JCAR report scrutinizes Missouri’s marijuana program administration

Following a hearing in mid-October that saw Missouri Division of Cannabis Regulation leadership questioned by a bi-partisan rules committee, the Joint Committee on Administrative Rules (JCAR) has issued the report promised by Senator Nick Schroer at the hearing’s conclusion.

In the report, the members of JCAR question the Department of Health and Senior Services and Division of Cannabis Regulation’s (DCR) approach to managing the state’s marijuana program. The committee’s findings raise significant questions about the regulatory processes and the adherence to rulemaking procedures.

In January 2023, following the passage of Amendment 3, which legalized recreational cannabis, the DCR filed 19 proposed rules to govern the new sector and modify the existing medical cannabis industry. However, the DCR’s subsequent publication of guidance documents, variances, and waivers has prompted JCAR to investigate their compliance with Missouri’s rulemaking procedures.

During a hearing on October 18, 2023, JCAR invited testimonies from DCR officials, industry representatives, and legal experts. Concerns were raised about the enforcement of DCR’s guidance documents and whether they effectively function as rules without undergoing the proper legislative process.

Citing legal precedents, including the Missouri Association of Nurse Anesthetists case, JCAR noted that several DCR statements in its guidance documents should have been adopted as rules due to their general applicability in implementing and interpreting law or policy. This includes specific guidelines related to cannabis product packaging, labeling, and design.

The report concluded with recommendations urging the DCR to adhere to Chapter 536 requirements when issuing statements of general applicability. It emphasized removing any such statements not contained in properly promulgated rules from its publications.

Impact on Missouri’s Cannabis Industry

These findings could have pivotal implications for Missouri’s cannabis industry. The ongoing issues of uncertainty and unclear expectations combined with less than uniform enforcement and varying answers between compliance and enforcement personnel all represent the concerns and issues raised and in some ways addressed in the report.

Ensuring that rules and guidance documents are correctly promulgated is vital for legal clarity, regulatory compliance, and the operational freedom of cannabis businesses.

The Need for Regulatory Compliance

The report underlines the necessity for regulatory bodies like DCR to adhere to established legal procedures in rulemaking. This is crucial for the legitimacy of the regulatory framework governing Missouri’s burgeoning cannabis industry.

The Committee’s scrutiny reflects an ongoing sense of uncertainty among many industry operators and participants. The points covered by Senator Schroer during questioning and in the letter detail the sentiment expressed by licensees, that often what the black and white letter of the law says is less important than the perception or interpretation of members of the regulating body and there is little to no recourse for those whose opinions differ.

While DCR has helped to boost the Missouri industry to its current position, there is a growing discontent with the direction the Division has taken since adult-use legalization and the way that concerns are addressed by regulators.

Licensees and operators see JCAR’s letter as an effort to ensure that Missouri’s cannabis industry operates within a legally sound and transparent regulatory environment. As the state navigates the complexities of regulating this new industry, the importance of adherence to legal and regulatory standards remains paramount.

Bi-partisan committee questions departmental oversight of marijuana regulation in hearing

The full text of the report can be found below:

Report of the Joint Committee on Administrative Rules

Dear Mister Speaker and Mister President Pro Tempore:
The Joint Committee on Administrative Rules has met, taken testimony, deliberated and concluded its review of the rules promulgated in 19 CSR 100 and the Department of Health and
Senior Services, Division of Cannabis Regulation’s guidance documents and waivers. The belowlisted committee members are pleased to submit the attached report:

Chair, Senator Nick Schroer, Vice-Chair, Representative Alex Riley

Senator John Rizzo, Representative Ben Baker

Senator Holly Thompson Rehder, Representative Peter Merideth

Senator Curtis Trent, Representative Louis Riggs

Senator Barbara Washington, Representative David Tyson Smith

Introduction

The Joint Committee on Administrative Rules (JCAR or “The Committee”) may “review all rules promulgated by a state agency after January 1, 1976” and “to take such actions as it
deems necessary, including holding hearings.”

1 The Committee held a hearing on October 18, 2023. They invited the Department of Health and Senior Services, Division of Cannabis Regulation (“DCR”), members of the cannabis industry, and the public to present testimony regarding the implementation of the rules promulgated by the DCR in 19 CSR 100 and subsequent guidance documents, variances, and waivers issued by the DCR to determine if these guidance documents, variances, and waivers complied with rulemaking procedures in Missouri.

Properly promulgated rules in Missouri have the force of law. Section 536.010.6 defines “rule” as “each agency statement of general applicability that implements, interprets, or prescribes law or policy, or that describes the organization, procedure, or practice requirements of any agency.” 2 Section 536.021 and other sections of Chapter 536 mandate the procedure for proposing, adopting, amending, or rescinding rules. That procedure includes filing the proposed rule or amendment with the Secretary of State and the Joint Committee on Administrative Rules, an opportunity for public comment, and filing a final order of rulemaking the Joint Committee on Administrative Rules, and if the Committee does not take action, filing the final order with the Secretary of State. The final rules are published by the Secretary of State in the Code of State Regulations.

