Leisa Stevens thought she had compiled a fairly competitive application to start growing cannabis on 30 acres near Kansas City International Airport.
To get in on Missouri’s fledgling medical marijuana business, she scoured the state’s rules, hired an engineering firm and brought an attorney on board. She found a security expert and worked with an experienced pot grower in Colorado as she made plans for her Prairie Land Farms.
So far, Stevens said she’s invested about $160,000 in personal retirement funds to build her cannabis business.
So she was understandably disappointed when she learned in late December that her score wasn’t high enough to win one of the state’s 60 cultivation licenses. But the more she dug into her scorecard — graded by a third-party firm hired by the Missouri Department of Health and Human Services — the more puzzled she grew.
On several questions, she received zero points, despite having provided lengthy responses. One asked applicants to submit resumes of principal officers. Stevens did that, but still received no points. Same goes for questions asking for a marketing plan and proof that her firm had a right to build on the proposed site.
“Some of these just seem like mistakes,” she said. “The state just turned this over to a scoring company so they really don’t have any responsibility for this. So it’s kind of a mystery.”
But Stevens believes those mistakes were enough to cost her a coveted license. Her final score of 1,357.11 was just shy of the 1,479.41 points given to an operator in St. Mary — enough to win a license.
Stevens, a paralegal of 30 years, filed a formal appeal of the state’s decision last week. But her complaints are hardly unique as would-be marijuana business owners have raised questions across Missouri about how the state selected winners and losers.
Numerous attorneys, lobbyists and applicants spoke with The Star about inconsistencies and irregularities they saw in the scoring process.
State officials maintain that their blind scoring process was secure and legitimate.
Yet administrative appeals and lawsuits have started to pile up — so much so that the Department of Health and Senior Services solicited bids on Tuesday from attorneys who could help defend the state in legal action.
The state’s litigation mess is expected to further escalate now that DHSS has issued its licenses for dispensaries, a pivotal step in getting marijuana into retail stores. That process represented the largest pool of potential pot businesses with 1,163 businesses vying for only 192 state licenses.
“I really think you’re going to see a number of additional lawsuits filed challenging the rules for medical marijuana applications,” said Greg Wu, co-chair of the cannabis law practice group at Kansas City’s Shook, Hardy & Bacon law firm.
Wu represents several applicants who are appealing. He said businesses have 30 days to appeal the state’s decision, so those who were denied cultivation licenses can appeal through Monday. And those who were denied manufacturing licenses have until Feb. 10.
Across the state, varying legal arguments have emerged from disappointed applicants.
Owners of a nursery in Sarcoxie argued in a lawsuit that the state’s limit on cultivation licenses violates the Missouri Constitution’s “right to farm.” Owners of a dispensary proposed for Independence filed suit to challenge that city’s zoning regulations on marijuana businesses.
But Wu continues to hear some common threads: Many of those who applied for multiple licenses copy and pasted their answers on basic questions. But those identical answers received wildly different scores. (One source told The Star scores differed by more than 100 points on two identical applications.)
Likewise, many have reported receiving scores of zero on questions that included lengthy answers and documentation.
Those results have undermined confidence in the state’s ability to fairly and accurately weigh applicants trying to participate in the emerging industry.
“I have zero, zero faith in either the competency of the scoring company the state hired, or quite honestly, the general players who are involved in this industry in the state of Missouri,” said a separate attorney representing an applicant appealing the state’s denial. “It was either incompetence, corruption or a combination of incompetence and corruption.”
Inconsistent scores
DHSS decided to hire a third-party scorer to ease any potential concerns over favoritism in the bidding process.
But when the department originally put out a call for bids for companies to score the medical marijuana applications, it got no responses.
A second call for bids was successful in attracting responses, but one source with knowledge of state contracting conceded that the eventual winner “still scored extremely low.”
Bidders for the scoring were evaluated on their methodology, qualifications, performance and cost. A bidder could score a maximum of 218 points, according to bid evaluation records obtained by The Star.
The winning bid scored 120 on the evaluation; the next highest score was 106. One bidder got a score of 51.
The process of picking an independent scorer didn’t inspire confidence in medical marijuana bidders, and alleged discrepancies in scoring have inflamed those concerns.
The company that won the contract was Wise Health Solutions, a newly formed Missouri company that’s a joint venture between Veracious Investigative & Compliance Solutions LLC and Oaksterdam University.
