“Must Be Awarded” Means Mandatory: South Dakota DOH Must Issue Vacated Medical Cannabis Certificates to Next Lottery Waitlist Applicant Without Reapplication; Mandamus Lies for Agency Inaction Absent an Available Administrative Remedy

“Must Be Awarded” Means Mandatory: South Dakota DOH Must Issue Vacated Medical Cannabis Certificates to Next Lottery Waitlist Applicant Without Reapplication; Mandamus Lies for Agency Inaction Absent an Available Administrative Remedy

Introduction

In Puffy’s, LLC v. State of South Dakota, Department of Health, 2025 S.D. 10 (S.D. Feb. 19, 2025), the South Dakota Supreme Court affirmed a peremptory writ of mandamus compelling the Department of Health (DOH) to issue a state registration certificate for a medical cannabis dispensary to Puffy’s, LLC. The controversy arose after a certificate previously awarded through a lottery became void because the original holder, Greenlight Dispensary, failed to become operational within one year. Puffy’s, which held the first position on the lottery waiting list for the relevant Rapid City location, demanded issuance of the vacated certificate. DOH refused to issue unless Puffy’s paid a new application fee and supplied updated materials, including a new city certification. Puffy’s sought mandamus.

The case presents two principal issues: whether the circuit court had jurisdiction given DOH’s exhaustion arguments, and whether the writ was properly granted on the merits. The Court’s answer to both is yes, and its analysis sets important precedent: (1) the phrase “must be awarded” in ARSD 44:90:03:16 imposes a clear, mandatory duty to issue the certificate to the next waitlist applicant without reapplication or a new fee, and (2) the absence of a final administrative action or an available contested-case procedure—because the agency failed to act—brings the dispute within the limited but critical mandamus exception to exhaustion.

Summary of the Opinion

  • Jurisdiction/Exhaustion: The Court held that exhaustion of administrative remedies was inapplicable because DOH had taken no final action and identified no “prescribed” administrative remedy available to Puffy’s to challenge inaction. An agency’s failure to act, where it forecloses administrative appeal, allows mandamus. Mootness arguments failed because a live controversy persisted over DOH’s refusal to issue the certificate.
  • Mandamus on the Merits: ARSD 44:90:03:16 states that if a certificate holder fails to become operational within one year, the certificate is deemed void and “must be awarded” to the next applicant on the waiting list. The Court found that “must” is mandatory, leaving no discretion to require reapplication, new fees, or additional pre-award vetting not provided by the rule. Puffy’s had a clear legal right; DOH had a definite legal duty; and no other adequate remedy existed.
  • Procedural Posture—No Evidentiary Hearing Required: The circuit court did not abuse its discretion by issuing a peremptory writ without an evidentiary hearing; the dispute turned on pure questions of law and textual interpretation, and DOH litigated on the merits without requesting a limited or subsequent evidentiary hearing.
  • Notice of Review—Rule Validity: Puffy’s cross-appeal challenging the validity of the one-year operational requirement in ARSD 44:90:03:16 was declined as not properly before the Court in this mandamus action.
  • Disposition: Affirmed in full.

Analysis

1) Precedents and Authorities Cited

The decision weaves together core South Dakota administrative and remedial doctrines:

  • Exhaustion and Agency Inaction:
    • S.D. Bd. of Regents v. Heege, 428 N.W.2d 535 (S.D. 1988) and JOHNSON v. KOLMAN, 412 N.W.2d 109 (S.D. 1987): judiciary generally withholds relief until administrative processes conclude; but this presupposes an available remedy.
    • Reynolds v. Douglas Sch. Dist. No. 51-1, 2004 S.D. 129, ¶ 10: exhaustion applies when a “prescribed” remedy exists; no exhaustion absent a remedy.
    • Rosander v. Bd. of Cnty. Comm’rs of Butte Cnty., 336 N.W.2d 160, 161 (S.D. 1983): when agency inaction precludes appeal, mandamus may lie.
    • Distinguishing cases: Dollar Loan Ctr. of S.D., LLC v. S.D. Dep’t of Lab. & Regul., 2018 S.D. 77, and McElhaney v. Anderson, 1999 S.D. 78, involved extant administrative remedies parties attempted to bypass.
  • Mootness:
    • Skjonsberg v. Menard, Inc., 2019 S.D. 6, ¶ 14: a controversy persists when the material dispute remains unresolved; here, DOH had not issued the certificate.
  • Mandamus Standards:
  • Textual Interpretation of Rules and Statutes:
  • Jurisdiction and Standard of Review:

