– Was Kittery’s pot-license lottery stacked in favor of those with the most cash?

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A dozen people scattered around council chambers at Kittery Town Hall watched quietly as Maryann Place cranked a shiny bronze raffle drum around three times, then reached inside to grab a ping-pong ball.

The retired town clerk held the ball up to show the black number written on it: 8. She repeated the process twice, choosing two more random winners. Then she drew the remaining balls one at a time to set up a waiting list of businesses eager to apply for the town’s three retail marijuana business licenses, one in each of three different commercial zones.

The October lottery, a first for the southern York County town, was created to determine who could apply for those three available licenses after Kittery opted in to the state’s adult-use marijuana market.

But the lottery has turned out to be controversial and four months later, a local cannabis company that did not win a coveted invitation to apply continues to question the legality and fairness of the process and is threatening to take the town to court. Sweet Dirt, based in Eliot, says the system was easily gamed by companies with deep pockets that could afford to buy hundreds of chances to win.

Meanwhile, the Office of the Maine Attorney General appears to be investigating to determine if the town conducted an illegal game of chance without a license from the state.

Town officials have defended their lottery and town boards are in the process of reviewing plans from the three businesses granted the opportunity to apply for licenses to open adult-use marijuana stores.

Michael Strauss, an attorney for Sweet Dirt, sent a letter to Kittery officials in December, asking them to reconsider the lottery system.

“Though ping-pong balls may have been randomly selected from the raffle drum, the lottery was rigged before the drum’s first spin because the town allowed entrants to pack the drum with entries in advance,” Strauss wrote. “The town knew its lottery could be gamed and it interpreted the ordinance in a way that guaranteed it would be.”

Under the system adopted by town officials, a business owner who wanted to apply for a license had to submit a pre-application at a cost of $750. The town’s rules said that any business submitting a pre-application had to have a valid Maine tax identification number, and that only one pre-application for each of the three zones could be submitted per tax ID. But it did not  block the way for a single business to submit many pre-applications by setting up separate entities with their own tax IDs.

Sweet Dirt alleges that the way Kittery set up the lottery allowed it to be easily gamed by savvy businesses that could afford to pay for hundreds of entries.

More than 700 pre-applications were submitted, netting the town upwards of $535,000 for its general fund.

Brandon Pollock and Nick Friedman, co-founders of Theory Wellness, a medical and recreational cannabis company with locations in Maine and Massachusetts, each won an opportunity to apply for a business license. They each submitted pre-applications for various business entities, a combined total that accounted for more than half of the entries in the lottery and cost upwards of a quarter-million dollars.

Mitchell Delaney, owner of the Indico medical marijuana store in Kittery, spent $7,500 for 10 pre-applications. As one of the first three picks, he also got an opportunity to apply for a license and he plans to open a store on State Road.

Jim Henry says he can’t just stand by and watch the town create policy that negatively impacts residents and businesses. Sweet Dirt “has the ability to say this is wrong and stand up for it,” even if that means suing Kittery, he said. Ben McCanna/Staff Photographer

Sweet Dirt submitted 12 pre-applications at a cost of $9,000 for the zone that encompasses the area along Route 236. Its first ball was drawn 15th, placing the company far down the waiting list. Jim Henry, CEO of Sweet Dirt, said the pre-applications were submitted using tax identification numbers for existing entities within the company.

“It’s like spending a considerable amount of money on a ticket for a lottery that you feel like you’ll never win,” he said. “Those who paid the most got the most. Those who paid the most were the ones with a lot of out-of-state money. That resulted in their success. That’s frustrating.”

MUNICIPAL LICENSES

Under Maine law, recreational retail stores can operate only in towns that opted in to the state’s adult-use program. Municipalities have the power to limit the number of marijuana businesses within their borders and to require them to get municipal business licenses.

The Kittery Town Council began discussing marijuana businesses shortly after the state legalized adult-use marijuana in 2016. Over the next three years, it developed a framework for potential licensing and placed a non-binding referendum on the ballot, according to a memo last year from Town Manager Kendra Amaral to the town council.

In 2019, the council asked staff to draft an ordinance for adult-use marijuana stores, but pandemic concerns soon put that work on hold. In November 2020, the town received a certified petition from Josh Seymour, owner of North Berwick-based medical marijuana business Green Truck Farm – signed by nearly 500 residents – that called for the town to enact a licensing ordinance for marijuana businesses. But the petition had a “fatal flaw,” Amaral wrote in her memo, because it didn’t limit marijuana businesses to certain zones.

The town worked with Seymour to develop an alternative licensing ordinance and corresponding land use ordinance that went through the normal town approval process rather than being put before voters.

As it prepared to approve the new ordinances last summer, the council asked staff to look at a lottery to let people apply for marijuana business licenses rather than a first-come, first-served system, which is used more commonly.

Amaral told the council that staff felt they could “safely manage” a first come, first-served system, which “limits the areas for human error and unintended delay,”  but that they also had come up  with a plan for a lottery “that may be workable.”

In August, the town council voted to go forward with a lottery system.

That came as a surprise to Henry, of Sweet Dirt, who had been sitting in on municipal meetings throughout the process. Town officials had twice visited his company’s 32,000-square-foot greenhouse and medical marijuana store in Eliot as they were shaping the local ordinances.

“You have a town council that put in place a process that essentially was an illegitimate lottery that amounted to a cash grab,” Henry said.

Sweet Dirt, which operates adult-use stores in Portland and Waterville, had hoped to open a retail store in Kittery, but Henry said he also wanted to see local towns adopt sound policy for the burgeoning cannabis industry.

