Out-of-State Applicants Swarmed Missouri’s Social Equity Cannabis Lottery

Business owners from California, Michigan, Louisiana, Arizona and elsewhere took a liking to Missouri’s recent social equity cannabis licensing process, according to a state report released Jan. 3.

While the state’s 48 microbusiness licenses were designed to allow marginalized or under-represented individuals to participate in Missouri’s adult-use marketplace, nearly 41% of owners listed on 1,625 applications were from out of state, Chief Equity Officer Abigail Vivas revealed in her annual activity report.

Overall, 1,898 owners were listed on the 1,625 applications, with 118 coming from California, 110 from Michigan, 89 from Louisiana and 87 Arizona. While one application could include more than one owner, no owner could appear on more than one application.

Missouri DHSS

This comes at a time when the state’s existing medical operators are enjoying a first-mover advantage to an adult-use marketplace that amounted to more than $1 billion in dispensary sales in 2023.

The Missouri Division of Cannabis Regulation (DCR) announced the names of the 48 microbusiness license winners on Oct. 2, including two retail and four wholesale facilities for each of eight congressional districts. The lotteries were conducted “without reference to the identities of the applicants” at the time, according to Missouri Department of Health and Senior Services (DHSS).

However, when Vivas met a Dec. 1 constitutional deadline for an eligibility review of the winners to verify they met the equity qualifications they claimed, the state determined 11 of the 48 awardees were deemed ineligible for the licenses, drawing additional attention to the process following reports that state residents were being taken advantage of via Craigslist.

A Michigan company in particular offered to pay residents who were eligible for the lottery $2,000 to apply and an additional $20,000 if they won a license, the Missouri Independent reported in late October. While qualifying residents would hold 100% ownership interest in the application, they were required to sign a contract to sell their share of the business for $1 to the out-of-state group behind the ad.

But some of the out-of-state interests that were awarded licenses in October may never receive the actual issuance of those licenses following the eligibility review. The 11 awardees—nine of which were for dispensary licenses—who were not certified as eligible were provided notices Dec. 15. They have 30 days to respond with records demonstrating why their licenses should not be revoked, according to Vivas’ annual report.

Microbusiness licenses are required to be majority owned by individuals who each meet at least one of the seven eligibility criteria outlined in Missouri state law. Applicants were allowed to claim more than one criterion, but it was not required, according to DHSS.

Roughly 29% of applicants claimed a net worth of less than $250,000 and low income, making this the most popular criterion, according to the Jan. 3 report.

Meanwhile, 27% of applicants claimed an arrest, prosecution or conviction for a nonviolent cannabis offense. And 22% claimed residency in a ZIP Code or census tract area where either 30% or more of the population lives below the federal poverty level or the rate of unemployment is 50% higher than the state average.

Applicants were also required to provide a designated contact for communications with the DHSS, but these contacts were not required to have an ownership stake in the applying businesses. For instance, while no one individual could apply for more than one license, an attorney or consultant could act as a contact on behalf of any number of the applicants.

Overall, there were 729 designated contacts for the 1,625 applications, according to the report. Notably, one designated contact submitted 437 applications (27%), while another submitted 151 applications (9%) and a third submitted 104 applications (6%).

Together, these three submitted nearly 43% of the applications.

The Independent reported that the three designated contacts were connected to Arizona-based consulting firm Cannabis Business Advisors, whose clients were awarded six licenses; Missouri-based Amendment 2 Consultants, whose clients were awarded four licenses; and Michigan-based real estate group Canna Zoned MLS, which was awarded two licenses.

These three entities represented nine of the 16 dispensary awardees, but all nine of those licenses are now pending revocation, according to the news outlet.

In addition, among the 1,625 applications submitted, there were 579 unique facility locations listed, according to the report. One location at 1717 W 5th Street in Eureka was listed 104 times with various entity legal names attached, according to state records. One of the entities listing this location, The Joke Smoke SE LLC, was awarded a retail dispensary license.

At time of application, applicants were only required to provide a proposed facility location, establishing a lower barrier of entry for applicants rather than requiring them to possess and control a facility location, according to the report.

Since the locations were only proposed locations, using the same proposed address among different applicants was not against the rules.