COLUMBUS – A medical marijuana company whose dispensary licenses are on hold by state regulators is also facing scrutiny and delays for its cultivation and processing operations in the state.

The Ohio Department of Commerce notified Harvest Grows LLC in January it planned to revoke its large-scale cultivation license. The agency reviewed company documents and concluded Harvest was not actually owned and controlled by Ariane Kirkpatrick, an African-American Ohio woman, as claimed on its application.

By claiming the company was 51% owned by a member of an "economically disadvantaged group," Harvest was awarded one of 12 grow licenses over higher-scoring applicants. Meanwhile, the same agency has not awarded the company a processing license to make marijuana-infused products. (Harvest has removed from its website a January announcement saying it would win a license.)

Although Harvest Grows is an Ohio-registered company, Arizona-based multi-state operator Harvest Health and Recreation Inc. says on its website and in press releases the Ohio licenses are its own. Harvest Health and Recreation founder and CEO Steve White is listed on the Ohio company's application as the CEO and owner.

In a statement, Harvest said the department mischaracterized the nature and intent of its business relationship with Kirkpatrick.

"Ms. Kirkpatrick is an important contributor to our company and continues to remain the majority owner of Harvest Grows," Harvest spokesman Alex Howe said in an emailed statement. "We’ve worked closely with the Department of Commerce to modify our agreements to more accurately reflect Ms. Kirkpatrick’s ownership and control of Harvest Grows and expect to finalize an agreement with DoC to resolve this issue in the coming weeks."

A Department of Commerce spokeswoman said the agency is working with Harvest to make sure the company fulfills its obligations to complying with the economically disadvantaged group provision.

Earlier this month, The Enquirer revealed the state was delaying the opening of the company's three dispensaries over the same issue. Harvest filed a complaint in Franklin County Common Pleas Court to block the pharmacy board from details of the agency's investigation into the company to The Enquirer in response to a public records request.

Harvest argued in court that the notice quotes from its operating agreement and contains confidential information about the company's "unique way of organizing an LLC" to qualify for the minority-owned and controlled designation "with ownership that is only minimally from an economically disadvantaged group."

The pharmacy board notice has not yet been released as a judge reviews it for trade secret information.

What Commerce investigation found

Harvest unsucessfully attempted to block release of the commerce department's notice in court on Tuesday, citing similar reasons as its complaint with the pharmacy board. The unredacted notice sent to Harvest on Jan. 10 was provided to The Enquirer on Wednesday in response to a public records request.

The notice lays out the agency's findings after reviewing the company's operating agreement and other documents.

Kirkpatrick, an African American woman who owns a construction business in Northeast Ohio, was listed on the June 2017 license application as one of three owners of Harvest Grows, with a 51% financial interest. White was listed as an owner/officer with 0% interest.

Kirkpatrick was listed as "president" on the company's organizational chart submitted with the application, but no one was listed as reporting to her.

The application was made public Nov. 30, 2017, the same day Harvest was awarded a provisional license for up to 25,000 square feet of grow space.

The company's operating agreement, dated Nov. 20, 2017, names Kirkpatrick and White the only two managers, according to the notice. Under the agreement, the managers must approve all management decisions.

But in another agreement "action" document signed the next day and reviewed by commerce, Kirkpatrick and White assigned all duties of CEO – hiring and firing staff, doing everything necessary to deliver on agreements, paying expenses and more – to White. Kirkpatrick was appointed vice president and chief diversity officer and provided control solely over the company's "construction management."

The document specifically granted White the authority to enter into a "management services agreement with an affiliate of the company," where the affiliate provides advisory, consulting, management and administrative support services to Harvest.

"The operating agreement, action and other information provided to the department show that Ms. Kirkpatrick does not have control over the management and/or day-to-day operations of Harvest Grows LLC and/or that respondent does not satisfy the requirements under (the law)," the agency wrote in the notice, signed by the commerce director at the time, Jacqueline Williams.

The agency also noted that, per the operating agreement, Kirkpatrick contributed $0 in capital for the project.

Harvest said that was intentional and doesn't diminish Kirkpatrick's involvement in the company.

"Harvest is committed to increasing diversity in ownership in our industry, and we know that access to capital can sometimes be a challenge," Howe said. "We did not require a capital investment from Ms. Kirkpatrick for our agreement, but rather relied on her expertise and sweat equity as a significant initial financial contribution would have prevented Ms. Kirkpatrick from having a meaningful position with the company."

Why it matters

State law required 15 percent of all medical marijuana licenses go to businesses majority-owned and controlled by someone from one of several “economically disadvantaged” groups: African Americans, American Indians, Hispanics or Latinos, or Asians.

The language was Ohio's attempt at social equity, the idea that marijuana prohibition has disproportionately hurt minorities and they should be able to participate in a legal industry. A Franklin County court found the provision unconstitutional last year, months after state regulators awarded all of a limited number of licenses to grow, process and sell marijuana.

Harvest jumped ahead of 11 companies to be the 12th and final company awarded a large grow license because of its economically disadvantaged designation. In addition to a $20,000 application fee, companies spent thousands of dollars – $500,000 by one rejected applicant's estimate – acquiring land and working with consultants to craft an application that met the state's myriad rules and regulations.

Last year's lawsuit over the equity language and commerce's ownership probe has held up construction at Harvest's Lawrence County grow site and prevented it from receiving a license to process marijuana.

Its three dispensaries are in suburban Dayton, Columbus and Athens – three areas of the state where the stores have been slow to open. Meanwhile, patients face long drives and high prices to get their medicine through a program that is only partially operational.

Company's troubles in Pennsylvania

Harvest's business practices have also come under scrutiny in Pennsylvania.

The Pennsylvania Department of Health is looking into Harvest's claim in a news release that it holds seven dispensary licenses there. The state limit is five.

The company had applied and won licenses under different limited liability names. State regulators told the company in April each LLC needs to function as a separate business and Harvest cannot claim it owns or controls them all.

In May, regulators claimed Harvest went back on its promise to use a Pennsylvania-based minority-owned contractor and women-owned flooring business for work at several dispensaries, according to the Philadelphia Inquirer. Pennsylvania's dispensary application process gave more weight to companies that committed to increasing diversity.

On Monday, regulators said they were revoking the permit of Agrimed Industries of Pennsylvania for several reasons, including missing marijuana plants. Harvest had a "management services agreement" with the company. Harvest told the Philadelphia Inquirer the problems identified by the state occurred before Harvest's involvement with Agrimed and it would take "all necessary legal action" to address the issue.

The state's position is that Harvest can't claim ownership of the license.

More:Ownership questions prompt investigations into two Ohio medical marijuana companies

More:Where are Ohio's medical marijuana dispensaries? Here's a map.

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