Missouri panel approves new cannabis rules, drops ban tied to revoked licenses

Missouri lawmakers signed off on proposed cannabis rules Thursday meant to curb abuse in the state’s microbusiness licensing program, but not before stripping out a ban on people tied to denied or revoked licenses from holding interests in future microbusinesses.

The Joint Committee on Administrative Rules, made up of lawmakers from both the House and Senate, approved changes that would move regulators’ ownership review to before licenses are issued rather than after, a shift aimed at preventing another wave of revocations in the microbusiness program — sometimes called the social-equity cannabis program.

But the committee rejected a proposed rule barring the “owners, agents or representatives” of denied or revoked applicants from controlling another microbusiness license. Republican state Rep. Ben Keathley of Chesterfield said the language was too broad and needed to be more specific.

The microbusiness program was designed to boost opportunities in the cannabis industry for people in disadvantaged communities that have been most impacted by the war on drugs. It began in 2023, after passing as part of the constitutional amendment to legalize recreational marijuana in 2022.

For the last two years, The Independent has documented a pattern of well-connected groups and individuals flooding the microbusiness lottery by recruiting people to submit applications and then offering them contracts that limit their profit and control of the business.

Of the 105 microbusiness licenses issued so far, 35 have been revoked.

“There’s really no question in many cases,” Amy Moore, director of the Missouri Division of Cannabis Regulation, said during a hearing with the Joint Committee on Administrative Rules this week. “Third parties used eligible individuals, names and circumstances to attempt to acquire licenses for themselves.”

In order to prevent the continued cascade of revocations, the division is proposing to adjust when its extensive application-review period occurs.

The state has held two lotteries for microbusiness licenses so far, Moore told committee members. After each lottery, she said the winners were issued licenses and then her team conducted an investigation into all contracts to verify the winner was eligible to hold the license.

“Our investigation found instances of licenses that were awarded to individuals who very clearly, through review of agreements and interviews, were not owning and operating the license,” she said.

Even after taking “very strong action” and revoking several licenses after the first lottery, it was not the deterrent her team expected.

“In the second round, we had to revoke almost half of the licenses for this type of non compliance,” she said. “So that brings us to this set of amendments. We could have kept going with additional rounds of licensure, additional revocations. I’m not sure how many rounds we would have to go through to finally get to the minimum number of licenses that are required by the constitution, which is 144.”

The proposed rules would change the point when regulators would review questionable contracts to take place before the license is issued, instead of afterwards as it is now.

Also, under the new rules, “majority owned and operated” would be defined as the eligible individuals who are listed as having majority ownership must have a level of operational control that would be expected of an owner.

The designated-contact role was envisioned as a way to ensure clear communication between the state and licensees. However, regulators found in their investigations that designated contacts have kept the actual eligible applicants in the dark about business and license dealings. The new rules would require the designated contact for a microbusiness applicant to be a majority owner of the microbusiness license.

Eligible individuals must have the power to order or direct the management, managers, and policies of the license, enter into agreements on behalf of the license, and otherwise make decisions for the business.

The committee approved these provisions on Thursday, but it put the brakes on a rule preventing decision-makers of a microbusiness license that regulators have denied or revoked from holding a voting or financial interest in any other microbusiness license.

“If we have good reasons for those denials,” Keathley said, “let’s make those reasons the basis for the denial going forward.”

The rule was removed from the proposed draft, and the committee agreed to approve the proposed rules and waive a 30-day review period.

“We’ve taken that out,” Moore said, “but appreciated the support for the concept that those who choose to violate the constitution probably shouldn’t participate in any role where they could repeat that behavior.”

Moore said there is another set of cannabis rules that deals with ownership that will come before the committee this year, and the division and the committee agreed that the language could be included in this set of rules.

“We will continue to work with the committee and other stakeholders to better address that need,” Moore said.

From this point, the division will need to file a new draft of the rules with the Missouri Secretary of State that will be published two more times before being enacted at the end of May or early June.

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