2) The Court’s Legal Reasoning

A. Jurisdiction: Exhaustion Was Inapplicable Because No Administrative Remedy Existed

DOH argued that SDCL ch. 1-26’s contested-case framework and SDCL 34-1-26 provided the exclusive pathway, and that Puffy’s needed a final decision before seeking judicial review. The Court rejected this for a simple reason: DOH never took final action adverse to Puffy’s, and DOH could not identify any procedure Puffy’s could invoke to compel such action. The agency’s August 18 letter inviting Puffy’s to “proceed with the application process” was not a cognizable, appealable action; instead, the gravamen was DOH’s failure to issue the certificate absent new submissions and a new fee.

Under Heege, Reynolds, and Rosander, exhaustion binds only when a prescribed remedy exists. Here, the rules spoke to final decisions and notices to unsuccessful applicants—but none of that applied to a waitlist applicant entitled to an automatically vacated certificate. Because DOH’s inaction foreclosed administrative review, mandamus became available. For the same reason, DOH’s mootness argument failed: the core dispute—the Department’s refusal to issue the certificate—remained live.

B. Merits: ARSD 44:90:03:16 Imposes a Mandatory Duty to Issue Without Reapplication

The textual centerpiece is ARSD 44:90:03:16:

“When an establishment fails to become operational within one year ‘the certificate is deemed void and must be awarded to the next applicant on the waiting list.’”

Applying black-letter interpretive rules, the Court held:

  • Plain meaning governs. “Must” is mandatory, not precatory.
  • The rule’s text contains no requirement for a new application, updated materials, municipal certification, or another fee before issuance. Courts cannot add conditions the rulemaker omitted.
  • DOH’s analogy to renewals under ARSD 44:90:03:02 failed. Renewal presupposes an existing certificate “from date of issuance,” which a waitlist applicant does not yet have. A waitlist applicant is neither an initial applicant (because the initial competitive step concluded) nor a renewal applicant (because no certificate has issued). The Court called this an “anomaly,” but emphasized that the cure lies with rulemaking or legislation—not judicial amendment.
  • Policy concerns about vetting or ensuring ongoing compliance cannot override unambiguous text. If the Department wants pre-award vetting for waitlist awards, it must promulgate rules providing for it.

Because the rule imposes a mandatory duty, Puffy’s had a clear legal right; DOH had a definite legal obligation; and Puffy’s lacked a plain, speedy, and adequate remedy in the ordinary course of law. The writ issued properly.

C. No Evidentiary Hearing Was Required

The Department contended it should have been permitted to present evidence on its certification practices and instances where vetting uncovered ineligibility. The Court affirmed the circuit court’s issuance of a peremptory writ without an evidentiary hearing because:

  • The dispositive issues were legal (textual interpretation), not factual.
  • After the alternative writ issued, DOH chose to file a motion to dismiss (and alternatively to quash), fully arguing the merits in briefs and at the hearing without asking the court to limit scope or to hold a later evidentiary hearing if jurisdiction were found.
  • Evidence of policy concerns would not alter the rule’s plain meaning.

D. Notice of Review: The Court Declined to Reach Rule Validity

Puffy’s cross-appealed to challenge ARSD 44:90:03:16’s one-year operational requirement as ultra vires. The Court declined to address it for two reasons:

  • The request for mandamus was predicated on the validity and application of the very rule Puffy’s sought to invalidate; the only issue before the Court was DOH’s duty to award the certificate once it became available.
  • Related disputes over extensions and rule validity were being litigated (or previously litigated) through proper administrative channels or were dismissed for failure to exhaust; the Court would not entertain an end-run over those procedural pathways in this mandamus action.

