Missouri’s nascent cannabis industry is about to shift into overdrive, and Missouri lawyers are along for the ride.

Last November, nearly 1.1 million Missouri voters approved a state constitutional amendment that allows adults to use marijuana recreationally, becoming the 21st state to do so. The amendment also overhauled Missouri’s existing framework for medical cannabis, which voters added to the constitution just four years ago.

The changes went into effect on Dec. 8, 30 days after the election. Many details remain to be seen as the state updates its regulations and implements the law over the coming months and years.

What is already clear is that numerous law practices — both those that advise the industry directly and those that counsel unrelated businesses about the new law’s ramifications — should plan to be busy.

“It’s really going to impact all aspects of society,” said Peter Andreone of the Kansas City area law firm Kennyhertz Perry.

Peter Andreone

Andreone is one of numerous lawyers in Missouri who jumped into the practice of cannabis law in the wake of the 2018 medical marijuana amendment. The industry has grown, but perhaps not by the leaps and bounds some hoped for. According to the Missouri Cannabis Trade Association, the industry saw $210 million in sales in 2021 and was projected to bring in $370 million in sales for 2022.

But with the advent of legal adult recreational sales, the trade group predicts, Missouri’s cannabis market could reach $1.3 billion by 2026. The new amendment doesn’t just add language to the constitution; it multiplies the force of the industry, opening the market to new entrants, adding to the types of businesses that are possible, allowing recreational marijuana use while strengthening the existing medical cannabis structure.

Marshall Custer, a partner with Husch Blackwell’s national cannabis practice in Denver, said cannabis companies had the misfortune of getting going just as the COVID-19 pandemic caused the economy to slump. With the recent changes, he said, those companies see an opportunity to reach their goals, though a few years later than planned.

“People either want to exit and take advantage of it, or they want to grow and expand because they see opportunity,” he said.

The 39-page amendment makes numerous changes to Missouri’s marijuana laws. Among those most consequential for civil practitioners, the amendment:

Allows Missourians 21 or older to purchase up to 3 ounces of cannabis at a time, though public consumption and driving under the influence are barred
Prevents any single business owner from controlling more than 10 percent of the state’s licenses, a change from a prior restriction that no one entity could have more than three licenses
Uses a lottery, rather than a scoring system, to award licenses
Creates “microbusiness” licenses that would produce more limited amounts of cannabis and are aimed at less advantaged owners and
Grants employment protections to medical cannabis users.

Licensees, new and old

For lawyers, the most immediate task has been helping convert existing businesses that served the medical marijuana market into all-purpose grow facilities and dispensaries to serve both medical and recreational users.

“My understanding is that as long as they’re in good standing, it’s kind of an automatic conversion that takes place,” Andreone said. “But there’s a whole new set of rules and regulations that are laid out in the amendment that existing medical [license] holders are going to have to be aware of and be conscious of, and as they convert from medical to recreational to abide by and comply with.”

The next major business phase will begin in mid-2023 as the state begins to roll out licenses for microbusinesses — a new category of license holders that will have an entirely different approach. As the name suggests, the scale of such microbusinesses will be an order of magnitude less than those of existing license holders.

Wholesalers are limited to growing just 250 flowering plants, compared to 2,800 plants for large-scale operators with outdoor facilities. (Inside facilities can be up to 30,000 square feet.)

The amendment calls for at least 144 such licenses to be issued throughout the state over the next 18 months. The application fee is a more affordable $1,500, which unsuccessful applicants can get refunded. To qualify, the majority ownership of such facilities must meet one of several qualifications aimed at the disadvantaged, such as falling below certain income levels; having a service-related disability; having a non-violent marijuana offense on their record or that of a family member; live in a high-poverty area; or come from an unaccredited school district.

“I anticipate there will be everybody and their grandmother applying for these licenses, so there’s going to be a ton of work for Missouri lawyers to set up entities for this whole new class of applicants,” Andreone said.

Ultimately, it remains to be seen how desirable those microbusinesses will be. Andreone said that because they cannot sell their product to large-scale operators, microbusinesses must sell to each other and essentially will have their own economy. Successful operations will probably focus on “craft cannabis,” producing a product at a smaller scale but with potentially more care.

“If you’re talking about beer or alcohol, it’s the difference between a Budweiser and a microbrew,” he said.

Fixing language

Legislating via constitutional amendment can result in laws that might not win favor with lawmakers, but it also means the language is set in stone until another vote of the people occurs. The 2022 amendment offered a rare chance to correct provisions that didn’t work out as initially intended.

Chip Sheppard

Chip Sheppard of Carnahan Evans in Springfield knows that perhaps better than anyone. Sheppard, who leads his firm’s cannabis practice, helped author both the 2018 medical marijuana amendment and the version passed in November.