Veracious Investigative & Compliance Solutions is a company formed by Chad Warren Westom, former bureau chief for the Nevada Division of Public & Behavioral Health, which regulates that state’s medical marijuana program.
Westom formed Veracious Investigative & Compliance Solutions in 2018, according to incorporation records in Texas. In Wise Health Solutions’ bid, Westom claims to have “built Nevada’s brand new, entire marijuana regulatory structure from 2013 to 2017” and oversaw licensing of the state’s marijuana establishments.
Oaksterdam University is an unaccredited institution that bills itself as the first cannabis college in the United States providing curriculum about the marijuana industry. Its name appears to be a portmanteau of Oakland, the California city where the university is located, and Amsterdam, the Dutch city known for its liberal approach to marijuana use.
Westom told The Star that the scoring process included many checks and balances to ensure the identity of individual applicants was unknown to the scorers.
“The State of Missouri designed a very impressive license scoring system with numerous layers of protection to ensure a fair and objective blind scoring process for the license applications,” he wrote in an emailed statement.
But he acknowledged variations in scores were possible: Each question within a facility type — whether it was for dispensaries or cultivation facilities — was judged by the same person. But Westom said “it was not logistically possible” to have a single scorer judge a specific question for all facility types.
“For a given specific question, there may have been different scoring perspectives from one facility type to another, because of differences between the professional perspectives of scorers assigned to that facility type and specific question,” Westom said.
Matthew Vianello acknowledges the difficult task the state had in implementing its new medical marijuana program after voters approved a constitutional amendment in November 2018 sanctioning medical marijuana.
“There’s a lot of applications and there’s a short period of time,” he said. “I can’t imagine how time consuming and difficult a job it was.”
But Vianello, an attorney in Clayton, said the licensing decisions so far have resulted in wide scoring discrepancies.
“When I say that, I mean questions where somebody has provided an identical answer across two applications and gotten very different scores,” he said.
He represents Missouri Medical Marijuana Collective, which sought to open a cultivation facility and a manufacturing facility in Kennett. That company, owned in part by two local physicians, was bolstered by letters of support from the town’s mayor and police chief, along with a Circuit Court judge and mayors of nearby towns in the Missouri bootheel.
But the application was rejected. Vianello appealed that decision last week, noting that the company’s application for a manufacturing facility scored notably higher than the one to manufacture products, “even though both applications contained a number of answers that were virtually identical.”
One of the questions asks how applicants will train individuals on diversity and cultural awareness issues. Missouri Medical Marijuana Collective received a score of four (which the state’s rubric rates as satisfactory) on one application and a score of 10 on another (which the state categorizes as distinctive).
But Vianello says the company used the same answer on both applications.
“How can an answer be simultaneously distinctive and just satisfactory?” he said.
The scoring guide developed by DHSS for the medical marijuana program specifically says “a scorer must score every response consistently. For example, if two applicants applying for the same facility type provide identical responses to a question, the score must be the same.”
The Missouri Medical Cannabis Trade Association found that 384 cultivation applications — 67 percent of the entire applicant pool — received a score of zero on a question about marketing plans. In a letter to the state, that group suggested that “might possibly be the result of human or technological error.”
Lyndall Fraker, who oversees the state’s medical marijuana program, wrote back on Jan. 17, saying the state examined the issue but didn’t find any errors. He said the same person scored the marketing question on all 578 cultivation applications. Even when marketing plans were submitted, he said the scorer could issue a score of zero for answers that didn’t sufficiently address costs of marketing.
Fraker said all scorers had qualifying professional backgrounds and many touted advanced degrees.
The program director previously said the state was overwhelmed by the number of applicants wanting to produce and sell marijuana in Missouri. But in his letter, he said the department believes scoring was “both highly professionally competent and legally valid.” He said the agency would not respond to questions about specific applicants.
“In addition to that, we do not anticipate providing this type of information again in regards to any other general scoring inquiries,” Fraker wrote.
New rules
Aside from questions about scoring, many applicants are still irked by a middle-of-the game rule change from DHSS.
In May, the agency announced it was revising the rules to grant bonus points for applicants who located their operations in areas of high unemployment.
A lobbyist for marijuana applicants, who requested anonymity to speak freely about the process, said the timing was incredibly problematic for many bidders.
“Most applicants spent months looking for land or a vacant building, introducing themselves to local officials and having engineers draw up plans to build,” the lobbyist said. “Most groups had either purchased or had options on land/building.”
