Guidance letter inspires noteworthy forethought to licensees
Immediately after cultivation licenses were issued in December, the rumor mill was churning out stories of new licensees offering their licenses up for “sale.” Of course, it isn’t really a sale because no license can be transferred until on or after January 1, 2021, per DHSS regulation, and even then, the Department must first approve the transfer. After a month of this chatter, Andrea Balkenbush, Facility License and Compliance Director for Missouri’s Medical Marijuana Regulatory Program sent a letter to new licensees with guidance on submitting change and variance requests as well as insight into the Department’s decision-making process for these requests. The letter was publicly circulated on January 27th and is posted on the DHSS website.
Four times Ms. Balkenbush cautions licensees to obtain department approval before making certain changes, changes which include the assignment, sale, lease, or sublease of a license. She also raises the specter of rule violations four times, the consequences of which may include license revocation. From a licensee’s perspective, negotiating a transfer conditioned upon department approval may be part of their business strategy. For denied applicants, negotiating a conditional agreement to buy a license is a second chance at entering a market that holds so much promise.
When it comes to the Department’s anticipated decision-making process for a transfer request, DHSS is considering the impact the requested sale would have on the application evaluation and score had the requested change been part of the original application. This aligns with regulations mandating that a licensee provide at least the same information required for the initial license application in its transfer request. Changes in ownership amounts that effectively transfer a license will also be scrutinized to the same extent as a request to transfer. Moreover, a proposed regulation extends conditionally denied applicants eligibility for any licenses that become available for 395 days after notice of denial. The Department’s approach effectively seeks to prevent a license sale or ownership change from becoming a means of circumventing the original application process or bypassing issuance of a license to the next in line conditionally denied applicant.
Just as denied applicants appealing to the Administrative Hearing Commission will attempt to discover details about the application scoring process, denied applicants may want to learn the facts behind the Department’s decisions for transfer requests. The regulations do not explicitly provide a process to appeal a denied transfer request, nor do they offer a means of discovering the details of how and why the Department reached its decision. Some documents may be obtainable through Missouri’s Sunshine Law while others may be considered confidential.
For many who were denied licenses, adult-use legalization also represents an opportunity to enter Missouri’s cannabis market. With two ballot initiatives legalizing adult-use marijuana currently approved to gather signatures, it is possible that Missouri will become fully legalized by the end of the year. Ballot initiative 2020-128 is supported by some of the same backers of Amendment 2 which legalized medical marijuana in Missouri in 2018, although the initiative’s language is reminiscent of Proposition C more so than Amendment 2. With this support, the initiative may indeed gather sufficient signatures to appear on the November 2020 ballot.
Under initiative 2020-128, current medical marijuana license holders, with one exception, are given first access to adult-use marijuana licenses through 2023. The one exception is a microbusiness facility (150 flowering plants) for which six licenses per U.S. Congressional District would be awarded. The soonest anyone else may be issued an adult-use license is on or about January 1, 2024. If it passes, medical marijuana license holders will secure their position in the adult-use market for several years. Would the Department even consider the impact of adult-use licenses when deciding a request to transfer a medical marijuana license?
The initiative states that medical marijuana license holders “shall notify the department of their intent to apply [for an adult-use license] with the department by February 1, 2021.” If medical marijuana licensees cannot submit a request to transfer their license until on or after January 1, 2021, what happens if potential new owners miss the February 1st deadline while the Department looks very carefully at these requests as promised in the letter? If the original owner pre-files their intent to apply before February 1, 2021, is it even transferable to the new owner?
The rumor mill promises to churn out even more stories as these scenarios play out. Amongst this chatter, it bears reminding that the Facility License and Compliance Director’s letter emphasizes reciprocal duties that are effective here and now. The Department has a duty to enforce its rules and licensees have a duty to comply. If a facility doesn’t pass its commencement inspection within a year of issuance, there might not even be a license to sell.
Denise B. McCracken is an attorney and founder of Dogwood Advisors, a compliance-focused cannabis law practice.
This article is for general informational purposes only. This information is not legal advice and it should not be considered to create an attorney-client relationship. You should always consult an attorney for advice regarding your individual situation. Federal laws currently conflict with Missouri law legalizing cannabis use and possession.