Marijuana company under investigation in Pennsylvania faces probe in Ohio for ‘fraud, deception’

The marijuana company under regulatory scrutiny in Pennsylvania for allegedly misrepresenting itself to win more permits than allowed is facing an investigation in Ohio.

Harvest Health and Recreation, a multi-state operator, claimed on applications that 51 percent of its Ohio operations were owned by an “economically disadvantaged” group, the Cincinnati Enquirer reported on Thursday.

Making that claim gave the Arizona-based cannabis company an advantage over other applicants. Harvest won licenses in Ohio to operate three dispensaries and one of 12 large-scale cultivation facilities. Ohio’s marijuana law required 15 percent of all licenses to be given to companies with “minority-majority” ownership.

In a letter obtained by the Enquirer, the Ohio Board of Pharmacy, which regulates cannabis businesses in the Buckeye State, said Harvest of Ohio LLC did not meet the state’s definition of an “economically disadvantaged group,” and wrote that the company “committed fraud, misrepresentation, or deception in furnishing information” on its application.

Multi-state operators like Harvest — often referred to as Big Marijuana by critics who fear a marketplace controlled by a handful of large companies — have been using legal loopholes to gain dominance in states that have recently legalized marijuana for recreational or medical use.

Pennsylvania is probing Harvest’s strategy to dominate an emerging market. The state’s two-year-old medical marijuana program counts some 137,000 Pennsylvanians as registered patients, and saw $180 million in 2018 sales.

And the Department of Health is investigating whether Harvest defrauded the state after it apparently reneged on a promise to use diverse or “disadvantaged business entities” — in contracts worth hundreds of thousands of dollars — to build Pennsylvania dispensaries, according to documents obtained by The Inquirer under the state’s Right-to-Know law.

Harvest won more than the maximum number of permits allowed by statute by submitting applications under slightly different names and incorporating as separate business entities. Pennsylvania caps the number of dispensary permits a company can control at a maximum of five. Each permit allows its owner to open three retail stores in the state,

In an April release to investors, however, the parent corporation, Harvest Inc., bragged it controlled seven Pennsylvania permits — two more than the maximum allowed. The state took notice and ordered Harvest to prove its permit winners are, in fact, separate companies.

The company’s troubles in Pennsylvania didn’t end there.

In May, the state additionally rebuked Harvest for failing to make good on a promise to use a Pennsylvania-based minority-owned contractor and women-owned flooring business to build at least eight of its retail dispensaries. Pennsylvania’s application scoring process gave heavy weight to a company’s commitment to diversity. Instead, Harvest hired a company from New Mexico.

In a critical Order to Show Cause that threatened to revoke its permits, Pennsylvania accused Harvest of changing contractors without notice and failing to seek approval from the Department of Health to change its diversity plan.

The state ordered the individual Harvest entities to explain themselves within 30 days of the notice. It is unclear if Harvest met the deadline.