New rules on medical marijuana contain curveballs, lawyers say

The rules for medical marijuana are in, and so is the verdict among cannabis-law attorneys contacted by Missouri Lawyers Media: The Department of Health and Senior Services has done solid work — and sprinkled in some surprises.

On May 24, the DHSS published final rules governing almost every facet of the state’s nascent medical-marijuana industry. The de facto deadline for those rules had been June 4, in accordance with the constitutional amendment legalizing the drug for medical use that voters approved in November.

“They did a great job in an extremely short time frame,” said Eric M. Walter, a partner at Armstrong Teasdale. “In other states in the past, the sense we get is there was a reluctance — that the people tasked with it weren’t necessarily on board with it, or they didn’t get it, or they didn’t appreciate it. But DHSS has been really enthusiastic and professional.”

Some rules have raised eyebrows, according to Walter and others. One such rule involved the application format. Any aspiring cultivator, manufacturer or dispenser in Missouri must submit narrative responses to a variety of questions. Topics range from the business plan and site security to personal character and experience. For almost every question, answers may not exceed 300-500 words. Other states, such as Illinois and Ohio, have higher limits, or no limits at all.

The relatively tight word counts in Missouri have leveled the playing field, according to Joseph “Chip” Sheppard III, one of the architects of the constitutional amendment and a shareholder at Carnahan, Evans, Cantwell & Brown in Springfield. Applicants who had retained expensive consultants to craft long and sophisticated responses are “probably disappointed,” he said, because they’d “had an advantage that has now been significantly muted.”

Another set of rules that cannabis lawyers found interesting governs the point system DHSS will use to score applications. After an initial scoring, applicants who propose a facility in a zip code area that has an employment rate of 85-89.9 percent will receive bonus points. If the zip code area has an employment rate below 85 percent, the bonus is even larger.

Partner Gayle Mercier and associate Spenser Owens at Thompson Coburn in St. Louis considered this structural incentive “a big deal” and “a welcome change” from the rules DHSS originally proposed.

“It will likely greatly influence the location of many cannabis facilities into economically distressed areas,” they wrote in an email. The scoring method, combined with lowered minimum liquid-capital requirements — $300,000 for cultivation facilities and $150,000 for dispensaries, transportation facilities and infusion facilities — likely will result in more applications, and thus  more competition, Mercier and Owens wrote.

On top of this geographic bonus, DHSS has carved out two more bonuses solely for dispensaries. The constitutional amendment allows for granting at least 24 dispensary licenses in each of Missouri’s eight congressional districts. These districts can be quite large — Missouri’s 8th Congressional District, for example, covers almost the whole southeastern quadrant of the state. Inside that area, the Missouri House of Representatives has its own smaller districts.

Once the DHSS performs an initial scoring of applications and adjusts them for favored zip code areas, the DHSS may award a bonus to the top dispensary application in each Missouri House district. In addition, an application for a dispensary that is at least 25 miles (in a straight line) from any other proposed or existing dispensary may receive an extra bump in points.

“The goal is to ensure there’s geographic dispersion because patients are everywhere,” said Walter. “This provides an incentive for some people to consider setting up in a house district that they hadn’t thought of before.”

In crafting the rules, the DHSS held five public forums and considered input from public agencies and private individuals. Jack Cardetti, former spokesman for Gov. Jay Nixon and current spokesman for the Missouri Medical Cannabis Trade Association, lauded the department for not just gathering feedback but also acting on it.

“The department would put out a rule,” Cardetti said, “and over time, would clarify  it and add more specificity, giving applicants greater certainty. That’s what I’ve been particularly impressed with.”

Some lawyers saw potential problems. For example, Jon Gold of Reynolds & Gold in Springfield pointed to the application question about predicted revenue for the first two years of operation. Any answer will necessarily be speculative and therefore hard to score with objectivity.

“How does someone’s answer get a higher score than another person’s answer when this is a brand-new industry with no track record of income and expenses?” said Gold. He said such a question may prompt a rejected applicant to sue — a problem that occurred in Arkansas in 2017 and 2018.

In any event, Missouri’s medical-marijuana regime appears here to say. Cardetti said that ballot initiatives are at their most vulnerable to legislative attack during the first session after passage.

During the General Assembly’s most recent session, legislators proposed approximately 20 bills to change the constitutional amendment. None got across the finish line.

Said Cardetti: “We’re thankful that didn’t happen here.”