State regulators forced to award 13 additional licenses to Hippos

Appellate Court orders Missouri Division of Cannabis Regulation to award 13 marijuana facility licenses after finding flaws in the scoring process.

A Missouri Court of Appeals decision ordered the Missouri Department of Health and Senior Services and the Division of Cannabis Regulation (DCR) to issue 13 additional marijuana facility licenses to Hippos, LLC, the company behind the Hippos dispensary, Sundro and OG Yields cultivation, and Atta, Hugs, and Bad Pony manufacturing brands; after finding fundamental problems in how the company’s applications were scored during the original medical marijuana licensing process.

The ruling, issued March 10 by the Missouri Court of Appeals Southern District, reverses earlier decisions and directs the department to award licenses across cultivation, manufacturing, and dispensary categories.

The dispute stems from Missouri’s original medical marijuana licensing process following the 2018 adoption of Article XIV. Under that framework, the state capped licenses and relied on a competitive scoring system when applications exceeded available slots.

“The Department received more applications than the number of available licenses. Thus, the Department was required to ‘use a system of numerically scoring ten (10) additional evaluation criteria to rank the applications in each such license or certification category against each other,” the court explains in its decision authored by Judge Jeffrey W. Bates.

Hippos submitted multiple applications in 2019 and was denied most of them. Those denials were upheld by the Administrative Hearing Commission and later affirmed by a circuit court before reaching the appellate level.

In reviewing the case, the appellate court emphasized that agency decisions must meet clear legal thresholds.

The opinion outlines the standard in full, “This Court reviews whether the agency action: (1) Is in violation of constitutional provisions; (2) Is in excess of the statutory authority or jurisdiction of the agency; (3) Is unsupported by competent and substantial evidence upon the whole record; (4) Is, for any other reason, unauthorized by law; (5) Is made upon unlawful procedure or without a fair trial; (6) Is arbitrary, capricious or unreasonable; (7) Involves an abuse of discretion.”

The court ultimately found that the decisions denying Hippos’ applications did not meet that standard.

Inconsistent scoring and lack of documentation

A central issue in the case was the reliability of the scoring process itself.

The court identified inconsistencies in how identical answers were evaluated and found that the record lacked documentation explaining why scores were assigned.

Bates noted, “The raw scores provide no evidence of the scorers’ intent because there are no notes explaining why the scores were given. The conflict in these unexplained scores cannot be reconciled by simply assuming the more common score for a particular answer is the correct one.”

The court also rejected the Administrative Hearing Commission’s approach to resolving discrepancies, finding that relying on the most common score was unsupported by evidence.

Evaluator qualifications called into question

The court further found that at least one evaluator lacked documented qualifications necessary to score portions of the application.

“With respect to Question 64, we again note that Wise was required to make sure each scorer had the requisite experience and background to perform their assigned task. In the case of Szopinski, there is nothing in the record to show that this requirement was met. Szopinski’s resume does not list or describe any experience or background in the cannabis industry or in business evaluation or analysis.”

   

The court also pointed to failures in following scoring procedures:

“The Training Manual instructed Szopinski and the other scorers that ‘[i]n the notes, you should explain how your own expertise and personal experience influenced how you arrived at the assigned score.’ Szopinski did not explain her expertise or anything else in the notes section of the scoring rubric because that section was left blank.”

Clear scoring errors impacted outcomes

Beyond documentation and qualifications, the court identified specific scoring mistakes that directly affected whether licenses were awarded.

“Her score of 4 on Question 68 was inappropriate because this question was to be evaluated on a ‘Satisfactory(10)/Unsatisfactory(0)’ basis.”

The court concluded that correcting those errors would have changed the outcome: “If the Commission had used Cohen’s score for Question 64 and had corrected Szopinski’s score on Question 68, Hippos’ manufacturing licenses would have been granted.”

Court findings align with recent state audit concerns and orders licenses to be issued

The issues identified by the court mirror concerns raised in a recent audit conducted by Missouri State Auditor Scott Fitzpatrick, which examined the state’s cannabis licensing process.

In its opinion, the court repeatedly pointed to inconsistent scoring, lack of documentation, and the absence of clear justification for evaluator decisions. The court’s findings that scores lacked supporting notes and that evaluators did not consistently follow required procedures reflect similar concerns about transparency and reliability in the licensing process.

While the appellate decision is limited to the Hippos case, the overlap between the court’s findings and the audit’s conclusions highlights broader scrutiny of the state’s original medical marijuana licensing system and how applications were evaluated.

The opinion also highlights that Hippos presented expert testimony supporting higher scores for its applications, while the state did not offer rebuttal evidence.

“The department offered no rebuttal to Hippos’ expert testimony and presented no other testimony showing why Hippos should not be given the higher scores about which those experts testified.”

This lack of counter-evidence contributed to the court’s conclusion that the agency’s decisions were not supported by the record.

“Accordingly, we reverse the circuit court’s judgment affirming the Commission’s decisions denying Hippos’ 13 license applications. Pursuant to the authority granted in 19 CSR 30-95.025(6)(C), we remand the case with directions that the circuit court order the Department to grant Hippos the cultivation, manufacturing and dispensary facility licenses for which it applied,” Bates concluded.

Broader implications for Missouri’s cannabis industry

The decision highlights how courts may evaluate administrative decisions when reviewing cannabis licensing disputes. It also reinforces that regulatory decisions must be supported by clear evidence, consistent procedures, and qualified evaluation, and that courts are willing to intervene when those standards are not met.

Read the full opinion below.