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Missouri warns social-equity marijuana license applicants of ‘predatory practices’

Hundreds of cannabis plants sit in a humidity-controlled grow room.
Brian Munoz
St. Louis Public Radio
The Missouri Division of Cannabis Regulation’s guidance comes two weeks after it revoked nine licenses linked to out-of-state groups.

Veterans John and Kara Grady received a Facebook message last week from a man who was, “looking for a female veteran to be part of our dispensary license.”

Being a veteran is one of the seven categories that makes people eligible to win one of the state’s social-equity marijuana licenses, called “microbusiness licenses.” The other categories range from having a lower income or living in an area considered impoverished to having past arrests or incarcerations related to marijuana offenses.

When the Gradys — who run Slaphappy Beverage Co. that sells hemp-derived THC drinks — turned him down, the man began attacking them on their social media pages.

“I was like, ‘What kind of tactics are these?’” John Grady said in an interview with The Independent. “You have to ask yourself — if it’s that competitive on the microbusiness licenses, then really what’s going on?”

Just hours before Grady received that message, the Missouri Division of Cannabis Regulation issued a warning about “predatory practices” in social-equity marijuana licensing throughout the country.

And those tactics are likely escalating, with thenext round of applications running April 15 to 29.

“(The Division of Cannabis Regulation) has become aware of solicitation efforts by companies to apply for microbusiness licenses on behalf of qualified individuals with promises of future ownership in the license,” the agency said in a press release last week.

The division warned that some groups are scamming eligible people by giving them, “no agreements in place that would actually result in the eligible individuals being the owners of the license.”

The division recently revoked nine of the 48 social-equity cannabis licenses issued in October — following an investigation by The Independent that found some applicants thought they were partnering with the Michigan investor but in reality signed agreements requiring them to relinquish all control and profits of the business.

The revocations came just as the division was gearing up for the second round of microbusiness applications, and now the state is urging applicants to be extra careful regarding who they partner with.

“Eligible individuals should exercise caution in accepting such arrangements as some of the solicitations may be predatory in nature,” the division’s Thursday press release states.

Because only 39 of the 48 microbusiness licenses were ultimately issued from the first round, the division will award one additional wholesale license and eight additional dispensary licenses in the upcoming round.

The owners of the revoked licenses have vowed to appeal, though nothing has been filed as of yet.

Amy Moore, right, director of the Missouri Division of Cannabis Regulation, speaks at the National Cannabis Industry Association’s summit on last month in St. Louis. Mitch Meyers, a partner at BeLeaf Medical marijuana company, sits on her left.
Rebecca Rivas
Missouri Independent
Amy Moore, right, director of the Missouri Division of Cannabis Regulation, speaks at the National Cannabis Industry Association’s summit on last month in St. Louis. Mitch Meyers, a partner at BeLeaf Medical marijuana company, sits on her left.

Guidance from state regulators

The microbusiness program is meant to boost opportunities in the industry for businesses in disadvantaged communities, and it was part of the constitutional amendment to legalize recreational marijuana that voters passed in November 2022.

The program was designed for these licensees to hopefully develop their businesses, so it will put them in a good position to obtain regular licenses, or what the state calls comprehensive licenses.

By law, the state cannot issue any new comprehensive licenses until June 2024. If the state decides to allow for more regular licenses at that point, then 50% of them must go to microbusiness license holders.

“The clear intent [of the constitution] is that a microbusiness license should provide a path to facility ownership for individuals who might not otherwise easily access that opportunity,” the division’s press release states.

The microlicenses must always be majority owned and operated by people who meet the eligibility criteria.

The division gave examples of behaviors that may indicate predatory arrangements:

  • Applicants are promised a 51% ownership stake of the license and a fair market value buyout for that 51%.
  • Applicants are promised a payment when the license is initially issued, then receive a salary for 3-5 years that is equal to the remaining 51% of the license value or some other payment arrangement.
  • Solicitor does not ask for any payment and offers to pay for upfront application and business costs.
  • Solicitor informs the potential applicant that if they want to actually own and operate an awarded license, they should apply on their own.
  • Solicitor promises they will provide their own money, resources, and time to run the day-to-day business operations so that the applicant owner does not need to invest their own money, resources or time.

“A purported owner with little to no knowledge, control, agency or decision-making authority in an application or license does not meet the intent or meaning of the requirement,” in the constitution, the guidance states.
John Grady said he hasn’t heard of any other veterans who were targeted as he and his wife were. However, he said the commander of their Veterans of Foreign Wars post is aware of the issue now.

“So we can tell any of our guys who are looking at that industry,” Grady said. “Or if somebody sends them a note saying ‘Hey, we need a veteran,’ they can be aware that they’re probably going to get taken advantage of.”

This story was originally published by The Missouri Independent, part of the States Newsroom.

Rebecca Rivas is a multimedia reporter who covers Missouri's cannabis industry for the Missouri Independent.