The geographic bonus appears to have had a major impact, as more than half of the 60 cultivation licenses were granted to applicants located in areas that qualified for extra points.
A separate lobbyist working for several companies that sought licenses said if you were an applicant who was not in one of the areas that received bonus points, “right off the bat you start with a tiny chance of getting a license.”
Lisa Cox, spokeswoman for DHSS, defended the rule at the time, saying the voter-approved constitutional amendment establishing medical marijuana in Missouri requires the department to consider “the potential for positive economic impact in the site community.”
Since only three questions on the applications would gauge the positive economic impact, Cox said the department decided that local unemployment rates would be an appropriate measure to add.
Cox said Pennsylvania’s marijuana program adopted a similar provision.
As appeals of license denials start to roll in, the revised rule has become a point of contention.
A complaint filed with the Administrative Hearing Commission on Wednesday by Grassroots OpCo MO LLC argued the new rule was unlawful and played an outsize role in determining the outcome.
The complaint says the agency’s “list of favored geographical zip codes” was created after initial applications were filed by some licensees. It notes applicants paid nonrefundable application fees to DHSS.
The appeal says the zip code bonuses awarded were “so significant that they effectively override the other criteria that DHSS has put forward, in effect making a geographic zip code the dispositive factor in evaluating the application.”
Sherry Doctorian, a partner at the Armstrong Teasdale law firm, said the licensing process has been positive, and she praised the department for the way it has established a “completely new industry in the state.”
She said a number of her clients have secured licenses. But she expects a fair number of those denied to appeal decisions to the Administrative Hearing Commission.
That, Doctorian said, is an area where she is starting to hear some concerns.
“If the number (of appeals) is several hundred, which is DHSS estimates, for all license applications, the four commissioners could be overwhelmed and thus, by necessity, the process will take longer than typical,” she said. “I’ve heard recently that parties are routinely waiting for several months for a decision to be handed down. Given the time sensitive nature of these appeals, this may present a high hurdle for those appealing denials to overcome.”
So far this week, more than 20 appeals have been filed with the Administrative Hearing Commission hoping to overturn the department’s rejection.
There have also been at least three lawsuits challenging various aspects of the process.
‘It’s just mind-boggling’
Kansas City firefighter Jon Lowe has spent years preparing to build his Mantis 9 Harvest marijuana business.
He sought to open a cultivation facility outside of Cameron, a dispensary in Independence and both a dispensary and manufacturing facility in Northmoor.
All four of his applications were denied.
He was not surprised to lose his Independence bid, as he said the city’s strict zoning regulations automatically disqualified his planned shop off U.S. 40. The city council on Tuesday rescinded many of its zoning rules, but a city official said that action was too late to help those who already applied for dispensaries, as the state considered current local zoning in its decisions.
Like other applicants, Lowe was judged differently on identical answers. On his cultivation application, he received four points for a question about his resume and biography. For his manufacturing plant, he received seven points. That’s a bigger deal than it sounds as scores on each question were weighted distinctly. The points awarded on that question were each multiplied by seven.
“It’s just mind-boggling how that happens,” he said. “Because really you’re only a few points away.”
For its cultivation application, Mantis 9 received 1,332.23 total points — about 147 points shy of the lowest-scoring applicant that won a license.
In Northmoor, he planned to do more than just open a plant that makes edibles and a retail store. He partnered with a developer who sketched out plans for a multi-acre development of retail and commercial buildings.
That plan had support from Mayor Lynda Wilson who wrote a letter of support. She said only three people in the town of little more than 300 ever voiced opposition. The town hoped to use additional sales and property tax revenues to add to its seven-officer police force, which currently has no overnight coverage.
Despite the community benefits, Lowe said his application was scored poorly on a question about the economic impact of the project on the local community.
“My team didn’t even score the average freaking score on that subsection,” he said. “How do you impact the community any more than that?”
Lowe said he’s currently weighing his options to appeal the state’s decisions. He said he and his business partner have already spent about $160,000 — an amount that goes up each month as he pays rent on a facility he leased.
“I just don’t know if I’ll have the money to fight all of them,” he said. “The only people who are really making any money at this point are the state and attorneys.”
But he thinks the state’s litigation problems are only just beginning. He expects many more complaints following Friday’s announcement of the 192 applicants approved to open dispensaries. Those decisions exclude more than 900 operators vying for a chance to sell pot, including Lowe.
He added: “It’s going to be even more of a mess.”
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