Sheppard said efforts to get recreational use on the ballot began shortly after the successful 2018 campaign. With polls indicating that a majority of Missourians favored further legalization, the group backing the effort, Legal Missouri, tried to get it on the 2020 ballot but lost steam during the pandemic.

“Of course, it had to be a constitutional amendment, because the legislature is ineffective when it comes to anything that had to do with marijuana,” Sheppard said. “They were just never going to be able to agree on anything. We were convinced of that, because we tried that and it didn’t work.”

Perhaps the biggest correction is to the way people get into the business in the first place. Under the prior amendment, companies had to submit a lengthy and expensive application to get a license, which were doled out to the entities that scored the best.

The prior system produced a raft of appeals before the state’s Administrative Hearing Commission, with companies alleging that the applications were scored inconsistently and that they were unfairly barred from the market.

“There were a lot of allegations that it was politically motivated and that you had to have political connections to get a license,” Sheppard said. “That was completely false, but there was a lot of inconsistent scoring mainly because the firm the Department of Health hired couldn’t staff up enough.”

He said far more entities applied than had been anticipated, given the rigorous process and the $10,000 application fee.

In a sign of how quickly things are moving, the only Missouri Supreme Court case to address the medical marijuana legal scheme came down exactly 10 months before the new amendment went into effect and addresses a provision that no longer exists. In State ex rel. Missouri Department of Health and Senior Services v. Slusher, the court held that, despite the constitution’s requirement that the state “shall maintain the confidentiality” of marijuana growing licensing information, denied applicants could obtain that information through discovery in their scoring appeals.

But not only did the amendment do away with the scoring system and replace it with a lottery, it also repealed much of the confidentiality language the court interpreted. The constitutional provision now subjects licensing information to the state’s Sunshine Law.

Nonetheless, the ruling isn’t entirely obsolete. Andreone said hundreds of appeals are still pending and have just started making use of the discovery powers the Supreme Court upheld. Those appellees will have to decide whether to continue to press their cases and hope to win a license.

“To try to get a license that route, it takes a lot of stamina, time and money to get it across the finish line,” Andreone said.

But other routes to a license have their own drawbacks. For now, the choice is for prospective businesses either to enter the lottery for a micro-license (if they can qualify for one), or else hope the state offers a lottery for additional comprehensive licenses at some future date.

“It’s a lottery, so you can’t really have any impact or increase your odds of being successful. It’s basically a crap shoot,” Andreone said. “I would imagine some groups are excited about that and feel that it gives them a chance, and I’m sure that others think it’s too much of a crap shoot and not really worth it.”

Attorney ethics

Another major fix is to the protections for attorneys who advise clients on a substance that, of course, remains illegal at the federal level.

The 2018 amendment sought to bar discipline against attorneys for any action “that is no longer subject to criminal penalties under state law” pursuant to the constitution’s medical marijuana language.

That apparently wasn’t strong enough. In 2020, the Missouri Supreme Court published a comment to the Rules of Professional Conduct saying attorneys cannot “counsel or assist the client as to how to perform an act that would violate federal law even if that conduct would be lawful under state statutory or constitutional law.” It adds that lawyers “may not continue assisting a client in conduct that the lawyer originally supposes is legally proper but then discovers is criminal or fraudulent,” at which point withdrawal from representation may be required.

Despite that potential threat, many Missouri law firms have maintained their cannabis practices, and there do not appear to be any lawyers who have faced discipline. Nonetheless, the recent amendment revised that language to prevent lawyers, as Sheppard put it, from being labeled as “ethical deviants.”

“This is a complicated regulated industry that needs lawyers,” he said. “So I hope that at this point no one is going to be scared away ethically.”

The new language goes into far greater detail on what lawyers are permitted to do in the scope of their representation. It also specifies that the prohibition on discipline applies to “the Supreme Court of Missouri, the office of chief disciplinary counsel, the state bar association, any state agency, or any professional licensing body.” The prior language only mentioned “the state bar association or other professional licensing body,” even though the Supreme Court, rather than The Missouri Bar, administers the attorney discipline system.

The Supreme Court’s comment hasn’t gone away, so it remains to be seen if the constitution’s new protections will be sufficient. Andreone hopes it will, given the clear need for legal advice that those in the cannabis system require.

“Just from a philosophical perspective, you have something that’s been legalized and it’s part of the Missouri Constitution,” he said. “It provides for certain rights and prohibitions and responsibilities and obligations for Missouri citizens and people operating businesses in this state, and you’re creating all kinds of rules and regulations associated with that. Who’s better equipped to help individuals navigate that than a lawyer who’s well-versed in the law?”

Ancillary businesses

Missouri’s disciplinary system is primarily of concern to lawyers licensed in this state. But with more opportunities for out-of-state companies to participate, the law firms who advise those clients must be wary. Husch Blackwell, for instance, has strict internal policies and procedures in place to make sure its national cannabis practice remains on the right side of the law.

