Missouri medical marijuana trial focuses on alleged role of insiders on license rules

Lawsuit seeks to overturn the state’s decision to cap the number of licenses to grow or sell marijuana

Paul Callicoat had plans to convert the former Sarcoxie Nursery into a medical marijuana cultivation facility (Joplin Globe file photo).

A Missouri family that was denied a license to grow medical marijuana alleged in court this week that outside groups and individuals had undue access to top state officials — and that access led to an opaque process and contributed to the decision to cap the number of licenses granted.

To buttress their case, plaintiffs raised emails showing the state regulators holding numerous meetings throughout the process with industry insiders who would go on to be awarded licenses.

The Attorney General’s Office, which is defending the state in the lawsuit, pushed back on those allegations, noting that leaders of the Department of Health and Senior Services heard from a myriad of stakeholders, from farmers to license applicants to patients themselves.

The hearing before Cole County Circuit Judge Patricia Joyce spanned both Thursday and Friday, and centered on the state’s rollout of the medical marijuana program voters approved in 2018.

The Callicoats, a family from Sarcoxie, Mo., sued the state earlier this year after their license to open a cultivation facility was denied. The family is asking the judge to declare the state’s limit on the number of medical marijuana licenses unconstitutional and eliminate a “geographic bonus” that favored businesses located in high-unemployment ZIP codes.

Joe Bednar, an attorney representing the Callicoats, accused the state of intending to limit the number of licenses — a route that was allowed, but not required — at the suggestion of industry insiders. 

Patients’ access and competition in the marketplace, he said, was hurt by the state’s decision.

“My question is not about the regulation of an industry,” Bednar told the court on Thursday. “I’m centered on whether or not a Missouri citizen, a U.S. citizen, has the ability to go into business. That’s what this issue is about.”

But officials from the state’s health department, which oversees the program, testified that they followed the law as they worked to stand up a brand new division in a short period of time.

“I took an oath to uphold the Constitution, so that to me trumps everything,” DHSS Director Randall Williams testified in court on Thursday. “When you start saying, ‘If I had it up to me,’ or ‘I did this,’ I just don’t think of it that way. I made it very clear from the get-go that the people overwhelmingly voted for this and they voted for it the way it was written.”

‘We talk to everybody’

Shortly after the amendment’s passage in November 2018, Williams began to hear from many people interested in sharing their input, he testified on Thursday.

Randall Williams, director of the Missouri Department of Health and Senior Services, addresses the media as Gov. Mike Parson looks on. (Photo courtesy of Missouri Governor’s Office)

One of those was Mitch Meyers, who is now the CEO of one of the companies that was granted a medical marijuana license. Bednar produced emails that show Meyers reaching out to speak with Williams multiple times in November 2018. 

After the amendment passed, Williams said he knew he had to quickly assemble a team and that the department didn’t have expertise on the subject. He realized from the beginning, he said, that people would be critical of who the department met with, so he established an “open door policy.” 

“We talk to everybody,” he said, “and we’re transparent.”

Lyndall Fraker, the director of the medical marijuana program, testified on Friday morning that meeting with the public was one of his most important roles. 

Bednar noted that Fraker began communicating with some industry representatives even before he had officially started in his role in the first week of January 2019.

Bednar said Fraker began setting up meetings in December 2018 with Steve Tilley — a lobbyist and longtime friend and adviser to Missouri Gov. Mike Parson.

Tilley has numerous clients involved in some way in the medical marijuana industry. That includes the Missouri Medical Cannabis Trade Association, an industry group whose members have been awarded numerous licenses to grow, transport and sell marijuana.

Fraker said he did not recall setting up a meeting with Tilley before he began his job with the state.

He testified that he went in about a week ahead of his start date to learn about the department and meet people. Bednar produced emails Fraker received during that time which included requests for meetings at upcoming conventions and a Jan. 1 email that included an invitation to meet with Tilley and trade association members. 

While he couldn’t specifically recount what was discussed at that meeting, Fraker testified that he assumes it was just to get to know them.

Fast forward to September 2019, after applications had been received, and an email that included Fraker, Tilley, other state staff and other trade association members.

The email was an invite with a basic agenda that included topics like the timing of the next iteration of DHSS’ rules and how MoCann Trade may be able to participate, rule language regarding product packaging requirements and the timing of applications and rejection notices.

Fraker testified that he even met the Callicoats themselves at industry conventions, and was invited by their lobbyist, David Jackson, to visit the family’s facility in the summer of 2019. Jackson eventually canceled the visit because it was too close to the application period.

