ST. LOUIS — The hungriest competitors for state licenses to open marijuana businesses in Missouri are from other states, records show.
Out-of-state companies, including some of the nation’s largest retail marijuana chains, submitted the highest numbers of applications for licenses to grow, process or sell marijuana for medical purposes in Missouri.
Because of the financing and regulatory know-how required to start a marijuana business, some locals are concerned that ownership of the industry — expected to top more than $100 million in sales by 2025 — will disproportionately go to firms outside Missouri.
“There are rich men in suits coming from all over this country with bags full of cash,” said Richard Rodriguez, a St. Louis restaurant owner who applied to open a dispensary in south St. Louis. “I’m all for competing in a fair playing field. But that’s not what appears to be happening here in Missouri.”
Missouri became the 33rd state to legalize marijuana for medicinal purposes after 65% of voters in November approved Amendment 2, starting a stampede of business owners looking to capitalize on the new market. They include first-time entrepreneurs and family-owned businesses from a wide array of backgrounds. They also include prominent lawyers, people with ties to state politics, and business executives in other industries in addition to large marijuana retailers from other states.
The state has raked in a total of more than $13 million in nonrefundable fees — $6,000 per dispensary or processing license, $10,000 per cultivation license — from 2,163 marijuana business applications filed by at least 700 different groups.
But Missouri will issue just 60 licenses to grow pot, 86 to make marijuana-infused products and 192 to open dispensaries — a maximum of 24 in each of Missouri’s eight congressional districts. The state has contracted with a company that will use a blind scoring process to assess the applications and issue licenses to the top scorers by the end of the year.
The most licenses any one business can win is 11: five dispensary licenses and three licenses each for cultivation and processing operations. At least 21 groups, most of them marijuana retailers from other states, applied for 11 or more licenses.
Chicago-based Cresco Labs, which owns 22 dispensaries across 11 states, tops the list of applicants with 30 applications to open marijuana operations in Missouri. The group recently bought up other marijuana companies in Illinois, Florida and California.
Verano, also headquartered in Chicago, put in 18 applications in Missouri, the second highest number after Cresco. Verano is in the process of being acquired by Phoenix-based Harvest Health and Recreation for $850 million; the combined company would be one of the country’s largest, with 200 facilities in 16 states.
Grassroots Cannabis, which has 27 licenses in six states, put in 14 applications in Missouri. The company announced earlier this year that it would be acquired in an $875 million deal by Massachusetts-based Curaleaf. The company was recently reported to be under federal scrutiny for its links to private investments and political donations. Curaleaf applied for eight Missouri licenses.
Holistic Missouri LLC, which put in 13 applications, is linked to Washington, D.C.-based Holistic Industries, which owns marijuana businesses in six states.
Missouri requires at least 51% local ownership of any group applying for a business license.
In other states that have legalized marijuana, applicants have made false claims to work around similar requirements. In Ohio, regulators in July placed on hold marijuana business licenses awarded to a company, Harvest Grows LLC, after finding the company lied about its ownership, according to The Cincinnati Enquirer. The group won one of the state’s 12 licenses to grow marijuana over higher scoring applicants because it claimed it was 51% owned by a member of an “economically disadvantaged group,” a local African American woman.
Harvest Grows LLC was registered in Ohio, but linked to the Arizona-based Harvest Health and Recreation Inc., the same company acquiring Verano.
Harvest also appears to be applying in Missouri as Harvest of Missouri LLC, which turned in 11 applications. State records link the group to Matt Didonato and Steven White, executives with Harvest Health. Didonato did not return a request for comment Friday.
It is unclear exactly how many marijuana business applicants are from outside Missouri. The Department of Health and Senior Services, the agency tasked with regulating marijuana, has declined to release the names of principal owners or representatives of the groups, instead releasing a list of hundreds of limited liability companies. Missouri law does not require ownership of limited liability companies to be public record.
While some marijuana companies used the same name on their Missouri applications, other applicants are linked to marijuana operators from outside Missouri through documents filed with the Missouri Secretary of State’s office, as well as through phone numbers and emails for the limited liability companies included in DHSS records.
The competition between locals and multistate operators is nothing new to states legalizing marijuana, said Morgan Fox, with the National Cannabis Industry Association. The marijuana industry has reflected the alcohol industry, with a mix of retail chains and smaller, craft producers, he said.
But a point-based licensing competition, which ranks applicants based on their ability to follow regulations, can make it harder for small businesses to compete because of the money and resources required. Applicants need hundreds of thousands in cash and have to be prepared to describe the minutiae of their business plans, from controlling odor from marijuana facilities to keeping the drug from entering the illegal market.
And because the federal government classifies marijuana as an illegal substance, most banks are reluctant to issue loans to pot companies, so they need access to investors.
“Having more access to capital definitely improves one’s chances of getting a license, and that is disadvantageous to small businesses that don’t have access to angel investors or deep financial pockets,” Fox said.
“It doesn’t preclude their ability to get in the market and win applications, but it’s much more of a financial burden for them.”
Fox said the association, which includes nearly 2,000 marijuana businesses big and small, generally opposes a cap on marijuana business licenses.
“They put competition into the license applications instead of the market,” Fox said. “As long as someone meets the requirements to get a license, they should be given one.”
Rodriguez, who owns Yaqui’s on Cherokee Street in south St. Louis, said it was costly to submit just one application, which included hiring an architect and security team. Missouri required applicants to hire marijuana regulation consultants from other states to advise them.
Then he had to hire lawyers to help answer regulatory questions, pay a property owner for a conditional lease, plus fork over $6,000 in application fees.
“Just to get this far cost us at least $40,000, nonrefundable,” he said.
Jack Cardetti, spokesman for the Missouri Cannabis Trade Association who helped run the campaign to legalize medical marijuana, said that out-of-state groups can invest in Missouri’s industry and provide expertise, but the constitutional amendment Missouri voters approved was “very clear” that businesses be majority-Missouri owned.
“And the health department has gone a step further and defined Missouri owned as more than 50% of the economic interest of that license, and the voting rights of that license,” said Cardetti, who is also invested in a group applying to open a marijuana business. “So that is one very, very clear part of Missouri’s medical marijuana law.”
And because federal law bans transporting or selling marijuana across state lines, anyone licensed in Missouri would open a new business here, Fox said.
Rodriguez said he believes medicinal marijuana can serve as a vehicle for bringing investment to black and Hispanic communities that have been disproportionately affected by laws that criminalized cannabis use. His dispensary would hire locally, pay $20 an hour and reinvest some profits into affordable housing in the area, he said.
“Don’t get me wrong, I’m here to make money too,” he said. “But not to fill some executive’s pocket.”