This system of rule promulgation serves many purposes. It allows public notice and input on the policies the agency is adopting. It gives the Legislature an opportunity to provide
oversight to the Executive Branch’s implementation of policy – serving as part of our system of checks and balances. It protects both consumers and regulated industries by ensuring that all
statements of general applicability that have the force of law are found in one place and citizens do not have to check numerous websites or publications to know what to expect from their
government regulators.

Additionally, if an agency enforces a statement of general applicability that was not promulgated as a rule, it costs the state resources, in both time and money. Section 9 of 536.021
states that:

If it is found in a contested case by an administrative or judicial fact finder that a state agency’s action was based upon a statement of general applicability which should have been adopted as a rule, as required by sections 536.010 to 536.050, and that agency was put on notice in writing of such deficiency prior to the administrative or judicial hearing on such matter, then the administrative or judicial fact finder shall award the prevailing nonstate agency party its reasonable attorney’s fees incurred prior to the award, not to exceed the amount in controversy in the original action.

1 RSMo §536.037.3
2 There are thirteen exceptions to this general definition, none of which are applicable here.

The citizens of Missouri passed Amendment 3 in November of 2022. It mandated that the Department of Health and Senior Services promulgate rules to govern the newly legalized
recreational cannabis industry and make certain modifications to the previously regulated medical cannabis industry. On January 20, 2023, DCR filed nineteen (19) proposed rules to
fulfill this mandate. Pursuant to Chapter 536, DCR gathered public comment. On April 14, 2023, DCR filed final orders of rulemaking with JCAR. JCAR held a hearing on the rules on
May 4, 2023. As a result of that hearing, DCR filed amended orders on six (6) rules. JCAR waived its thirty day review period and all nineteen (19) rules went into effect on July 30, 2023.
Subsequently, DCR has published numerous guidance documents that purport to explain how the DCR interprets the promulgated rules, give alternatives for complying with the
promulgated rules or delay the effective date for the promulgated rule. 3 The DCR contends that it needs to be able to publish these types of guidance documents because it is answering questions
from licensees. DCR has also published waivers and variances that purport to delay the effective date of rules or provide alternate requirements for licensees.

   

3 https://health.mo.gov/safety/cannabis/facility-comms-guidance.php

Summary of Public Testimony

On October 18, 2023, the Joint Committee on Administrative Rules held a hearing to discuss the rules in 19 CSR 100. Specifically, JCAR was concerned that several statements
issued by the Department and referred to as “Guidance,” “Variances,” or “Waivers”:

 are statements of general applicability that, pursuant to Chapter 536 should have been promulgated as rules; and

 are statements of general applicability that expanded on or contradicted the promulgated rules that were previously reviewed by the Committee.

Amy Moore, the Director of the Missouri Department of Health and Senior Services, Division of Cannabis Regulation, and Ben Terrell, Legislative Director, Missouri Department of
Health and Senior Services, testified on behalf of DCR. DCR contended that the guidance documents issued, specifically the Packaging, Labeling and Product Design Guide published on
their website at https://health.mo.gov/safety/cannabis/pdf/packaging-labeling-and-product-design-guide-072023.pdf in July 2023 are guidance and are meant to clarify the rules and answer
questions that licensees have been asking DCR. They also emphasized that if a licensee were to be disciplined, that discipline would be based on the statutes or promulgated rules, not on the
Packaging, Labeling and Product Design Guide. DCR also contended that the rules themselves give them the ability to issue waivers to change the effective date of rules and waivers to institute
alternative ways to meet the requirements for some rules.

Chris McHugh of Vertical Enterprise, LLC, who owns several licensed entities, testified regarding his experience with the Division of Cannabis Regulation’s rules and guidance
documents. He stated that DCR’s Compliance Officers site the guidance documents and enforce them during their inspections.

Eric Walters, an attorney for several cannabis licensees, testified regarding his clients’ experience with the Division of Cannabis Regulation’s rules and guidance documents.
JCAR also received a letter from Lowell Pearson, attorney with Husch Blackwell, who represents several cannabis licensees regarding the DCR’s guidance documents.

Findings

JCAR finds that the statutory process for the promulgation pursuant to Chapter 536 of any statement of general applicability by an agency is necessary to ensure the checks and
balances of our government and to protect the rights of citizens of this State. When those rules are regarding cannabis regulation, that process is also necessary to protect consumers of cannabis
products by ensuring that the products they purchase are being held to the promulgated safety standards. The rule promulgation process also protects the licensed industry by providing input
into the rulemaking process, stability of the regulatory framework of the state, and predictability of the regulatory burden imposed on the industry. The general principal in our law is that an
agency has no authority to issue a statement of general applicability that implements, interprets, or prescribes law or policy or that describes the organization, procedure, or practice requirements
of any agency, outside of the formal rule promulgation process in Chapter 536.

