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Missouri appeals ruling that forced state to award medical marijuana licenses to companies

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Legal marijuana growing in Missouri

A strain of marijuana called Power Plant is photographed on Saturday, Feb. 22, 2020, at the University City home of a grower who is cultivating in his basement legally for personal use.

JEFFERSON CITY — Missouri regulators aren’t giving up a legal fight with two applicants seeking licenses to grow medical marijuana in the state.

Following adverse rulings at the Administrative Hearing Commission in February that forced the state to award cultivation licenses to Heya Kirksville and Heya Excello, the state Department of Health and Senior Services appealed the decision to the Cole County Circuit Court on Wednesday.

The three-page appeal says the decision by Commissioner Sreenivasa Rao Dandamudi was “made upon unlawful procedure or without a fair trial” and “is arbitrary, capricious or unreasonable” and “involves an abuse of discretion.”

The ruling in February followed the state’s decision to limit marijuana licenses to the minimum required by the 2018 constitutional amendment authorizing the program. A scoring process by a third-party state contractor preceded hundreds of applicants appealing their denials to the Administrative Hearing Commission.

Heya’s attorney, Chuck Hatfield, presented copies of applications showing Heya Kirksville and Excello submitted answers on its applications that were the same as answers submitted by successful applicants, yet received a lower score.

“Heya Excello received a lower score, as compared to other applicants, for identical or nearly identical answers on 11 questions,” Dandamudi’s ruling says.

“(I)n a bizarre claim, the Department argues that it is not authorized to rescore Heya Excello’s application because it delegated away its constitutional and regulatory scoring responsibility to a private contractor,” the ruling says.

“It is cause for concern that a government agency claims it has handed over its constitutional responsibility to a private contractor without further checks and balances,” Dandamudi wrote.

The Department of Health and Senior Services has contracted with private law firms to defend its licensing decisions, eating up millions of dollars that otherwise would have been bound, under the state constitution, to the Missouri Veterans Commission.

For example, the state has paid Mickes O’Toole, the St. Louis-area firm filing the Wednesday appeal, $868,000 in the fiscal year beginning in July for medical marijuana legal services, according to state spending records.

In testimony earlier this month, Lyndall Fraker, director of the marijuana program, said the state expected to spend $6.2 million on legal costs this fiscal year and an equal amount in the year that begins in July.

Program officials faced pushback from the top House budget writer.

‘Staggering legal fees’

House Budget Chairman Cody Smith, R-Carthage, questioned the continued costs, saying there were “serious unintended consequences” to the decision to limit licenses that have resulted in “staggering legal fees.”

As of last week, 60 of 192 dispensaries, and 17 of 60 cultivators had been approved to operate, according to the state, more than a year after the state originally awarded licenses to manufacturers, growers and dispensaries.

There were eight of more than 80 infused-product manufacturing facilities approved to operate, according to the state.

Of more than 850 original appeals, 675 were still pending as of Thursday, said Lisa Cox, spokeswoman for the DHSS.

She said the costs to the state of regulating “unlimited licenses” would “outweigh” the short-term costs of defending the state’s licensing decisions.

Meanwhile, other legal costs could come into focus if and when the state loses more court cases.

Hatfield’s clients have applied for more than $38,000 worth of fees and expenses from the state after his clients won their February court case.

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