“We don’t want to take money from someone and we think they’re licensed, and they’re not,” said Steve Levine, another attorney in Husch’s cannabis practice. Under that scenario, he said “we’ve been giving advice to someone who’s really breaking the law, and taking their money. That’s really problematic for us.”

Law firms aren’t the only businesses who face potential difficulties. Levine noted that a variety of “non-plant-touching businesses” could need legal advice to perform even simple tasks for cannabis businesses, ranging from the financial institutions that handle their money to the insurers that provide them policies.

In some instances, industry-specific entities have arisen to serve the marijuana market, such as credit unions that take the place of traditional nationally chartered banks that cannot accept money connected to the drug. But even mundane businesses can find themselves having to make unusual choices. What happens when someone has to fix the air conditioner?

“He’s going to get paid from an illegal business,” Levine said of his hypothetical HVAC repairman. “Does he even want to do that? Is his bank going to get pissed off when XYZ Missouri Cannabis Company is giving him a check? Is he going to be able to cash that check?”

Some of those issues could be solved at the federal level. Congress had considered the Secure and Fair Enforcement (SAFE) Banking Act, but the measure died in late December when it wasn’t included in an omnibus spending bill.

But even more worrisome for business owners, Levin and Custer said, is a provision of the tax code that prevents credits or deductions for any operation that “consists of trafficking in controlled substances.” The attorneys said that requires their clients to pay thousands or millions more in taxes than they otherwise would to the federal government. (Missouri’s amendment does allow those deductions to be applied to state tax returns, which perversely means that they will pay disproportionately more to the federal government that is hindering their operation than to the state that permits it.)

Custer said that also stacks the deck in favor of people and companies “who can afford to lose money the longest.”

“There’s a lot of talk about equity in this industry, and social justice,” he said. “If you’re going to put that kind of tax pressure on somebody, many of those equity players, they can’t play the long game. They can’t afford to lose money that long.”

Employment

In some sense, every business in Missouri will be ancillary to the cannabis industry, whether they want to be or not. Companies of all sizes are having to decide what employment policies to follow in a world where every adult worker can use pot for fun.

Jeremy Brenner

The prior four years of medical marijuana legalization hasn’t brought a wave of employment discrimination cases connected to its use. The 2018 amendment gave employers broad leeway to exclude prescribed users and offered few protections for workers who were fired.

“I don’t think it’s a big part of most plaintiffs’ attorneys’ practices yet,” said Benjamin Westhoff, a partner at the prominent St. Louis employment law firm Sedey Harper Westhoff. “Maybe employers are being somewhat cautious about it, I don’t know. But I’m not getting a lot of ‘I was fired for using medical marijuana usage’ — which would pique my interest if it came in, but I haven’t seen it.”

But that might be about to change. The new amendment continues to allow employers to terminate employees at will for recreational use of the drug. But now, medical users with valid patient ID cards cannot be fired for testing positive unless they are in possession of the drug or under its influence at work. The law also makes exceptions for use that conflicts with job-related or safety requirements or would cause the employer to lose federal money or licensing.

Jeremy Brenner, a partner at Armstrong Teasdale in St. Louis and co-leader of its national wage and hour/Fair Labor Standards Act practice, said enshrining those protections in the state constitution is “uncharted territory for employers.”

“There’s no other context I can think of where an employer would be potentially accused of violating an employee’s constitutional rights,” he said.

As Brenner reads it, suits stemming from alleged violations of those provisions would bypass the administrative procedures that apply to traditional employment protections under state or federal statutes. They also wouldn’t be subject to state-crafted limits, such as Missouri’s cap on damages and its requirement that discrimination be the “motivating factor” behind the adverse employment action. It’s also not clear what damages are available or what the burden of proof will be, leaving such issues to be worked out in court.

Firing non-medical users who test positive is less legally fraught, but it raises practical problems.

“If you exclude them blanketly or start firing people who you just suspect might be under the influence at work, in some industries and some employee populations you are going to have no workforce,” Brenner said.

But terminating users on a case-by-case basis has its own potential pitfalls if it is done in a discriminatory manner. For instance, a company that fired a member of a racial minority but let white workers remain could find itself sued for traditional race-based employment discrimination.

Brenner, describing employers’ options as a “cascading effect of trick boxes,” said he’s counseling caution at this stage. At the very least, he said, employers shouldn’t base hiring and firing decisions solely on the results of drug tests. It remains to be seen how many will follow that advice.

“I’ve got a litany of employers that I deal with who just don’t like that their employees are using marijuana, period,” Brenner said. “They still want to crack down on it and continue to enforce a zero-tolerance policy, and that’s their right.”

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