For the last two years, The Independent has documented a pattern of well-connected groups and individuals flooding the microbusiness lottery by recruiting people to submit applications and then offering them contracts that limit their profit and control of the business
BY: REBECCA RIVAS
Missouri Independent
Missouri cannabis regulators have routinely revoked microbusiness licenses for relying on contracts they’ve publicly characterized as “predatory.”
The state is hoping to put a stop to the turnover through proposed rules that will be open for public comment starting Monday through Jan. 14.
Regulators first introduced the rules last December and have since held two opportunities for public input, before submitting them to the Missouri Secretary of State in November.
The microbusiness program — sometimes called the social-equity cannabis program — was designed to boost opportunities in the industry for people in disadvantaged communities that have been most impacted by the war on drugs. It began in 2023, after passing as part of the constitutional amendment to legalize recreational marijuana in 2022.
For the last two years, The Independent has documented a pattern of well-connected groups and individuals flooding the microbusiness lottery by recruiting people to submit applications and then offering them contracts that limit their profit and control of the business.
Of the 105 microbusiness licenses issued so far, 35 have been revoked, including 22 that involved contracts drafted by St. Louis-based Armstrong Teasdale law firm.
In order to prevent the continued cascade of revocations, the Missouri Division of Cannabis Regulation is proposing to adjust when its extensive application-review period occurs. The point when regulators would review questionable contracts would take place before the license is issued, instead of afterwards as it is now.
The rules would also be changed to clarify that “owners, agents or representatives” of a microbusiness application or license that regulators have denied or revoked would be prohibited from holding a voting or financial interest in any other microbusiness license.
The designated-contact role was envisioned as a way to ensure clear communication between the state and licensees. However, regulators found in their investigations that designated contacts have kept the actual eligible applicants in the dark about business and license dealings. The new rules would require the designated contact for a microbusiness applicant to be a majority owner of the microbusiness license.
According to court documents, some applicants of the revoked licenses told regulators they were going to be “one of three managers,” leaving them without majority voting power in the business. And they did not demonstrate they had “a credible intent or ability to be the majority owner and operator” of the business, regulators found.
Under the new rules, “majority owned and operated” would be defined as the eligible individuals who are listed as having majority ownership must have a level of operational control that would be expected of an owner.
Eligible individuals must have the power to order or direct the management, managers, and policies of the license, enter into agreements on behalf of the license, and otherwise make decisions for the business.
“A purported owner with little to no knowledge, control, agency or decision-making authority in an application or license does not meet the intent or meaning of the” constitutional amendment that created the microbusiness program, according to the press release the division issued when it introduced the rules last year.
Applicants would also be required to take an online training course that addresses predatory practices and funding opportunities.
The division expects to file the final version of rule amendments for formal rulemaking in early 2026, prior to the third round of microbusiness licensing.
The contracts
An investigation by The Independent in October revealed that the attorney who crafted most contracts at the heart of the recent license revocations also represents the marijuana industry trade group.
Eric Walter is a St. Louis-based attorney who represents the Missouri Cannabis Trade Association and a significant percentage of the state’s cannabis licensees.
He wrote 22 agreements the state believes would take the microbusiness licenses out of the hands of eligible applicants and put them into the hands of well-connected or out-of-state cannabis investors, according to the administrative appeal case documents obtained by The Independent.
Each of those agreements largely led to the state revoking a microbusiness license issued last year for not meeting the constitutional mandate that the licenses be “majority owned and operated” by eligible applicants. All but one of the license revocations is being appealed to the Missouri Administrative Hearing Commission.
To be eligible for a microbusiness license, applicants must meet certain criteria, including income below certain thresholds, having past marijuana offenses or being a disabled veteran.
The contracts written by Walter gave applicants two years to pay back loans that can total up to $2 million. If they couldn’t, they’d have to pay a “break-up fee” of up to $2.5 million or give up ownership of the license transfers to the loan holder, according to the state’s response in several of the appeals.
“Therefore, the business would likely be unable to generate revenue to pay back the loan,” the state argues in one of the legal filing responding to a revocation appeal. “This leaves them no option but to convert the debt into ownership.”
In most cases, the same people involved in the consulting company that hired Armstrong Teasdale to draw up the contract are also involved in lending the money.
Walter’s law firm and the consulting companies who hired the firm to draw up the agreements have vehemently denied the contracts are predatory, arguing the applicants voluntarily signed them.
“Those documents are all transparent, fair, and compliant with Missouri law, including the Department of Health and Senior Services’ rules,” Jamie Moss, spokeswoman for Walter’s law firm, Armstrong Teasdale, said in an email to The Independent in October.
Under the new rules, regulators will specifically ask for any business agreements related to the license “that affect ownership, control, or financial interests in cannabis operations,” including all management agreements, consulting agreements, partnership agreements, loans, “or other agreements whereby any entities stand to gain financially from the business.”