“That was his decision,” Fraker testified Thursday. “And I said, ‘Sure, that’s fine.’ I actually had it scheduled on my schedule. So I didn’t end up going.”

License caps

Bednar also raised a Dec. 20, 2018, email to Williams from Jack Mitchell, whose companies would go on to win seven marijuana licenses

In the email, a merit-based application system is outlined, in which the department will numerically score applications it receives. It also suggests licenses will be limited during the initial period to 60 cultivation facilities, 86 manufacturing facilities and 192 dispensaries, with 24 geographically located in each of the eight Congressional districts. 

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“What they had done is created draft regulations that they thought would be appropriate under … and they submitted them to Dr. Williams who passed it on to those of us in rulemaking for our consideration,” Amy Moore, the deputy director of the medical marijuana program, testified on Thursday when describing the email.

Bednar argued the department’s decision to issue 60 licenses “was based on nothing other than the recommendation of MoCann, or these folks in this email.”

But Moore repeatedly pushed back on that assertion throughout her roughly four hours of testimony Thursday.

“If you go line by line you will see in that big stack of regulations very little matching,” Moore said.

DHSS officials gave various reasons that they said factored into their decision to limit the number of licenses.

Williams said that while he wanted to ensure there was enough supply to meet demand, he was concerned that creating an oversupply would fuel diversion to the black market and potentially lead to overuse.

“If you’re unable to regulate it safely, then nobody will get medical marijuana, because… you’ll collapse under the administrative burden of trying to do too much,” he said.

You can make an incision bigger, Williams said, but you can’t make it smaller.

Bednar argued that the annual licensing fees would cover the costs of hiring additional investigators to make site visits and regulate operators. But Moore said there’s much more involved, as evidenced by the complex “seed to sale” tracking system to ensure compliance.

What’s more, Moore argued that based on the state’s maximum projections and surveys of the current 60 cultivators, the state anticipates it will have about 900,000 pounds of marijuana by year three of the program — enough to serve roughly 2-3 percent of Missouri’s population who may become patients.

“If this continues to play out the way it is, we will have more than enough,” Moore said, noting that surplus supply would drive down prices but also potentially create greater incentive for it to be diverted to the black market.

But Bednar cast doubt on the state’s projections and pointed out that currently only a few operators are up and running, leading to a lack of supply to meet the current demand.

An unclear process

Bednar also alleged that DHSS waited until the last minute to file its proposed rules, and that the department could have utilized a process that would have been more transparent.

In a March 2019 email from DHSS’ general counsel to an attorney in the governor’s office, a portion of a rule that relates to scoring applications was included, including questions on how answers would be evaluated.

But those specific questions were never listed in full in the rule itself. Instead they were “incorporated by reference” — a method Moore said also allowed.

“They didn’t end up there because the governor’s office didn’t want them in there, correct?” Bednar asked. “I mean, they have the final say.”

“No that’s not correct,” Moore said, “and they are in the rule.”

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A “geographic bonus” that favored businesses located in high-unemployment ZIP codes was included in an emergency rule in late May, shortly before applications could start being submitted but after many had already purchased or leased property for their venture.

Moore argued that the bonus had a “very small effect” on the final score, and that “it certainly did move some up over the threshold — but not many.”

But Bednar pointed out that two-thirds of the winning applicants had received the ZIP code bonus.

What’s more, Bednar argued DHSS could have filed its draft rules much earlier in order to allow greater public input. And the agency could have submitted them to the Joint Committee on Administrative Rules or held a public hearing too.

Ultimately, Fraker defended the department’s handling of the rule formation by pointing to the tight timeline for getting the program operational, as laid out in the constitutional amendment approved by voters. 

“And this was the process that our legal team felt like would be the best way to get the information out to the public and give feedback in order to get them done and completed on time and meet the constitutional deadline,” Fraker said.

This week’s trial is the latest twist in the saga of the medical marijuana program in Missouri. Since passing in 2018, the program has been subject to allegations of corruption, whistleblower complaints, a legislative investigation and an FBI probe

The lawsuit itself has become contentious of late, with Bednar filing a motion seeking sanctions against DHSS and the attorney general’s office for allegedly withholding key documents from the plaintiffs in an attempt to undercut their case. 

The attorney general’s office dismissed the accusations as “baseless,” and Judge Joyce denied the motion shortly before the trial began. 

Joyce set a Nov. 30 deadline for both parties to submit proposed findings of fact and conclusions of law.

“You will get a decision,” she said, “and then you can do whatever you do next.”