3) Impact and Practical Implications

A. Immediate Effects on Medical Cannabis Licensing in South Dakota

  • Automatic Award to Waitlist: When a certificate becomes void under ARSD 44:90:03:16, DOH must issue it to the next applicant on the lottery waitlist. The Department cannot require a new application, updated materials, or a new fee as a precondition to issuance unless and until the rules are amended to say so.
  • Limits on Ad Hoc Vetting: Pre-award vetting of waitlist awardees—however sensible as policy—is not authorized by the current rule. Agencies must stick to the text. Post-issuance oversight and enforcement authorities remain available under other statutes and rules, but they cannot be used to graft new pre-award conditions onto a rule that mandates issuance.
  • Administrative Design Signal: The Court explicitly invited the Department (or Legislature) to address any “anomaly” by rulemaking or legislation. Expect consideration of amendments clarifying whether and how waitlist awardees must demonstrate continuing compliance and whether fees apply.

B. Broader Administrative Law Lessons

  • Exhaustion Requires an Available Remedy: Agencies cannot invoke exhaustion to bar judicial relief when their own inaction denies regulated parties a channel to trigger contested-case review. Mandamus serves as a narrow but vital safety valve for agency inaction.
  • Textual Fidelity Over Policy Preferences: Courts will not rewrite clear regulatory text for perceived policy improvements. Agencies must use rulemaking to close gaps or clarify processes.
  • Litigation Strategy Matters: Parties who choose motion practice over evidentiary development—and do not request hearings conditioned on jurisdictional outcomes—risk waiver. When questions are purely legal, evidentiary hearings are unnecessary.

4) Complex Concepts Simplified

  • Mandamus: A court order commanding a government officer or agency to perform a clear, nondiscretionary legal duty. It issues only when the right and duty are clear and there is no adequate alternative remedy (SDCL 21-29-2).
  • Alternative vs. Peremptory Writ: An alternative writ orders the agency either to act or to show cause. A peremptory writ is a final command to act, issued when entitlement is clear, often after the agency fails to show cause or when only legal questions are at issue.
  • Exhaustion of Administrative Remedies: A doctrine requiring a party to use the agency’s prescribed review procedures (e.g., contested-case appeals) before going to court. If the agency has not acted or no procedure exists to challenge inaction, exhaustion does not bar judicial relief.
  • Contested Case: A formal administrative proceeding leading to a final agency decision that is reviewable in court. Without a final decision or process to initiate one, there is nothing to “exhaust.”
  • Mootness: Courts decide only live controversies. If the underlying dispute remains unresolved—here, DOH’s refusal to issue the certificate—the case is not moot.
  • Plain-Meaning/Textualism: When a statute or rule is clear and unambiguous, courts apply its ordinary meaning and refrain from adding conditions not found in the text. “Must” denotes a mandatory obligation.

5) What the Decision Does Not Decide

  • Validity of the One-Year Operational Rule: The Court did not address whether ARSD 44:90:03:16’s one-year operational requirement exceeds DOH’s statutory authority. That challenge remains for appropriate forums and records.
  • Post-Issuance Compliance Tools: The ruling does not limit DOH’s authority to enforce compliance after issuance, nor does it address renewal standards; it simply holds that pre-award reapplication/fees for waitlist certificate awards are not authorized by the current rule.
  • Separation of Powers and Rulemaking Policy: The Court did not refashion or supplement the rule; it emphasized that any perceived gaps should be addressed administratively or legislatively.

Conclusion

Puffy’s cements two key principles in South Dakota administrative and cannabis regulatory law. First, ARSD 44:90:03:16 means what it says: once a certificate is voided for failure to become operational within one year, the Department “must” award it to the next applicant on the waiting list. No reapplication, updated municipal certification, or new fee can be demanded absent textual authorization. Second, mandamus remains an essential remedy when an agency’s inaction leaves a party without a prescribed administrative path—exhaustion does not bar judicial relief in that circumstance.

By insisting on textual fidelity and clarifying the exhaustion mandate’s limits, the Supreme Court both protects regulated parties from procedural dead-ends and signals to agencies that good policy ideas require proper rulemaking. For the medical cannabis program, the ruling immediately streamlines the reallocation of vacated dispensary certificates to waitlist applicants, while inviting thoughtful regulatory amendments to manage any practical anomalies going forward.

Case Details

Year: 2025
Court: Supreme Court of South Dakota

Judge(s)

DEVANEY, Justice

Attorney(S)

TAMARA D. LEE HOWARD PALLOTTA Special Assistant Attorney General South Dakota Department of Health Pierre, South Dakota Attorneys for respondent and appellant. RYAN D. CWACH of Birmingham and Cwach Law Offices, PLLC Yankton, South Dakota Attorneys for applicant and appellee.

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