Kauai County Council Chairman Derek Kawakami owns more than 14 percent of a company that’s hoping to grow medical marijuana in Hawaii.

But you wouldn’t know that if you looked at the financial disclosure form he filed in January with Kauai County.

Kawakami, a former state representative who some see as a future mayoral contender, didn’t list HK Medicinal as one of the businesses he partially owns.

County Council members are required to file disclosures listing all businesses in which they have a financial interest. Kawakami signed the bottom of his disclosure form, certifying that it was “true, complete and accurate to the best of my knowledge and belief.”

Then-Rep. Derek Kawakami, center, flanked by Reps. James Tokioka and Sharon Har on the House floor after being sworn into office in April 2011.

Flickr: Sharon Har

The councilman told Civil Beat he didn’t name HK Medicinal because, while the company applied to grow and sell medical cannabis last year, it failed to receive a license.

“There was nothing to disclose because we were not the recipients of the permit,” Kawakami said.

But the company didn’t fold after it lost out on the license. Instead, it’s one of two that are still fighting to overturn the Department of Health’s decisions regarding the highly coveted licenses. It’s been more than a year since the agency announced the licensees , and there’s no deadline for resolving appeals.

 

Thirteen appeals were filed initially, but most were withdrawn or dismissed. A hearings officer still needs to review briefs filed by HK Medicinal and the department, according to Janice Okubo, spokeswoman for the health department.

She said a hearing hasn’t yet been scheduled for a second appeal from Aloha Compassionate Care.

“No one is dragging their feet on this,” Okubo wrote in an email. “There are complexities and considerations that involve both the entity appealing and the state.”

Still, the unresolved nature of the cases poses another potential hurdle for dispensaries that already have struggled to get off the ground.

“It is best ultimately for patients that the Department of Health resolve these as quickly as possible,” said Carl Bergquist, executive director of the Drug Policy Forum of Hawaii and an advocate for medical cannabis patients. “Otherwise it’s a cloud hanging over them.”

Fighting For A License

HK Medicinal came close to owning Kauai’s only medical marijuana dispensary license, which would have given the company a monopoly on growing and selling cannabis to thousands of patients on the island. The Department of Health’s selection committee ranked HK Medicinal’s application higher than any others, but disqualified it for not meeting background check requirements.

Days after the department announced that Green Aloha got the Kauai license, attorneys for HK Medicinal urged the state to reconsider awarding the permit in light of a lawsuit filed against Green Aloha and its founder, Justin Britt. Britt’s former business partner Winston Welborn sued Britt for allegedly stealing more than $375,000.

“The allegations contained in this lawsuit directly call into question the stability, access to funds and the legal sources of finances that were available to Green Aloha,” HK Medicinal’s attorneys wrote to the health department.

Eight companies have been licensed to grow and sell medical marijuana in Hawaii, and Kauai Councilman Derek Kawakami thinks a company he’s involved with should have been one of them.

Anthony Quintano / Civil Beat

The department granted Green Aloha the license anyway, and HK Medicinal filed its appeal in July.

Okubo said that the agency started scheduling hearings for HK Medicinal in October, and that the parties recently filed briefs after the hearing officer requested more information.

Meanwhile, Britt is still personally entangled in a lawsuit with Welborn, but Welborn’s case against Green Aloha was dismissed.

Now Green Aloha is suing Welborn, contending that his lawsuit was malicious because he was actually invested in HK Medicinal, the same company that Kawakami has a stake in.

The legal trouble doesn’t appear to have affected Green Aloha’s progress in opening a dispensary. The company got approval to start growing medical cannabis last week and plans to open a retail store in the fall, around the same time that at least one Oahu dispensary is hoping to open as well.

Kawakami Family Involvement

The main applicant for HK Medicinal’s medical marijuana license was Charles Kawakami, the councilman’s father. The president and CEO of Big Save Markets, Charles Kawakami was a well-known businessman who died in December.

Since then, Derek Kawakami’s involvement in the medical marijuana enterprise has quietly increased. But the councilman has been a shareholder at least since January 2016, according to the company’s dispensary application filed with the health department.

Kawakami hasn’t been vocal about his involvement. While serving as a state representative in 2016, he asked to be recused from voting on medical marijuana-related legislation, citing only his father’s efforts during discussions on the House floor.

The councilman told Civil Beat last week that he didn’t announce his own financial stake because he “had no involvement in the company at the time.”

“I was unaware that I was even a part of it,” he said, adding that he had a minority share then, but that his share increased after his father passed away.

On Jan. 6, four days before the county received his financial disclosure that didn’t mention HK Medicinal, Kawakami testified as part of the appeal that he was “personally and extensively involved” in applying for a medical marijuana dispensary license, in addition to holding a more than 14 percent share.

The Kauai County charter says violating the law regarding financial disclosure requirements “shall constitute cause for fine, suspension, or removal from office or employment.”

Paula Morikami, chief of staff at Kauai County who is overseeing the Office of Boards and Commissions, said no one has complained about any county financial disclosures since at least 2004.

“All elected officials and appointed officials have to complete a disclosure statement,” she said, adding that this is only the second time in her seven years at the county that anyone has asked her about them. “What they put on a disclosure is totally their call. The Board of Ethics reviews their disclosures just to make sure they’re complete.”

Kawakami originally submitted his disclosure form on Dec. 2 but was informed two weeks later that it was incomplete. After adding his county salary and the shares he owned in businesses (excluding HK Medicinal), Kawakami submitted it again on Jan. 10.

Morikami said disclosure forms aren’t inspected after they’re deemed complete and that if there are any concerns, “it’s up to the public and it’s up to the people who are concerned about it to bring it up to the Board of Ethics.”

Expensive, Uncertain Process

Appealing the state’s medical marijuana license awards is not for the financially faint of heart. Just ask Bill Jarvis, a former telecom businessman whose company Pono Wellness was first-runner-up for a license on Oahu.

Jarvis spent about $25,000 to appeal the health department’s decision, but dropped the case after realizing that he could spend another $100,000 and still not get anywhere.

“We didn’t think that the state would be in a position to overturn any of the decisions,” he said. “We didn’t feel like it was going to be money well spent.”

Keith Ridley Head of Department of Health's Office of Health Care Assurance speaks to his attorney in Judge Nakasone's courtroom. 2 feb 2017

Keith Ridley, head of the Department of Health’s Office of Health Care Assurance, says the department would have to consult its attorneys if a medical marijuana dispensary license was successfully challenged.

Cory Lum/Civil Beat

Aloha Compassionate Care’s appeal, filed last summer, stated the company submitted identical applications to grow medical cannabis in three counties but received different scores for the same information. The company’s appeal called the scoring “arbitrary and capricious.”

Its owner, Dr. Barry Worchel, didn’t reply to a request for comment.

There’s a lot of uncertainty about what it would actually mean for the state’s budding medical cannabis industry if either of the appeals were to succeed.

Keith Ridley, who leads the office of Health Care Assurance for the health department, said that if a hearing officer finds in favor of the state then the applicant can take the case to court.

When asked what would happen if the hearing officer found the state awarded a license in error, Ridley was stumped.

“I don’t know,” he said, adding that the department would have to confer with its attorney if that were to occur.

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