JCAR finds this situation is analogous to that reviewed by the Missouri Supreme Court in Missouri Association of Nurse Anesthetists, Inc. v. State Board of Registration for the Healing
Arts, 343 S.W.3d 348 (2011). Just as the DCR has done in this case, in Missouri Association of Nurse Anesthetists (MoANA), the Board of Registration for the Healing Arts (the Board), issued a
letter answering a licensee’s question regarding whether a physician could delegate a certain procedure to advanced practice nurses (APNs). The letter stated, “Based on the information
provided to the Board, it was their opinion that [APNs] currently do not have the appropriate training, skill or experience to perform these injections.” No rulemaking procedures were
followed in issuing this letter. The Missouri Association of Nurse Anesthetists, Dr. Glenn Kunkel, and a nurse sued for a declaratory judgement pursuant to section 527.120, RSMo.
Separately, the Board also filed an administrative complaint seeking discipline against Dr. Kunkel alleging that he had improperly delegated the procedure discussed in the latter to an
APN. The discipline cited the statute prohibiting improper delegation, not the letter.

The Court found that the statement in the letter issued by the Board constituted a statement of general applicability because it was not confined to a specific set of facts and had a
future effect and potential impact on a physician wanting to delegate the specified procedure to an APN and it interpreted law and proscribed policy, and therefore it required promulgation.
While the Court found that the letter was not a “rule” because it wasn’t promulgated, they issued an injunction prohibiting the Board from enforcing the letter.

Similarly, in this case, the Department has issued a Packaging, Labeling and Product Design Guide, as well as other statements, which were not promulgated as a rule. The
Packaging, Labeling and Product Design Guide contains numerous statements of general applicability, which interpret law and proscribe policy, as outlined below.
DCR relies on the case United Pharmacal Co. of Missouri, Inc. v. Missouri Board of Pharmacy, 159 S.W.3d 361 (2005). In that case a pharmacy sought a declaratory judgement
under §536.050, RSMo as to whether the Board of Pharmacy’s publishing of Frequently Asked Questions, with answers (FAQ), was a valid rule. The Board of Pharmacy issued a cease and desist letter to United Pharmacal, demanding it end the practice addressed in the FAQ and citing statutory authority for that position.

The Court found that the FAQ was not a valid rule because it hadn’t been promulgated and was void with no effect under §536.050. While the Court’s analysis of the issue of whether
the FAQ was a valid rule is instructive, the Court only determined that the FAQ was not a rule under Chapter 536 and therefore United Pharmacal was not entitled to relief under Chapter 536.
It did not determine if the FAQ was a statement of general applicability that should have been promulgated as a rule.

Importantly, MoANA and United Pharmacal answered different questions. DCR is correct that United Pharmacal supports their position that these statements are not “rules”
because DCR did not promulgate them as rules. However MoANA, stands for the position that an agency cannot issue statements of general applicability without going through the rule
promulgation process. DCR relies on the fact that any discipline issued will cite the promulgated rule, not the guidance statement. The Board in the MoANA case made the same argument. The
Court held that was irrelevant and the issuing of the statement was not legal because it was a statement of general applicability and should not have been issued outside of the rulemaking
process. They pointed out that even if the Board said it was not disciplining a licensee based on the statement, the statement was in fact a statement of general applicability in that the statement
was not confined to a specific set of facts and had a future effect and potential impact on a physician wanting to delegate the specified procedure to an APN and it interpreted law and
proscribed policy. Similarly, the statements below by DCR interpret law and prescribe policy and have had a future effect and potential impact on a licensee wanting to engage in a particular
proscribed activity. For example, their statement that “The primary color may not include patters or additional shades/gradients of the package’s chose primary color” will have the effect of
licensees designing packaging without shade or gradients of color.

While DCR is correct that “Not everything written or published by a state agency is an administrative rule,” when the statement written or published is a statement of general
applicability, it is a rule and must be promulgated as a rule. JCAR specifically finds that the following statements that appear in guidance statements published by DCR meet the definition of rule under §536.010(6) in that they are statements of general applicability that implement, interpret, or prescribe law or policy or describe the organization, procedure, or practice requirements of DCR. Additionally, JCAR finds, pursuant to Missouri Association of Nurse Anesthetists, Inc. v. State Board of Registration for the Healing Arts, 343 S.W.3d 348 (2011) the following are statements of general applicability in that they are not confined to a specific set of facts and have a future effect and potential impact on DCRs licensees and cannabis consumers. DCR does not have authority to issue the following statements outside of the rule promulgation process in Chapter 536 and these statements do not have any effect.

