Missouri Marijuana Officials File Proposed Rules Targeting ‘Predatory’ Contracts For Equity Businesses

*Under the new rules, business will have to reveal any agreements “that
affect ownership, control or financial interests in cannabis operations.”*

*By Rebecca Rivas, Missouri Independent*

Missouri cannabis regulators have routinely revoked microbusiness licenses
for relying on contracts they’ve publicly characterized as “predatory.”

The state is hoping to put a stop to the turnover through proposed rules
that will be open for public comment starting Monday through January 14.

Regulators first introduced the rules last December and have since
held two opportunities for public input, before submitting them to the
Missouri Secretary of State in November.

The microbusiness program—sometimes called the social-equity cannabis
program—was designed to boost opportunities in the 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Of the 105 microbusiness licenses issued so far, 35 have been revoked,
including 22 that involved contracts drafted by St. Louis-based Armstrong
Teasdale law firm.

In order to prevent the continued cascade of revocations, the Missouri
Division of Cannabis Regulation is proposing to adjust when its extensive
application-review period occurs. The point when regulators would review
questionable contracts would take place before the license is issued,
instead of afterwards as it is now.

The rules would also be changed to clarify that “owners, agents or
representatives” of a microbusiness application or license that regulators
have denied or revoked would be prohibited from holding a voting or
financial interest in any other microbusiness license.

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.

According to court documents, some applicants of the revoked licenses told
regulators they were going to be “one of three managers,” leaving them
without majority voting power in the business. And they did not demonstrate
they had “a credible intent or ability to be the majority owner and
operator” of the business, regulators found.

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.

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.

“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” constitutional amendment that created the
microbusiness program, according to the press release the division issued
when it introduced the rules last year.

Applicants would also be required to take an online training course that
addresses predatory practices and funding opportunities.

The division expects to file the final version of rule amendments for
formal rulemaking in early 2026, prior to the third round
of microbusiness licensing.
*The contracts*

An investigation by The Independent in October revealed that the attorney
who crafted most contracts at the heart of the recent license revocations
also represents the marijuana industry trade group.

Eric Walter is a St. Louis-based attorney who represents the Missouri
Cannabis Trade Association and a significant percentage of the state’s
cannabis licensees.

He wrote 22 agreements the state believes would take the microbusiness
licenses out of the hands of eligible applicants and put them into the
hands of well-connected or out-of-state cannabis investors, according to
the administrative appeal case documents obtained by The Independent.

Each of those agreements largely led to the state revoking a microbusiness
license issued last year for not meeting the constitutional mandate that
the licenses be “majority owned and operated” by eligible applicants. All
but one of the license revocations is being appealed to the Missouri
Administrative Hearing Commission.

To be eligible for a microbusiness license, applicants must meet certain
criteria, including income below certain thresholds, having past marijuana
offenses or being a disabled veteran.

The contracts written by Walter gave applicants two years to pay back loans
that can total up to $2 million. If they couldn’t, they’d have to pay a
“break-up fee” of up to $2.5 million or give up ownership of the license
transfers to the loan holder, according to the state’s response in several
of the appeals.

“Therefore, the business would likely be unable to generate revenue to pay
back the loan,” the state argues in one of the legal filing responding to a
revocation appeal. “This leaves them no option but to convert the debt into
ownership.”

In most cases, the same people involved in the consulting company that
hired Armstrong Teasdale to draw up the contract are also involved in
lending the money.

Walter’s law firm and the consulting companies who hired the firm to draw
up the agreements have vehemently denied the contracts are predatory,
arguing the applicants voluntarily signed them.

“Those documents are all transparent, fair and compliant with Missouri law,
including the Department of Health and Senior Services’ rules,” Jamie Moss,
spokeswoman for Walter’s law firm, Armstrong Teasdale, said in an email to
The Independent in October.

Under the new rules, regulators will specifically ask for any business
agreements related to the license “that affect ownership, control or
financial interests in cannabis operations,” including all management
agreements, consulting agreements, partnership agreements, loans, “or other
agreements whereby any entities stand to gain financially from the
business.”

*This story was first published by Missouri Independent.*

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