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Maddening Process For Rejected Reefer Applicants

Appeals on Licensing Rulings Piling Up in Missouri

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Above image credit: Cannabis growing facilities at Ever-Bloom Farm in Carpinteria, California, on September 14, 2019. (Rod Rolle/Sipa USA | AP Images)

For Kelly Waggoner, it started with canines. Now, it’s about people.

Six years ago, Waggoner was already a successful small business owner in Cass County, having worked for years as a freelance graphic designer. He was also passionate about helping abused and neglected dogs.

Waggoner saw the emerging medical marijuana industry as an opportunity for another entrepreneurial venture that would allow for a bigger financial commitment to dog rescue. But as he researched marijuana, he started to understand pot’s medicinal value.

Kelly Waggoner of Red Tractor Cultivation. (Courtesy | Kelly Waggoner)

So now, Waggoner said: “It’s about the patients, trying to put out the best product we can, so we can help the most people…In turn, that helps the dogs as well.”

Missouri voters approved medical marijuana through a constitutional amendment in November 2018, allowing Waggoner’s to plow new ground with his medical marijuana business, Red Tractor Cultivation, which hearkens back to his farming roots in Nebraska.

But now, Red Tractor is stuck in neutral. The company is among hundreds of applicants throughout the state appealing application denials issued through the Missouri Department Health and Senior Services (DHSS).

And with questions mounting about implementation of the program, the head of regulation for the program, Lyndall Fraker, was scheduled to answer questions Wednesday afternoon in Jefferson City before the House Government Oversight Committee.

Aggressive Schedule

The constitutional amendment required DHSS to shift into regulatory overdrive.

For instance, it said the department had to make applications available to patients and businesses within six months. The department had five months to review the business applications.

The department decided it would license the minimum number of business applications allowed under the constitutional amendment: 60 cultivation facilities, 192 retail dispensaries, and 86 medical marijuana-infused manufacturing facilities, for a grand total of 338 licenses.

The department began accepting applications from patients and caregivers on June 28. Businesses had a pre-licensing option, but the department officially opened the two-week application process for them on Aug. 3.

DHSS spokeswoman Lisa Cox said the department was expecting perhaps 1,000 applications. In fact, it received about 2,300 applications, including those seeking licenses to transport and test the pot. 

Meanwhile, the department announced plans to hire an outside scorer to review medical marijuana applications.

In making the announcement, DHSS Director Dr. Randall Williams said that the department was “committed to transparency and fairness” in the scoring process. He emphasized that scorers would know nothing about the identity of the applicants.

In August, the department awarded the scoring bid to Wise Health Solutions, which was incorporated in Missouri in July. The company was one of seven applicants.

Though incorporated with a Springfield address, Wise Health Solutions is a partnership between Oakland, California-based Oaksterdam University, which bills itself as “America’s first cannabis college,” and Veracious Investigative & Compliance Solutions, a Nevada-based company.

In addition to working in the cannabis industry, Veracious also provides compliance consulting to restaurants and hotels. The company’s managing director, Chad Westom, is the project lead for Wise Health Solutions.

In a news release, Wise Health Solutions promised a system that would ensure the “consistency and integrity of the review process.”

Budding Problems

But failed applicants now are arguing that Wise Health did not deliver on its promises. So far, the state Administrative Hearing Commission has received about 400 appeals, and the appeal window remains open.

A lack of consistent scoring across applications is one basis for the appeals. One of the biggest points of contention in the appeals is that answers to the exact same question across applications received different scores.

Red Tractor’s complaint, for instance, says that it received different scores on 24 identical or nearly identical responses to the same questions across its applications for cultivating and manufacturing.

Waggoner is prepared to operate a manufacturing facility in east Kansas City. That application received the second highest score in the state. But he missed out on a cultivation licence by less than 2 points, ranking him just outside the 60 awardees.

In addition to his scoring claim, Waggoner’s appeal also argues that the cap on licensees, as well as the scoring system itself, are “arbitrary, unreasonably limit patient access, and are not reasonably necessary to promote patient safety or to restrict access to only licensees and qualifying patients.”

EBC-Missouri is another company appealing a license denial. It wants to operate retail operations in Kansas City and St. Joseph, but those were denied. Its proposed production operations are in the tiny south-central Missouri hamlet of Vanzant.

DHSS approved its manufacturing license, but rejected its cultivation applications.

It’s appeal also details inconsistent scoring, and it also says it’s going to pursue a conflict-of-interest theory in its appeal regarding Wise Health Solutions and a Smithville operation that won a cultivation license.

One of the owners of EBC-Missouri is Damian A. Martin, who is also the company’s chief compliance officer. He is a Los Angeles attorney who is a veteran of cannabis regulation litigation in California.

The situation in Missouri is not unlike that in California, Martin said, in that government regulators seem to simply have problems following the rules and regulations they instituted.

“It said, ‘do this,’ and you didn’t do that,” Martin said. “That is the world I live in. Unfortunately it is a common theme. I don’t know how to fix that.”

Cox, the DHSS spokeswoman, cited the pending appeals in declining to respond to specific allegations. She said the department will make its position known when it files answers to the complaints before the Administrative Hearing Commission.

She did clarify that the department stuck to the constitutional minimums for the licenses based upon the number of patients expected to apply for licenses.

Notably, the number of qualified patients and caregivers has vastly exceeded the department’s expectations. As of Monday, there were 33,259 approved patients and caregivers and applications continue to come in at about 1,000 per week.

Just Chilling

But it is really anybody’s guess how long it will take the commission to work through all the appeals.

Asked about a timeline, staff attorney Peter Heagney would only say: “We are constitutionally  charged with hearing these cases. We are going to perform that constitutional duty.”

DHSS is in the process of hiring an outside law firm to help it work through the appeals process.

The problem for companies like Red Tractor and EBC-Missouri is that their business model is based upon an integrated system where their cultivation operations supply their other entities.

For instance, Waggoner said, he is probably not going to need such a big facility in Kansas City without the opportunity to grow his own supply. He has been paying rent on the facility for months.

Another problem is that he really has no idea how many competitors he might ultimately have, given that the number of operators could very well increase based upon successful appeals.

Waggoner said he is trying to be patient, but that’s hard after chasing the finish line for six years.

How long does he think it will take the dust to settle?

“That is the million dollar question right now,” he said. “Nobody knows. I am praying sooner rather than later. I have no idea, and I have not talked to anybody who does at this point.

If I knew that, I would be a really popular guy, let’s put it that way.”

Mike Sherry is senior reporter for Kansas City PBS. He can be reached at msherry@kcpt.org or 816.398.4205

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