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Marijuana monopoly? Missouri amendment fight centers on who gets a coveted license

Missouri’s established medical marijuana industry is poised to dramatically expand revenues if voters approve recreational use in November following a campaign funded by hundreds of thousands of dollars from cannabis businesses.

The proposal, a change to the state constitution that will appear on the Nov. 8 ballot as Amendment 3, would largely give existing medical marijuana operations the first major crack at the recreational market. And like the medical program today, Republican Gov. Mike Parson’s administration would have the authority to limit the number of new licenses issued to recreational marijuana businesses.

The amendment has sharply divided legalization advocates and state legislators, with the rules governing the potential new marketplace at the core of the dispute.

Critics say the measure would effectively enshrine a state-sanctioned monopoly market into the Missouri Constitution, giving existing industry players an unfair advantage in what will be an early scramble for customers and their cash. They note that even if Congress one day legalizes marijuana nationwide, the amendment would continue to allow Missouri officials to strictly control the number of sellers.

“What’s upsetting to me is that they are trying to freeze an industry and keep it to themselves,” said state Rep. Ron Hicks, a Defiance Republican. “They know Missourians want it so they’re willing to supply the product for Missourians but not allow Missourians to be in the industry themselves.”

Supporters of the amendment say the concerns are overblown, adding that the preference given to existing medical marijuana operations will help smooth the transition to a recreational market. Limits on licenses will also make businesses more comfortable investing in Missouri and less fearful of an overly saturated market, they say.

Clovr, the first company in Missouri approved to manufacture marijuana-infused sodas, gummies and other products, is set to become one of the state’s biggest players in the recreational marijuana industry if the amendment passes. Josh Mitchem, the company’s CEO, said licensing limits are necessary for the health of the industry and the quality of the product.

“I think it’s important to everybody that holds a license, regardless of what type, to have some restraints as far as the number of licenses,” Mitchem said. “There’s only a certain number of people that use the product. You get too many folks making it and they’re going to have to cut corners and everyone wants to avoid that.”

Missouri Secretary of State Jay Ashcroft, a Republican, announced this week that a petition for the amendment, spearheaded by the group Legal Missouri 2022, had enough signatures to earn a spot on the Nov. 8 general election ballot. The announcement triggers a race where the major effort to stop it is more likely to come from supporters of recreational marijuana than from those who want to keep it illegal.

Tim Gilio, a long-time advocate of marijuana legalization who opposes the amendment, said he has been warning for years of the coming monopoly within the industry. Gilio said he supports the General Assembly deciding the fate of recreational marijuana instead of a set-in-stone constitutional amendment.

“Unless you do it that way, you’re always going to have greedy people wanting to get a piece of that pie and not wanting to share that pie with everybody else,” Gilio said.

Millions of dollars are at stake. If approved, legalizing recreational marijuana would bring in to the state at least $40.8 million in revenue annually, according to state officials. It would bring in at least $13.8 million to local governments annually.

“We expect a three to five times sales increase,” Mitchem said. “That means more equipment, more construction in the facility, it means bringing on more staff…but we’re making those preparations now.”

Dispute over marijuana licenses

Hicks and other legislators tried unsuccessfully this spring to legalize recreational marijuana under a more free market system. Hicks, who will leave the Missouri General Assembly after this year because of term limits, offered a bill this year that would have legalized recreational marijuana with no caps on the number of licenses. The bill never made it to the House floor for a vote.

They now see defeating the amendment – a tough task, they acknowledge – as perhaps their last chance to stop the implementation of what they say isn’t a level playing field. Their frustration centers in large part on the proposed licensing system for recreational marijuana businesses.

Existing medical marijuana businesses would have the right to convert their licenses to allow recreational sales – a guaranteed spot in the new, more lucrative marketplace. Currently, 63 marijuana cultivation licenses, 204 dispensary licenses and 84 manufacturing licenses have been issued under the medical marijuana program.

Amendment supporters say this is the quickest way to allow recreational marijuana sales to begin.

“If you say that everybody has to go and reapply and there has to be a whole new process, then you’re talking about building new buildings, you’re talking about a couple of years before you can get to that,” said John Payne, campaign manager for Legal Missouri, the primary group supporting the proposal that is largely funded by marijuana businesses.

The Missouri Department of Health and Senior Services, led by a Parson appointee, would oversee the licensing system, just like the agency currently does for medical marijuana. The amendment requires DHSS at a minimum to issue the same number of licenses for the recreational program as currently exist under the medical program.

