comm’n v. Blair, 52 So. 3d 9, 12 (Fla. 1st DCA 2010).
Further, since the 1999 amendments to chapter 120, a general grant of rulemaking authority is no longer sufficient.
§ 120.52(8) and 120.536(1), Fla. Stat.; see also, Bd. of Tr. of the Internal Improvement Trust Fund v. Day Cruise Ass’n, Inc.,
794 So. 2d 696, 700-704 (Fla. 1st DCA 2001).
In attempting to codify the above-referenced provisions, the Department has taken upon itself to implement policies which the Legislature has expressly rejected, or for which the Legislature chose not to grant the Department authority. See § 381.986, Fla. Stat. Through its representative, the Department acknowledged that it has no express or specific authority to enact the above referenced proposed rules and, instead, relies upon its “inherent authority” to create a robust regulatory structure and its general rulemaking authority. As stated above, agencies have no inherent authority to conduct rulemaking and a general grant of rulemaking authority is insufficient. Fla. Elec. Comm’n v. Blair, 52 So. 3d 9 (Fla. 1st DCA 2010); § 120.52(8) and
120.536(1), Fla. Stat.; see also, Bd. of Tr. of the Internal Improvement Trust Fund v. Day Cruise Ass’n, Inc., 794 So. 2d
696, 700-704 (Fla. 1st DCA 2001). As such, proposed rules 64- 4.002(1), 4.002(2)(e)4.c., 4.002(2)(m), 4.004(1)(a),
120.52(8)(b), Florida Statutes, and are invalid as they exceed the limited statutory authority granted the Department.
DONE AND ORDERED this 14th day of November, 2014, in Tallahassee, Leon County, Florida.
W. DAVID WATKINS Administrative Law Judge
Filed with the Clerk of the Division of Administrative Hearings this 14th day of November, 2014.
Jon C. Moyle, Esquire Moyle Law Firm
Karen Ann Putnal, Esquire Moyle Law Firm, P.A.
David K. Miller, Esquire Broad and Cassel
215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32301 (eServed)
Chadwick R. Stevens, Esquire Florida Department of Health 4052 Bald Cypress Way, Bin A-02 Tallahassee, Florida 32399 (eServed)
M. Stephen Turner, Esquire Broad and Cassel
215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32301 (eServed)
Douglas P. Manson, Esquire MansonBolves, P.A.
Craig D. Varn, Esquire MansonBolves, P.A.
J. Stephen Menton, Esquire Rutledge Ecenia, P.A.
119 South Monroe Street, Suite 202 Post Office Box 551 (32302) Tallahassee, Florida 32301 (eServed)
Luke Charles Lirot, Esquire Law Offices of Luke Lirot, P.A. 2240 Belleair Road, Suite 190
Robert L. Buck, Esquire Post Office Box 15146 Brooksville, Florida 34604
Jennifer A. Tschetter, General Counsel Department of Health
John H. Armstrong, M.D., F.A.C.S. State Surgeon General
R.A. Gray Building, Suite 101 Tallahassee, Florida 32399 (eServed)
A party who is adversely affected by this Final Order is entitled to judicial review pursuant to section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original notice of administrative appeal with the agency clerk of the Division of Administrative Hearings within
30 days of rendition of the order to be reviewed, and a copy of the notice, accompanied by any filing fees prescribed by law, with the clerk of the District Court of Appeal in the appellate district where the agency maintains its headquarters or where a party resides or as otherwise provided by law.
