Missouri attorneys break down appellate process for medical marijuana facility applicants

On December 19, the state of Missouri awarded the first licenses for medical marijuana facilities, marking the fifth and final deadline the Department of Health and Senior Services – Division of Medical Marijuana met for the enactment of Article XIV of the Missouri Constitution. The Department would go on to issue licenses for transportation businesses and on December 26th released license award information for the first of it’s most highly coveted and competitive facility types: Cultivation. Those licensed are talking spring for first to market. However, being first to market is no longer in the conversation for 89.2% of the cultivation license applicants. Sixty licenses were awarded to the top-scoring applications, save a few that did not meet Missouri’s minimum Constitutional requirements for a license, leaving almost 500 applications with a “denial” stamp. There were 554 applications filed for one of the 60 licenses.

Manufacturing licenses are set to be released on January 10, 415 applications were submitted and 86 will be awarded. Dispensary licenses will be awarded beginning January 24, 192 licenses will be awarded out of the 1,163 applications.

For those with denials or looking toward a contingency plan, Greenway talked to several lawyers across the state about the appeals process for license denials. The state has already received a handful of appeals and is preparing to receive more in the near future.

“Each state’s MMJ law and regs are unique, as are the Administrative Hearing Commission procedures so procedurally, not much,” Chip Sheppard of Carnahan, Evans, Cantwell, and Brown in Springfield said. “But, marijuana appeals in states that used competitive scoring can be significantly valuable to review if the scoring and issues are similar. Also, in many states, the state has the right to issue additional licenses to settle claims, much like Missouri, although the hurdle in Missouri is high, but not insurmountable by any means.”

On Thursday, January 2, the Division released application score guides and keys, posting each application’s scores – though not answers – identifiable by the self-assigned application ID codes.

Few consultants and lawyers had overwhelming success in the release of cultivation awards, but there are plenty of clues as to what put some appealed applications over the top in other states.

“There are some definite patterns,” said Sharon Jones of Jones Advocacy Group in Columbia. “Criteria that is not strongly based in the language of the statutes or Constitution usually get overturned. We are a bit unique because our limited licenses are written into the Constitution as a floor rather than a ceiling; so there is nothing preventing DHSS from issuing a license to anyone who meets the minimum criteria in Article XIV.”

Per the state rules, there are 30 days from the date of conditional denial notification to file an appeal. For cultivation denials, the cutoff is January 25 – the day after the release of dispensary licenses. Appeals filed through the Administrative Hearing Commission must be filed within 30 days. Circuit court petitions are more flexible, but lawyers advise that appeals should be done as soon as possible to avoid procedural issues.

“The first step is to find a good attorney who can advise you about the best path,” Jones said. “Technically appeals go through the Administrative Hearing Commission first, but if there are direct challenges to the validity of the rules or Constitutionality of the process the first stop is the Cole County Circuit Court.”

Determining a case for appeal is one that dozens of lawyers and prospective companies are deliberating, one that can be called a gamble.

“This is an issue that will be a case by case appraisal of the rejected applicant’s application,” Brian Stumpe of The Law Offices of Stumpe and Schrimpf LLC of Jefferson City said. “You will have to look at all the issues that gave rise to the rejection to determine if there is a good possibility of being successful of not with your appeal. There is no silver bullet that will automatically grant someone a reversal of their denial. As such you will look at what their final score was, things that gave rise to their rejection and prepare a cost-benefit analysis to determine if it makes economic sense or not to file the appeal.”

“The most common themes for appeal will most likely be ones where the applicant claims that the CSR was not followed, the scoring matrix was not followed, rules were arbitrary and capricious, scoring was subjective, and the department abused its discretion when scoring the application,” Stumpe said.

Jones says that denial based on low scores, as opposed to a violation of standards, is often an easier and more fruitful approach.

“Nothing is guaranteed,” Jones said. “Weigh the cost/benefits and decide how much you want to invest in a gamble.”

“That there are several issues that need to be considered, facts, risks, and investment in the process that all needs to be weighed continually as the matter proceeds and filing late is not an option,” Sheppard said.

Sheppard and Jones both pointed to scoring as a good place for clues about an appeal.

“Were they denied a license due to conduct or omissions by the scoring company or DHSS that was improper (negligent, erroneous, unfair, etc.),” Sheppard said. “Beyond that, we get into specific privileged/confidential issues specific to that application which we cannot ethically share here.”

“Whether or not ‘bonus points’ were awarded, comparing scores with others who were granted licenses, and the common misconception that the Constitution requires a limit on licensure,” Jones said.

“Different scores for the same site raises questions about the scoring process obviously; namely, human error in that different apps were possibly scored by different persons unaware that there was an identical app with the same location,” Sheppard said.

An appeal’s first stop is the Administrative Hearing Commission, based in Jefferson City, Missouri. The AHC is presided and managed by Commissioner Audrey Hanson McIntosh. She is joined on the commission by fellow gubernatorial appointments Sreenivasa Rao Dandamudi, Renee T. Slusher, and Philip Prewitt. Prewitt, a former Northeast Missouri lawyer, and judge, is the only appointment from the current sitting governor.

“The AHC is a statutorily created body that hearing all sorts of regulatory and administrative disputes in Missouri,” Jones said. “It is made up of three attorneys appointed by the Governor who act as ‘judges’ in these matters. Appeals before the AHC are less formal than a court, but are official and have the force of law.”

“The AHC acts as an independent hearing officer for State Agencies,” Stumpe said. “It has been put in place to make certain that an individual agency does not act as an investigator, prosecutor, and judge in cases against state agencies. They make decisions under contested case procedures involving a trial-like hearing. All decisions of the AHC are subject to judicial review.”

It is a panel of administrative law judges that rule, much like a judge in state or federal court, based on the law, facts, and arguments presented to them with evidentiary rules apply as well, Sheppard said.

According to the State Code of Regulations that governs the AHC all corporations must have a licensed attorney file a petition on their behalf in order for that petition to be heard by the AHC, Stumpe said.

“Even if an individual that is allowed to represent themselves, it is not advisable,” Sheppard said. “He/she will probably be completely outgunned by the lawyers for the state.”

“A serious business owner would be foolish not to have legal representation,” Jones said.

Even with a few appeals filed, the biggest dispute talked about by the industry and grassroots now is the Sarcoxie case. The Callicoat Family filed a suit directly to the Cole County circuit court less than 72 hours after their cultivation application had been denied. Within the week, Judge Jon Beetem had denied their motion for a temporary restraining order (TRO).

“A Temporary Restraining Order such as the one filed by Spencer Fane for the Callicoats seeks to stop the program and seeks to have the DHSS start over and rescore the 2,200+ applications with changes to the scoring process such as ignoring the zip code bonuses,” Sheppard said. “Or, pursuant to their ‘Right to Farm’ constitutional argument, to allow everyone the right to grow MMJ.”

A temporary restraining order (TRO) prevents a party, in this case, DHSS, from continuing with their current activity, Jones shared. In this case, it would prevent DHSS from implementing its rules which includes its ability to grant licenses. While this could theoretically mean more license availability or repeal of some of the rules, it also means no licenses can be awarded at this time.

Thank you to lawyers throughout Missouri for assisting in this article.