But because medical license holders can convert their licenses, the number of licenses available for new entrants is likely to be extremely limited. The agency has near-total discretion to issue additional licenses but has given no indication it would grant a large number of new licenses.

“Under the current law, DHSS already has the responsibility to monitor whether existing licensees are sufficient to meet demand and, if not, to issue additional licenses in order to meet demand. We will continue to do this regardless of the outcome of the election,” Lisa Cox, a spokeswoman for the agency, said in an email.

Since voters approved medical marijuana in 2018, DHSS has come under scrutiny over the rollout of the program. The agency limited the number of licenses it issued, a decision that resulted in hundreds of denied applications.

Many who did receive licenses were members of MoCannTrade, the primary industry organization whose lobbyist, Steve Tilley, is a close friend and former legislative colleague of Parson.

Federal agencies have quietly probed the state’s medical marijuana rollout. In late 2019, a federal grand jury demanded DHSS turn over all records related to marijuana license applications of four individuals. The names of the individuals were redacted.

By spring 2020, FBI agents had interviewed a handful of lawmakers, lobbyists and statehouse staffers. They reportedly asked about the state’s medical marijuana program and which businesses won licenses. Most questions were focused on Tilley.

Allegations have previously been made that Parson’s office influenced how medical marijuana applications were scored and a report used to limit how many licenses would be awarded. The allegations were contained in a 2020 memo written by counsel for Missouri House Democrats that also said DHSS obstructed an oversight committee’s examination of the program. Parson denied the accusations, saying at the time there was “absolutely no interference.”

A few months after his election, Parson attended a fundraiser with medical marijuana companies, the Missouri Independent previously reported. The money raised went toward Uniting Missouri, a PAC that supports Parson.

A spokeswoman for Parson didn’t respond to questions this week about the proposed marijuana amendment. Parson hasn’t taken a public position on the amendment.

Amendment creates ‘micro-licenses’

Amendment supporters’ most common response to criticism of the licensing process is to point to provisions within the proposal to create “micro-licenses” to allow small players to break into the market. Micro-licenses may foster the creation of a kind of craft pot industry, but there would be restrictions on who qualifies.

Micro-license holders would need to meet one of five criteria. Individuals with a net worth of less than $250,000 who have made less than 250% of the federal poverty level (about $34,000 a year for a household of one) in at least three of the past 10 years would qualify. Disabled veterans also qualify.

Individuals who themselves or their parents or spouses have been arrested, prosecuted or convicted of a non-violent marijuana offense qualify, unless the offense was providing marijuana to a minor or driving under the influence of marijuana. The arrest, charge or conviction must have occurred at least one year before recreational marijuana is implemented.

Individuals would qualify for micro-licenses if they live in a zip code of census tract where at least 30% of the population lives in poverty or where the unemployment rate is 50% higher than the state average. Additionally, individuals qualify if they live in an area where the historic rate of incarceration for marijuana-related offenses is 50% higher than the rest of the state.

Last, individuals would qualify if they graduated from an unaccredited high school or lived in a zip code containing an unaccredited school district for three of the past five years. The provision would appear to make residents of Kansas City eligible because Kansas City Public Schools only gained accreditation in January and had been unaccredited for a decade.

“It remains extremely limited in terms of the number of licensed facilities but it does bring in additional licenses, so that’s good, but it’s not as good as it could be,” said Jon Dedon, a Kansas City attorney who has represented applicants for medical marijuana licenses.

The amendment requires DHSS to initially only issue six micro-licenses per congressional district. Officials must use the old congressional district lines, not this year’s redrawn boundaries.

An additional six micro-licenses would be issued for each district 270 days later, followed by another six after another 278 days. Eventually, at least 18 micro-licenses in total would be issued per each congressional district. Missouri could issue more but wouldn’t be required to go above that number.

Amendment supporters point to Oklahoma as a cautionary tale. Voters in that state approved medical marijuana in 2018. The program had no license caps and thousands of marijuana businesses set up shop.

The state is now moving to place a moratorium on new licenses following the explosive growth.

“Having an unlimited license market like Oklahoma is detrimental to a lot of companies. It’s also detrimental for the customers,” Mitchem said. “When you have that many licensees, we see it now in Oklahoma, everyone starts cutting corners, they have to find ways to become profitable.”

Hicks compared marijuana to alcohol and tobacco, saying licenses to sell those products aren’t capped in the same way.

Missouri should expand legal marijuana the right way, Hicks said. Still, he’s clear-headed about the odds he and other opponents face.

“If this hits the ballot, it’s most likely going to pass,” Hicks said. “I mean, I’m not naive to that.”