THE CASE FOR CAPS - Missouri and the Legality of Medical Cannabis License Caps

By: George S. Mahaffey | 4.28.21 | Media

While most states have reasonable caps on medical cannabis licenses, a few, such as Oklahoma do not. Oklahoma currently has 10,000 active cannabis commercial licenses and is seeking to pass legislation to cap and eventually decrease the number of licenses because of, among other issues, an inability to oversee them. Oklahoma's experiment in attempting to put the genie back into the bottle brings up the interesting issue of whether caps on medical cannabis licenses are legal. Recently, a court in Missouri analyzed the issue and found that it was legal for the state to cap the number of medical cannabis licenses.

On December 21, 2020, the Circuit Court for Cole County, Missouri, rejected arguments that caps on medical marijuana licenses were somehow illegal or unconstitutional in the case styled Sarcoxie Nursery Cultivation Center, LLC, et al. v. Williams, et al., No. 19-AC-CC00556 (Cir. Ct. Cole County, Dec. 21, 2020). In Sarcoxie, the circuit court rejected plaintiffs’ argument that caps on medical cannabis licenses were illegal and unconstitutional under Missouri law. Importantly, the circuit court found that the caps on licenses were legal because they had a rational basis to a legitimate government interest. That is, the circuit court found that Missouri could place a cap on licenses because the cap was related to the state’s interest in: (1) limiting crime, (2) effectively regulating the medical cannabis market, (3) avoiding costs for excess regulation of excess licenses and excess cannabis, and (4) ensuring public safety. Allowing uncapped licenses, the court found, would enable "unfettered [cannabis] production" which would create excess supply that could be diverted to the black market. Id. at 24. Further, unlimited cannabis licenses would burden the state with enormous oversight costs because as the number of medical cannabis licenses increases, the effectiveness of regulation goes down, which puts patients and the public at risk. Id. at 25.

While not fully analyzed in the decision, medical cannabis is still a Schedule 1 drug under the Controlled Substances Act, so another reason for a state to cap the number of licenses is to avoid creating a market that is so large it cannot be properly overseen. Such a "Wild West" scenario, that Oklahoma seems fearful of, is potentially justification for enhanced scrutiny from the federal government. The bottom line is that Missouri and many other states that have created medical cannabis markets seem to recognize that the best course of action is to place reasonable limits on the number of in-state medical cannabis operators.

If your cannabis or hemp company is facing legal or business issues, please contact the author, George S. Mahaffey Jr.