Florida’s Supreme Court case that could break up the vertical marijuana monopoly
When 71% of the Florida voters overwhelmingly vote for Amendment 2 in 2016, they expected a whole lot of changes to the medical cannabis program.
That’s not what they got.
At the time, they were still dealing with a low-THC program, that had just added terminal patients to the roster of qualified patients, which included seizure and cancer patients. Only five licenses were awarded, through an application process that had already seen legal challenges adjudicated by an Administrative Judge.
But the new Constitutional amendment was about to change everything. It was to start taking effect on January 3, 2017 and the Department of Health had six months to write the new rules with the constitutional authority given to them and start giving out new licenses by October 3rd, nine months after the effective date of the new amendment.
There were now 10 qualifying conditions added for the medical cannabis market, and it was going to grow, and enjoy all the benefits of a free and open market – better prices, higher quality and greater access.
But that’s not what they got.
During the period of transition, from the low-THC to the new medical market, the entire program existed in a “fog” of confusion, and the existing “Dispensing Organizations”, in their metamorphosis into Medical Marijuana Treatment Centers (MMTC)’s as well as the public were wandering aimlessly as the rules failed to appear, and the legislature stepped in to write their own bills and statutes signed into law on June 24. This created statute-based authority to write rules that would be different than the ones based on the constitutional authority.
It wouldn’t be the first time that the legislature attempted to thwart the will of the voters and the intent of a ballot-initiated amendment, but it happened again.
But nestled in that fog, came the genesis of a lawsuit that would have the potential to turn the market on its side and change the program back towards the version that the voters expected.
It was named Florigrown v State of Florida, and it was a 253-page Gargantua of a case.
It all started when three men, Joe Redner and his partners Adam Elend and Jeff Marks, having read the new amendment and in full understanding of the intent of the ballot initiative, opted to file an application on January 17 to register their new MMTC, called Florigrown, with the intent to have their application evaluated and approved by the DOH, as it was offered in the amendment.
But that’s not what happened.
With the rules, based on the constitutional authority given to write them, still not written, the DOH rejected the application. So, the Florigrown team bided their time to see how the new regulatory scheme would develop, and they could see the writing on the wall. The fog was getting thicker, and no hope for new MMTC applications being accepted were coming out.
October 3 came and went, and the only new licenses were one that came from the Administrative Law judge, who noted the deficiencies in the process and later called it a “Dumpster file” in his decision to give previously failed applicants their licenses. In all, nine more licenses would be given out to applications that filed suits against the state for the flawed process.
Since the first cadre of five licenses given out via that flawed process, regardless of any rule from the amendment or the statute, no application for license has been accepted by the DOH. It has now been 3 years since that initial implementation of SB1030, the Compassionate Care Act that started it all in Florida.
According to the court filing, “The Department eventually told Florigrown it could seek relief in circuit court once the Department promulgated implemented regulations per the Amendment.” However, just prior to that deadline as the DOH prepared to implement the amendment, the legislature amended the current statute.
So, during that time Florigrown filed their lawsuit eleven months after filing their request for registration, followed by a motion for temporary injunction five months later when it became obvious that no progress was going to be made. The DOH essentially stopped working on the constitutional rules and failed to send appropriate rules to the Joint Administrative Procedures Committee. The JAPC send dozens of letters to the DOH for corrections and clarification, all of which went unanswered for months. The legislature even went so far as to hold back funding to the DOH if they did not obey the statutory authority for rulemaking and abandon the constitutional authority that the voters intended to be used. Rulemaking was in limbo, and conflicts were abundant.
But the biggest difference was the definition of an MMTC. The Legislature had previously defined “dispensing organization” in the original bill as “an organization approved by the department [of health] to cultivate, process, AND dispense low-THC cannabis.” § 381.986(1)(a), Fla. Stat. (2014) (emphasis added). So the Legislature required the Department to develop an application form for the eventual determination of the five entities that would receive authorization to cultivate, process, AND dispense low-THC cannabis. But the new amendment had new wording. According to the answer brief filed by Florigrown for the Supreme Court, the Amendment does three things.
“First, it creates MMTCs instead of the “dispensing organizations” that were created under the earlier legislation. It also expressly expands and alters the definition the Legislature gave to “dispensing organizations” by defining an MMTC as “an entity that acquires, cultivates, possesses, processes (including development of related products such as food, tinctures, aerosols, oils, or ointments), transfers, transports, sells, distributes, dispenses, OR administers marijuana, products containing marijuana, related supplies, or educational materials to qualifying patients or their caregivers and is registered by the Department.
Second, the Amendment places specific mandates on the Department, not the Legislature. It requires the Department to promulgate regulations by July 3, 2017 (six months after the Amendment’s effective date) and to begin registering MMTCs by October 3, 2017 (nine months after the Amendment’s effective date). The Department must develop “procedures for the registration of MMTCs that include procedures for the issuance, renewal, suspension and revocation of registration, and standards to ensure proper security, record keeping, testing, labeling, inspection, and safety.”
Third, the Amendment provides that “[i]f the Department does not issue regulations, or if the Department does not begin issuing identification cards and registering MMTCs within the time limits set in this section, any Florida citizen shall have standing to seek judicial relief to compel compliance with the Department’s constitutional duties.” The Amendment allows the Legislature to enact laws related to the Amendment but only if those laws are “consistent with” the Amendment.
