Federal judge removes Missouri's residency requirement for marijuana business owners

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Late last week, a federal judge made an order that could dramatically change the development of Missouri's young medical marijuana industry.

Missouri voters authorized a highly regulated medical cannabis system almost three years ago. Voters backed a state constitutional amendment that made it mandatory for marijuana companies operating businesses like dispensaries, grow operations and manufacturing centers to be at least 51% owned by residents. Residents were defined as those living in the Show-Me State for a minimum of one year before applying for a marijuana facility permit.

But in a Thursday virtual hearing that only lasted from 10 a.m. to 10:07 a.m., according to federal court records and cannabis news site GrownIn, Judge Nanette Laughrey of the Missouri Western District ordered a permanent injunction against the residency requirement. (In late June, Laughrey blocked the state from enforcing the requirement with a preliminary injunction, federal court records show.)

That opens the way for big cannabis corporations, often called "multi-state operators" by people in the industry, to directly enter Missouri's market. The plaintiff in the lawsuit that resulted in Laughrey's order, Pennsylvania investor Mark Toigo, argued in court filings that Missouri marijuana retail sales could be worth $175 to $275 million per year.

Multistate operators expected to move in to Missouri

Missouri represents a small chunk of change in a $12 billion national legal market, but multistate operators have already teamed up with Missouri owners to do business here. They're chasing revenues from some 150,000 state-approved marijuana patients who often pay $40 or more for a 3.5-gram portion of dispensary marijuana buds that would likely be priced more cheaply on the underground market. Meanwhile, the marijuana industry has also developed a wide range of other products like marijuana-infused edibles and tinctures.

Consider the example of Columbia Care. The company touts marijuana business permits in 18 jurisdictions in the U.S. and the European Union, including big states like New York and Virginia that are expected to transition to legal recreational marijuana systems in the near future. In its most recent quarter, the company reported $109.7 million in revenues and gross profit margins over 40 percent.

And on Friday, according to a news release, its new Cannabist dispensary chain held a grand opening at a site in Hermann, in the heart of Missouri wine country. The company said it also plans a manufacturing center in nearby Boone County.

 
It's not clear if more announcements like Columbia Care's are coming soon or how the court case might proceed.

A Kansas City-based attorney for Toigo, the cannabis investor who brought the lawsuit against the Missouri Department of Health and Senior Services, could not be reached for comment on the new order by press time. Jack Cardetti, a spokesperson for Missouri's biggest marijuana industry association, St. Louis-based MoCannTrade, said, "like most litigation or appeals, it’s not something we’ve taken a position on."

Nor is it clear whether the current ruling on residency requirements will be appealed in federal courts. A spokesperson for the Missouri Department of Health and Senior Services did not respond to an inquiry from the News-Leader by press time. Chris Nuelle, a spokesperson for Missouri Attorney General Eric Schmitt, whose team is defending the state health department in the suit, declined to comment, saying "we typically don’t get into legal strategy" in a message to the News-Leader.

Local marijuana businesses weigh in

In the Springfield area, industry players said the new ruling makes life more complicated for hometown entrepreneurs awarded one or more of roughly 380 marijuana business permits in an application process that drew more than 2,100 entries. But it could push down costs for legal patients.

"It's a double-edged sword," said Cindy Northcutt, a Springfield-based cannabis attorney and consultant, in a message to the News-Leader.

"It will make operations by smaller Missouri-owned licensees more challenging because of the competition and economy of scale enjoyed by larger companies, but it also opens up the market for cannabis products otherwise unavailable to Missouri patients, and should lower prices across the board," she said.

Kim Andrews, part owner of OzaRX Botanicals, a dispensary in west Springfield that's 100-percent Missouri-owned, called the new ruling "frustrating."

"It kind of takes out one of those few things that we had to keep everybody on even ground," Andrews said.

Southwest Missouri dispensaries began opening in late 2020, starting in Cassville. Few of them have celebrated one-year anniversaries, and many have been open just three to six months, Andrews said. "We're infants. We're just way too new."

OzaRX Botanicals benefited from the protectionist aspect of Missouri's residency requirement for only about 10 months, Andrews said. The dispensary held a soft opening in late December 2020, roughly 10 weeks after Missouri's first lawful dispensaries started opening in the St. Louis area.

Meanwhile, "All the big guys have already been kind of standing at the back of the door," Andrews said, citing big multi-state operators with locations in states like Nevada, Colorado and California. "Now there's nothing to keep them from just rolling in and buying everybody up. Their pockets are deep, their marketing budgets are more than I could ever dream of. They can take a hit opening up stores in a way that we can't. ... They can afford to lose a little money in one market where they know they're going to make it up somewhere else. It really throws competition for a loop."

Andrews said that looking at the Toigo v. DHSS case as a non-lawyer, it seemed "contradictory" to her that a federal judge ruled that commerce within Missouri borders of a federally illegal substance, marijuana, was deemed to be unfair toward people based outside state lines due to the commerce clause in the U.S. Constitution.

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