4 United Pharmacal Co. of Missouri, Inc. v. Missouri Board of Pharmacy, 159 S.W.3d at 365.

 “Shape of a human includes figures such as an alien or robot.”

5 This statement interprets 19 CSR 100-1.120(1)(B)1’s which says in part that “no marijuana product or packaging may be designed using the shape or any part of the shape of a human. . .”
 “’Limited colors’ means that the entire package must be limited only one main color and any additional colors that are part of up to two logos.”

6 This interprets 19 CSR 100-1.120(1)(B)5.A. which says in part, “All marijuana product packaging design . . . may only utilize . . .A. limited colors. . .”
 “The primary color may not include patters or additional shades/gradients of the
package’s chose primary color.”

7 This interprets 19 CSR 100-1.120(1)(B)5.A. which states in part “All marijuana product packaging, design . . . may only utilize – A. Limited colors, including a primary color. . . .”
 “QR Code may not include a logo or image.”

8 This interprets 19 CSR 100-1.120(1)(B)5.E. which states, “All marijuana product packaging, design . . . may only utilize – E. A QR code linking to a website where a purchaser can learn more about the product.”
 “QR code may only be in black or white.”

9 This interprets 19 CSR 100-1.120(1)(B)5.E. which states, “All marijuana product packaging, design . . . may only utilize – E. A QR code linking to a website where a purchaser can learn more about the product.”
 “Each individual licensee must receive approval for each different final marijuana product SKU produced by the licensee.” 10 This interprets 119 CSR 100-1.120(2) which states that “Prior to use, all marijuana product designs, packaging designs, and label designs must be submitted to the department for review of compliance with section (1) of this rule.”

 The underlined portion of the statement “Licensees are required to list out all ingredients used in their final marijuana product, in descending order of predominance for each
ingredient.” 11 This interprets 19 CSR 100-1.120(1)(C)2.A. which states that “All active and other ingredients, which shall not include groupings of ingredients that obscure the
actual ingredients, such as natural flavors or ‘botanically derived terpenes’ and shall include solvents used in the manufacturing process.”
5 Product Labeling and Design Guide (July 2023), page 3.
6 Product Labeling and Design Guide (July 2023), page 5.
7 Product Labeling and Design Guide (July 2023), page 6.
8 Product Labeling and Design Guide (July 2023), page 7.
9 Product Labeling and Design Guide (July 2023), page 7.
10 Product Labeling and Design Guide (July 2023), page 7.
11 Product Labeling and Design Guide (July 2023), page 10.

 The requirement that in addition to a photo of the packaging, that 19 CSR 100-1.120(1)(B)6. requires licensees to upload separate pdfs of each logo or symbol, a pdf of
the QR code, a certification of child resistant packaging, a package specification sheet, a packaging manufacturer’s food grade statement or certificate of FDA compliance are
required to be submitted to comply with “Item Approval Application Checklist” and obtain package approval.

12Further, JCAR finds any waiver or variance issued by DCR that applies to all licensees is a statement of general applicability in that they are not confined to a specific set of facts and have
a future effect and potential impact on DCRs licensees and cannabis consumers and that they interpret law and proscribe policy. This includes, but is not limited to the following:

 A variance issued on August 18, 2023, modifying 19 CSR 100-1.120(1)(C)2. That rule contains a list on items that may be displayed on the label of a marijuana product. The
Department’s variance purports to add an item to that exclusive list and allow the strain or flavor of the product and/or the final marijuana product source package tag number to
be listed on the label.

 A variance issued on July 28, 2023 changing the timing for submission of federal-fingerprint based criminal background checks from two weeks after application
submission, as required by rule, to two weeks after receiving a request from the Department.

 A waiver of 19 CSR 100-1.100(4)(D) until December 1, 2023, requiring licensees to implement quality management systems. .

 A waiver of 19 CSR 100-1.120(1)(C)2.H provides for additional labeling requirements related to mandatory testing of the cannabinoid profile including the exact
tetrahydrocannabivarin (THCV), cannabidivarin (CBDV), and delta 8 tetrahydrocannabinol (Δ8-THC) per serving/dose, listed in milligrams until January 31,
2024.

JCAR appreciates that circumstances may have arose that necessitate a change in the promulgated rules or the effective date of promulgated rules. We note that a procedure exists in
§536.025, RSMo to promulgate emergency rules in such circumstances.

12 “Item Approval Application Checklist” (September 8, 2023)

Recommendations
JCAR recommends:
1. This report will be forwarded to the House Budget Committee, the Senate Appropriations Committee, members of the House and Senate, and the Governor’s Office. Copies will also be
made available to the public upon request.
2. DCR should follow the requirements of Chapter 536 when issuing any statement of general applicability.
3. DCR should remove any statements of general applicability that are not contained in properly promulgated rules from its website and other publications.