These differences in the amendment and statute enacted by the legislature would now go to court. The definition of “dispensing organization’, which folded over to the MMTC’s in the statute, defined was is known as “vertical integration”, where the entity had to do everything from seed to sale and delivery. The amendment, by use of the word “Or”, defined horizontal integration which would allow entities to do as little as only one of the defined duties of an MMTC. Secondly, the DOH was to make rules to set up the registration of MMTC’s in the amendment. The statute kept the scored competitive application process, which was botched by the DOH according to the ALJ. So Florigrown, used the remedy noted in the amendment, “to seek judicial relief to compel compliance with the Department’s constitutional duties.”
That hearing, in the 2nd District Court of Florida was for a temporary injunction that would request 3 things. According to the Answer brief,
“Florigrown sought a temporary injunction: (1) enjoining the Department from “licensing” any additional MMTCs pursuant to the legislative scheme codified in the Statute; (2) requiring the Department to commence registering MMTCs in accordance with the Amendment’s plain language; and (3) requiring the Department to register Florigrown as an MMTC. Florigrown sought the injunctive relief per the Amendment’s express language allowing any Florida citizen to compel the Department to comply with the Amendment’s mandates.”
Per the Supreme court record on this case, “Following development of an extensive factual record that included lengthy testimony from all of the key witnesses and party representatives, as well as significant documentary material that was admitted into evidence, the trial court entered an order on Florigrown’s temporary injunction request. The trial court found Florigrown established a substantial likelihood of success on the merits of its claims and lacked an adequate remedy at law.”
But the state filed an appeal on the judge’s order, halting its execution, so it went to the 1st district court of appeals. That hearing also was decided, with a 3-judge panel, in favor of Florigrown. The state then asked for an “en banc review”, where the entire 1st DCA would be polled, but that was denied, so the request was made by the state and the new governor, Ron deSantis, to be certified to go to the Supreme Court for review, which is where is stands today, awaiting a February hearing.
The appeal of the decision of two courts and the stonewalling of implementation of the amendment had had harsh implications for not only Florigrown, who did not seek an instant license, but only to be evaluated for a potential registration of their application to be granted a license, but for Floridians as well.
The closed market held back the vision of a free market, as noted by dozens of signed written declarations, access was limited by patients having to deal with high prices, delivery issues and the distance between MMTC’s. In the meantime, all other losing applications from the 2015 application were given licenses, only to be set up to sell immediately to the highest bidder, and the going price rose to an average of $53M each. Most of the licenses given held back becoming fully operational, in anticipation of sale. The closed market stifled access, and companies like Florigrown continued to wait for a legal remedy to getting into the Florida market, causing what appeared to be irreparable harm in the current regulatory structure.
So, as of January of 2020, there are 22 licensed MMTC’s in Florida, but less than half are producing and selling product, as Florigrown prepares to go to the Supreme Court.
The case for Florigrown, as laid out in their Answer Brief on the Merits, note the following items:
I. FLORIGROWN ESTABLISHED A SUBSTANTIAL LIKELIHOOD OF SUCCESS ON THE MERITS.
A). The Statute Materially Alters, Restricts, And Contradicts the Amendment’s Definition Of An MMTC,
B) Nothing In The Record Or The Law Supports The Arbitrary And Artificial Caps Imposed By The Statute,
C) The Statutory Requirement For Vertical Integration Of MMTCs Violates The Amendment, and
D) The Statute Improperly Grants Special Advantages, Benefits And Privileges That Only Apply To Particular Entities (In other words, losing applications from 2015, a closed group, were given licenses instead of the open process noted in the amendment)
II. FLORIGROWN MET THE REMAINING INJUNCTION CRITERIA.
A. The Trial Court and First District Properly Recognized The Existence of Irreparable Harm And Lack Of Adequate Remedy As A Matter Of Fact And Law., as discussed earlier in this article,
B. The Public Interest Factors Support the Injunction. – it was in the best public interest, i.e. greater access of medical cannabis to the patients would be served.
III. THE INJUNCTION IS CONSISTENT WITH THE AMENDMENT’S PLAIN LANGUAGE AND HAS NO BEARING ON THE DEPARTMENT’S REGULATION OF MMTCS. – the State had claimed that success in this case would undermine the State’s ability to regulate the industry as intended, but that argument is false because the injunction does not alter the regulatory structure.
IV. THE INJUNCTION ORDERS MAKE THE REQUISITE FACTUAL FINDINGS TO SUPPORT THE INJUNCTION CRITERIA. The orders met all the criteria necessary to necessitate use of the injunction to prevent irreparable harm, as noted previously, in the absence of any current legal remedy.
For many of the current MMTC’s, success of the Florigrown case, even though it will be in the public interest, has been a viable threat to there businesses. First, the widening o the market is seen as decreasing market share, despite that fact that an open market would encourage far more people to enter the cannabis program and increase total sales across the state. But the big thing that scares many of them would be the loss of valuation. Those who had purchased a license for $53M and above could see the value of their property decrease drastically, at least initially, as other companies enter the market. But that loss would be mitigated over time as sales continue to climb with the expanded market.
But, for now, it is in the hands of the conservative-leaning Supreme Court. It should be noted that the 1st DCA is also conservative leaning, and they ruled in favor of Florigrown.
The State, in its statement to Supreme Court, called Florigrown, “A stunt”, despite the previous success in the previous courts, and used other derogatory and fallacious arguments in their brief to the court. But it is time for the great showdown, and they will have to prove their allegations, and face all the argument noted above to win their final appeal.
It will be a major change of event for the cannabis program in Florida, as the state attempts to progress to an Adult use program as well. If that happens, any share of an ever-growing pie that is the potential of the Florida cannabis industry will grow, and all compliant parties in the supply side will gain, as will the demand side, which is Florida’s patients and the state itself, which could gain from taxes brought in by this industry.
And that’s the way it’s supposed to happen.