Missouri Supreme Court Case Could Force Marijuana Regulators To Grant ‘Dozens’ Of New Business Licenses Beyond Current Caps

“Appellants did not complete all the application requirements, and the state government should not be in the business of hand holding sophisticated entities.”

By Rebecca Rivas, Missouri Independent

The Missouri Supreme Court heard arguments Thursday in a case marijuana regulators say could force them to issue “dozens” of new licenses to grow, sell and distribute cannabis products above the state’s self-imposed caps.

Mo Cann Do Inc. applied for a cultivation license to grow marijuana in 2019. The company was denied when the state said it didn’t include a certification of good standing from the Missouri Secretary of State’s office in its application.

However, the company argues that state rules require the Division of Cannabis Regulation to specify what information is lacking in an application in a letter—which the state didn’t do before it denied Mo Cann Do’s license.

So the company appealed its denied license—one of more than 800 appeals filed after the state imposed caps on the number of marijuana business licenses it would award.  After losing at the Administrative Hearing Commission and circuit court levels, Mo Cann Do won in the Missouri Court of Appeals Eastern District in February 2023.

The court ordered Missouri to award the company a marijuana cultivation facility license.

The state asked the Missouri Supreme Court to hear the case, in part, because there are dozens of pending cases before the commission and courts “where the particular document deficiency may not have been itemized” in the state’s rejection notice, according to court documents.

If the Court of Appeals ruling stands, the state argues it would be forced to award marijuana licenses that aren’t currently available under the current rules—and to applicants who might not have even gotten the necessary scores in 2019.

“The license cap in [the state rules] should foreclose the remedy of awarding a license,” the state argued in its transfer application to the Supreme Court. “Otherwise, license caps in a regulated industry may mean nothing at all.”

The state said the medical marijuana industry “is not the only one where this issue matters.”

Regulators believe it could impact gambling boat licenses as well.

At the hearing Thursday, Mo Cann’s attorney, Eric Walter, noted that the state imposed the license cap on itself.

“The department also put in its rules, a rule that says we will also add additional licenses…if so ordered to do so by a court,” Walter said, “or if they choose to enter into a settlement of one of these types of appeals just like this.”

In the September 24, 2019 letter that’s at the center of the case, regulators outlined more than 15 areas in detail where Mo Cann Do’s application was incomplete, including all the names of the owners and their voting interests.

However, the two-page list did not specify the certificate of good standing.

In the circuit court’s 2021 ruling, the judge noted that Mo Cann Do submitted six other applications where the certificate was also missing. And in those six applications, the division specifically informed the company in writing that it was missing—but the company still didn’t submit the certificate of good standing in those cases.

St. Louis Circuit Court Judge Thomas Albus stated in his decision, “It is reasonable to conclude, at least in this case, that a more specific notice would have been of no effect.”

Jason Lewis, chief counsel with the Missouri Attorney General’s Office, said Thursday that the Administrative Hearing Commission carefully considered the issue and decided the state’s notice “met a sufficient level of specificity.”

The marijuana industry is highly regulated, he said, making its application process “unique.”

“Appellants did not complete all the application requirements,” Lewis said, “and the state government should not be in the business of hand holding sophisticated entities—giving them third bites at the apple in a highly competitive and structured environment.”

Walter said Mo Cann Do did submit a certificate of incorporation to show the company’s good standing.

Lewis gave an analogy of a law-school application that requires an LSAT score for admission, but a student submits scores from a different test’s results. The student may have scored high on the LSAT, but the score wasn’t submitted, so is the university at fault for denying her application?

Missouri Supreme Court Judge W. Brent Powell asked Lewis: “But the obvious argument is that: Does the university create fault for itself when it states in regulations that if you fail to submit an LSAT, we will tell you and notify you so you can fix that deficiency?”

Certificates of incorporation that were once commonly used to show good standing, Walter said, and the state law passed in 1990 establishing the certificate of good standing process did not ban that practice.

“That language could have been in there,” he said. “The general assembly didn’t choose to put it in there, and the courts haven’t made that finding.”

Lewis said the court’s decision could be “generalizable” to many other areas.

“Let’s say there’s small business loans,” he said. “Let’s say there’s agribusiness loans from the U.S. Department of Agriculture. I think that is the fundamental issue here and why our arguments as respondents don’t rise and fall on a check list. They don’t rise and fall on extra-record materials.”

This story was first published by Missouri Independent.

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Photo courtesy of Carlos Gracia.

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