ST. LOUIS — Tim Mitchell says he spent thousands of dollars trying to win licenses in Missouri’s newly legal medical marijuana industry, and like hundreds of other applicants, so far he has been unsuccessful.
But when Mitchell reviewed his first two license rejections — one to grow marijuana, the other to process marijuana-infused products — he noticed something unusual. Identical answers he gave to 24 identical questions on both applications received different scores. One answer about his businesses’ insurance plans earned him zero points on his cultivation application; the same answer on his manufacturing application scored the maximum 10 points.
The scoring discrepancies — which he hasn’t been able to explain — are an example of some of the issues being raised by rejected license applicants, some of whom have already filed appeals.
“Everyone is frustrated,” said Mitchell, 34. He said he paid $28,000 in fees to apply to grow and process marijuana in his small hometown of Pierce City in southwest Missouri, and sell it at dispensaries elsewhere.
Other rejected applicants paid up to hundreds of thousands of dollars in application fees and contracts with architects or consultants in an effort to break into the industry, Mitchell said, which is expected to generate millions in sales and state tax revenue.
“After all that,” Mitchell said, “they’re told ‘no you can’t operate your business,’ when we all know the state is going to benefit hugely off of the tax money they’re going to get.”
Missouri, which raked in more than $13 million in nonrefundable fees from at least 2,266 marijuana business applications filed by at least 700 different groups, is only handing out 60 licenses to grow marijuana, 86 to make marijuana-infused products and 192 to open dispensaries — a maximum of 24 in each of Missouri’s eight congressional districts.
Applicants were required to have hundreds of thousands in cash and be prepared to describe the minutiae of their business plans, including how they’d control odor, keep the drug from entering the illegal market and economic impact on their communities. Companies hired high-powered lobbyists and started contributing money to politicians as they angled for a slice of the business.
Missouri hired a third-party company to blindly score the applications and began notifying the license winners and rejected applicants in December. Those who were turned down were given 30 days to file an appeal with the Missouri Administrative Hearing Commission, a judicial agency appointed by the governor that has authority to hear cases and issue a decision when a state agency has refused to issue or renew a license.
‘Tip of the iceberg’
At least 17 groups had filed appeals by Friday, complaining that scoring inconsistencies caused them to lose points that would have placed them among the winning applicants, according to copies of complaints filed with the commission. The appellants allege they received different scores for identical answers on separate applications, accuse the scoring company of failing to follow the state’s grading rubric, and assert that bonuses for some criteria — such as locating in high-unemployment ZIP codes or detailing a plan to boost the local economy — were subjective.
“Those application fees are just the tip of the iceberg for most people,” said Chris McHugh, a Kansas City attorney representing several applicants appealing license denials. “People spent hundreds of thousands just to get the applications prepared because they had to spend on consultants, architects, experts. These are good applications, these are very competent professional people and they did spend a lot of money. And to have their applications graded the way they were is very disappointing to them.”
The appellants aren’t seeking to take a license from another marijuana company, but hope a judge would order regulators to correct their scores and provide additional licenses, McHugh said. The state’s scoring guidelines required that identical, or substantively similar answers, needed to be scored the same and that inconsistencies need to be rescored, McHugh said.
“It is very clear that was not done, and the rules weren’t followed, and that makes it clear things weren’t fair and that there is legal ground for an appeal,” McHugh said.
The Missouri Cannabis Trade Association raised the issue of inconsistent scoring in a letter Jan. 9 to the Department of Health and Senior Services, the agency tasked with regulating marijuana, saying the group had received complaints from members that on a question asking cultivation applicants about their marketing plan were inconsistent. Out of about 577 applicants, about 384 received no points for their answer — including both applicants that won a license and those that were rejected, the association said.
“Based on significant feedback from our members, we believe there may be an issue with the scoring of question 47 on the cultivation application,” Andrew Mullins, executive director of the association, wrote in a letter to Lyndall Fraker, director of the state’s medical marijuana program.
Fraker on Friday denied that the question was graded inconsistently and said applicants who received zero points on the question failed to “sufficiently address” the costs of its marketing plan. The same person scored the question on all 578 cultivation applications, Fraker said in a letter to the association.
“After reviewing initial complaints, we continue to have every reason to believe the scoring was completed by the blind scoring vendor and its team in a way that is both highly professionally competent and legally valid,” Fraker said.
“This same professional judgment was applied consistently across all cultivation applications.”
The department would not comment on individual cases alleging inconsistent scoring “due to pending and anticipated litigation,” Fraker said.
But a successful appeal could result in a license being awarded, spokesperson Lisa Cox said in an emailed statement.
“If a facility appeals and is approved, it will be up to the judge on how it’s handled,” she said. “The judge could order us to issue that facility a license.”
A spokesperson for the commission said no hearing date has been set yet for any of the marijuana licensing appeals. Each commissioner on the Administrative Hearing Commission acts as an independent trial judge for the cases on his or her docket.
Headed to court
Meanwhile, one rejected marijuana business applicant in southern Missouri opted to forgo the appeals process and sued the state in Cole County Circuit Court the next day. The ongoing lawsuit, filed by Paul Callicoat and his family, argues the state’s limit on licenses violated the state constitution’s “right to farm” amendment passed by voters in 2014, and also challenges the license scoring process.
In another Cole County case, a judge on Thursday ordered the state to delay a decision on whether or not to award a license to a marijuana business that applied to sell marijuana at a dispensary in Independence. The company, HCKC LLC, sued the city over a zoning ordinance and sought a restraining order to bar the state from denying the company a license until a court hearing Monday.
In other states that required state approval to open a marijuana business, rejected applicants sued state or local lawmakers over license or permit denials and other regulations. Last year in Nevada, at least seven companies rejected for permits sued the state, alleging the process wasn’t transparent.
McHugh, the Kansas City attorney representing some appellants to the Administrative Hearing Commission, said unsuccessful appeals would likely lead the petitioners to file their case with the Cole County Circuit Court, he said.
Mitchell partnered with a friend who owns marijuana businesses in another state to fill out his applications, he said.
“It’s odd that we’re told that we didn’t answer the questions right, when I’m going off another plan in a state that has had medical marijuana for eight years and he’s been in business since it started,” Mitchell said. He declined to name the other marijuana business because the owner did not want to be identified, he said.
DHSS expects to announce on Friday the winners for the most competitive category, business groups who want to sell marijuana products at dispensaries. There are more than 400 hopeful dispensaries competing for about 48 licenses for the St. Louis region alone.
Mitchell applied to open a dispensary in Springfield and one near the Lake of the Ozarks, but he is “not confident,” in his chances to win a license, he said.
“I don’t feel confident at all,” he said. “After seeing how things have turned out, all my confidence in the process is out the window.”
And he’s not quite sure that he’ll proceed with his appeal, because it could cost him thousands to pay an attorney.
“I could spend $100,000 fighting this to get nowhere,” Mitchell said. “We’ve already lost so much money.”
Meanwhile, backers of the medical marijuana program are considering a campaign to fully legalize marijuana for adult recreational use. John Payne, campaign manager for the effort, said last week that two groups — the New Approach PAC and Missourians for a New Approach — are weighing whether to launch a signature-gathering campaign ahead of the November 2020 election.