“We really wanted to see a successful rollout of the program,” he said.

Soon after the lottery drawing in October, Sweet Dirt’s attorney wrote to the town to object to the process it used. Strauss said the company was deprived of a fair opportunity to obtain a license to conduct business in Kittery and would consider taking legal action against the town if it did not institute a fair procedure.

Sweet Dirt also asked the Office of the Attorney General to look into whether the lottery was legal.

In a letter sent in January to town attorneys, Assistant Attorney General Katie Johnson asked the town to explain why its lottery system did not amount to an illegal game of chance, given that it was done without a license from the Gambling Control Unit. Johnson said that it appeared that Kittery’s lottery constituted unlawful gambling.

The Office of the Attorney General would not answer questions about the letter or about its interactions with Kittery. The letter sent to town attorneys is not considered a public record under the Intelligence and Investigative Record Act, according to a spokesperson.

But the letter was released publicly by town officials, along with a response from the town defending its lottery system and saying Kittery’s actions do not meet the elements of a lottery prohibited by state law. Kristin Collins, an attorney from PretiFlaherty who represents the town, said the town’s priority selection process did not involve a prize or pecuniary consideration for participating.

Collins said the pre-application process was used to preliminarily evaluate the eligibility of each applicant to operate a marijuana retail store in accordance with state and local rules. The pre-application fee was imposed to cover the costs incurred by the town to review the applications, she said.

“To the extent the Town received substantial application fees, this was due to some applicants’ attempts to manipulate the licensing process through the submission of dozens of separate applications through multiple business entities and was not a foreseen or intended consequence of the Town’s chosen procedures,” Collins wrote in a footnote to the letter. “The Town is comfortable that the fees as assessed reflect a good faith estimate of its actual costs to review and confirm each application.”

Collins pointed out that applications selected in the lottery were not guaranteed business licenses.

“Rather, they were allowed to submit a completed application containing the information necessary for the town to conduct a full review of the application in accordance with the ordinance and state law,” she wrote.

Rockland, Lebanon, Damariscotta, Poland, Southwest Harbor and Hallowell, she said, have used random selection as part of the marijuana business licensing process.

“A lottery or random drawing is a natural and fair method of distributing a limited number of licenses or, in the Town’s case, ordering the review of applications, while avoiding allegations of bias or impropriety,” she wrote.

Amaral, the town manager, referred questions about the lottery to the town attorneys.

“There is no perfect way to address the high demand for a limited number of licenses, and the Council chose random drawing from among the available options,” Collins said in an email Friday. “This has been a method used by the state and other towns for allocating a limited number of licenses or permits.  We believe it is fully in compliance with Maine law.”

RETAIL STORE PLANS MOVE AHEAD

The outcome of the lottery has come up at several town meetings since Sweet Dirt first publicly objected.

Barbara Jenny, owner of the Mural Building on the Route 1 bypass, wrote a letter to town officials in January asking them to find a way to redraw the invitations to apply for licenses for the C-1 and C-2 zones, which went to the two co-founders of Theory Wellness, in a lottery that is “truly only one ‘ticket’ per business/person.” Jenny said she originally supported the lottery method but was “disappointed in the chaos and inequity caused by a large loophole that the town neglected to foresee, and then to manage once revealed.”

“We approved what we thought was a fair system with an understanding that there are sometimes unintended consequences,” said Town Council Chairperson Judy Spiller after she read Jenny’s letter into the record at a meeting last month.  “Everything was reviewed by town counsel and we see no reason to change anything in the process.”

Despite questions from the attorney general’s office and the threat of a lawsuit, Kittery is moving forward in the licensing and approval process for the town’s first three recreational marijuana businesses.

Delaney, the owner of Indico, was chosen from among 11 pre-applications in zone C-3 and is seeking approval for a shop on State Road. Friedman and Pollock, the co-founders of Theory Wellness, were selected in zones C-1 and C-2, respectively. Pollock plans to open a store on Route 236, while Friedman is moving forward with plans for a store in a shopping center on Dexter Lane. None of the three lottery winners responded to email and phone requests to answer questions about the lottery.

Their plans for the stores still must be approved by the Kittery Planning Board. Earlier this month, the board held a preliminary site plan review of the 3,150-square-foot adult-use marijuana store proposed by Pollock for 41 Route 236, under the company name Well Field 44 LLC. The board also has started reviewing plans for the retail store proposed by Friedman in an existing shopping mall complex on Dexter Lane.

Before a Feb. 10 planning board meeting that included a presentation about plans for the store on Route 236, Sweet Dirt and Strauss sent letters to the town saying it was “entirely improper” for a town committee to take action on a marijuana retail business license application while the attorney general’s investigation is ongoing. They asked the town to pause the review process until the investigation was over.

Town attorney Stephen Langsdorf of PretiFlaherty said in an email to the town manager on Feb. 9 that the attorney general’s office had not responded to the town’s reply to its queries. He said there were no pending injunctions or cease and desist letters that would impact the town process outlined in the ordinance and that there was no legal reason not to continue the Planning Board’s review of the license applications.

For his part, Henry said he cannot just stand by and watch the town create policy that negatively impacts residents and businesses. Sweet Dirt “has the ability to say this is wrong and stand up for it,” even if that means suing Kittery, he said.

“If this had been merit based or this had been done based on being able to get right title to a location, we would have understood and we would have moved on,” he said.

The company’s lawyer, Strauss, said they are watching to see what happens with the attorney general and “whether the town will come to its senses and pause to figure out a better way forward.”

“Sweet Dirt does not want to be an adversary to the town,” he said. “It wants to be a collaborator in resolving the problem the town created.”


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