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Missouri marijuana rules challenged in court

Gregory J. Holman  Springfield News-Leader

The day after Christmas in 2019, state health authorities turned down every Springfield-area company that applied for a medical marijuana growing license, along with many other companies elsewhere in southern Missouri.

Medical marijuana regulators at the Missouri Department of Health and Senior Services awarded just 60 of the potentially lucrative licenses, drawing from more than 550 applicants hoping to grow medical cannabis for profit.

The Callicoat family out of Sarcoxie didn't take the denial lying down. A retired cardiologist, Paul Callicoat, had teamed up with his wife and son to create a plan to turn the old Sarcoxie Nursery, which grew peonies and irises, into a medical marijuana operation: Sarcoxie Nursery Cultivation Center, LLC.

Four days after getting a red light from the Missouri Department of Health and Senior Services, Sarcoxie Nursery filed a lawsuit.

The Callicoat family argued that Missouri's selective medical marijuana licensing process violated Missourians' right to farm. They also objected to "blind scoring" protocols that included bonuses awarded to applicants located in economically distressed ZIP Codes.

"We are very concerned with integrity of the scoring," Callicoat told the News-Leader in January. They also argued that "large corporations" had been unfairly awarded "the lion's share" of cultivation licenses. 

"It is wrong, and it is not what Missourians intended when they voted to legalize medical marijuana,” Callicoat said in a statement shortly after he got the denial.

Citing ongoing litigation, a representative for the Callicoats said late last week that the family was not giving interviews.

Since late 2019, the battle between Sarcoxie and DHSS has become more intense as the case has made its way through the courts. Late last week, the Missouri Independent, a nonprofit newsroom based in the state capital, reported on a new bombshell 28-page court filing by the Callicoats.

The family's lawyers argued that the health department and the office of Missouri Attorney General Eric Schmitt had engaged in "egregious" conduct, seeking to illegally hide state government documents that recorded actions by health officials as they set up crucial parameters of the medical marijuana program in the busy months following voter approval.

The Callicoat camp called the government's behavior in the lawsuit "unfair, obstructive and deceptive" and argued it was intended to undermine their lawsuit and keep details of the origins of Missouri medical cannabis regulation in the dark.

They asked the judge in the case to "declare them victorious before the trial even begins," according to the news report by the Independent's editor, Jason Hancock.

If the judge sides with the Callicoats, the "license caps" imposed on marijuana by Missouri health authorities would be invalidated. The authorities chose to work with the minimum number of marijuana licenses outlined in Article 14, the medical marijuana part of the state constitution approved by voters in 2018. The constitution doesn't include  any maximums on licenses. Any applicant meeting Missouri's minimum standards, considered relatively rigorous by many in the industry, could grow or sell marijuana.

The Callicoats' motion for sanctions filed last week contained other details that raised eyebrows:

• Missouri's medical marijuana program has about $25 million on hand, of which $8 million is being set aside for attorney costs tied to litigation over the licensing denials, according to comments made in in a recent deposition by Dr. Randall Williams, DHSS director. The information comes following a Sept. 11 announcement by the department that it had transferred just $2.1 million toward the veterans fund, where Article 14 directs marijuana tax proceeds to be spent;

• Williams also admitted under oath to using his personal mobile phone to conduct state business, a no-no under the Missouri Sunshine Law because government officials’ text messages are considered open public records.

Meanwhile, in a new court filing made last Saturday, the Missouri Attorney General's office called the idea that Schmitt and the state health department broke the Missouri Sunshine Law while responding to the Sarcoxie suit "baseless." The new filing, first reported in the Independent Monday morning, said DHSS had "promptly responded" during the document discovery phase of the court case.

License caps

Missouri's program has already prompted widely reported scrutiny from Missouri lawmakers and even the FBI. If the Callicoats win their suit, said two prominent Missouri attorneys with ties to the cannabis industry, it would change the playing field.

Jay Preston, a shareholder with Carnahan, Evans, Cantwell & Brown in Springfield, said the Sarcoxie Nursery court battle over "license caps" could stretch into 2022 if the case is appealed, which he thinks is likely. It could end up before the Missouri Supreme Court, he said.

"We may not get a final decision on these issues for some time," Preston told the News-Leade. "Don’t assume that whatever the judge decides gets upheld on appeal, regardless of whether it's for or against Sarcoxie."

Preston said his understanding of case law is that when two parties battle over document production in court, "the sanctions that Sarcoxie is asking for, for the judge to just enter a judgment in their favor – that result is kind of extreme. The court's not going to do that offhand. I think the court would do a very deep and lengthy analysis before they’d enter something like that."

Dan Viets, who served as chair of the New Approach campaign committee that promoted Article 14 to voters back in 2018, is also a longtime cannabis attorney.

Viets said he thought the outcome of next week's election could have more of an effect on Missouri marijuana licenses than courts of law.

"We're in such a shifting context here," he said. If the Democrat running for governor, Nicole Galloway, wins next Tuesday, then lawsuits like the Sarcoxie one could be "rendered moot." So would the hundreds of ongoing administrative appeals over marijuana license denials. Most observers believe Galloway would replace the leadership at Missouri DHSS and approach cannabis regulation rather differently than the GOP has.

But if Gov. Mike Parson wins, "things may not change," Viets said. "If Parson's re-elected, I'd expect this litigation to keep going forward for the time being."

In response to a question about Williams' personal phone use to conduct state business, Viets compared it to past scandal over Hillary Clinton's emails. It's human nature to seek out privacy in communication, he said.

"It's hard for some people in government to understand that they don't have the same options that private individuals do in regard to communications," Viets said. "It's not easy to comply sometimes. I'm not unsympathetic."

Missouri health officials and the Parson administration have been accused of corrupt behavior with regard to the medical marijuana program, but Viets doesn't necessarily buy it.

“I’ve not seen evidence of any sort of corruption," he said, "but tremendous evidence of an element of capriciousness.”

As an example of "capriciousness," Viets said, “The so-called scoring system just doesn’t make sense. I don’t think it’s defensible. It’s the Achilles’ heel of the whole licensing process.”

Viets also said that at one meeting with Williams not long after voters chose medical marijuana for the state, the DHSS director worried aloud that licensing too many businesses for selling or growing marijuana would lead some to failure.

"I said that’s the nature of capitalism," Viets told the News-Leader. "Businesses fail. It's not your fault if they go into business and don't succeed. It's not the fault of DHSS. If you guys are going to try to determine who's most likely to succeed in business, you'll give licenses to the rich people. That’s not hard to predict – the guys with the most money are going to succeed. That kind of thinking leads to excluding people of modest means, people of moderate means. They can’t compete if the government has that mentality."

A DHSS spokesperson declined to comment on the litigation but said the department supported caps on licensing and that the caps in place are generous while making it harder for the black market to thrive. Missouri has 192 dispensary licenses, for example, while Arizona, a comparable-population state, has just 120.

"The voters approved caps on licensing," spokesperson Lisa Cox said in an email, "and our caps are much higher than comparable states and allow for more than enough medical marijuana to meet the demand of patients by any estimate."