With a ruling that could significantly change the business and regulatory landscape in the medical marijuana field, the Florida First District Court of Appeals has determined that certain provisions of the Florida Medical Marijuana Statute are unconstitutional.
Constitutional and Statutory Conflicts
In January 2017, an amendment to the Florida Constitution went into effect to protect the right to produce, possess and use medical marijuana. Patients that qualified to receive medical marijuana could obtain it from a Medical Marijuana Treatment Center (“MMTC”).
Under the amendment, MMTCs are broadly defined as those entities involved in any part of the process, including growers, processors, transporters, distributors, dispensaries, and other sellers. The amendment envisioned a scheme where these MMTCs would be licensed and regulated and empowered the Department of Health to carry that out. Later in 2017, the Florida legislature amended the Medical Marijuana statute creating a vertical integration model, essentially mandating that to obtain an MMTC license, the MMTC must be involved in all components of the process, from cultivation of the marijuana, through processing, transporting and ultimately dispensing to patients.
This created a conflict between the Constitutional amendment and the statute since the amendment broadly defined MMTC as any entity involved at any level in the process and the statutory amendment defined MMTC as an entity involved at all levels. Additionally, the 2017 statutory amendment capped the number of MMTC licenses, which further restricted the number of market participants.
Against this framework, in late 2017 Florigrown, LLC (“Florigrown”) applied for an MMTC license and was denied. Florigrown sued the Department of Health challenging the vertical integration and license cap provisions as unconstitutional. The Circuit Court agreed with Florigrown and granted an injunction prohibiting enforcement of those provisions as unconstitutional.
The First District Appellate Court has affirmed that ruling finding the sections unconstitutional as well. The Appellate Court noted the clear conflict between the broad definition of MMTC in the Constitutional Amendment and the 2017 amendment to the Medical Marijuana statute and found the statutory amendments too restrictive.
Further, because the Constitutional amendment and definition of MMTC was wider, the statutory cap on the number of MMTC licensees was also in conflict with the Constitution and was therefore unconstitutional.
Impact of Decision
The Florigrown decision will impact the medical marijuana business in several ways. First, by finding vertical integration unconstitutional, many entities that previously could not qualify as MMTCs now can. Without vertical integration or a cap on the number of MMTC licenses available, a licensed MMTC can be any entity involved at any level and does not have to be involved in all levels of the process. Accordingly, this can create opportunities for additional growers, processors, and dispensaries.
Second, without vertical integration, the value of an MMTC license will likely fall dramatically. Currently, because there are only a relative handful of licensed MMTC’s, those licenses are valued in the tens of millions of dollars. Allowing for more licensees will make the existing licenses less valuable.
Florigrown and the Future
The Florigrown decision will undoubtedly be appealed to the Florida Supreme Court so it may be several months yet before any firm and final guidance on the constitutional issues. In addition, the Department of Health can still issue regulations and could likely do so in a way that comports better with the Constitution.
At the same time, until the Constitutional issues are resolved, the Department may not issue new licenses, so there should not be any rush to obtain MMTC licenses. However, with two courts now finding the provisions unconstitutional and an administration in Tallahassee that is far friendlier to medical marijuana than prior administrations, any entity interested in getting into the medical marijuana business at any level should begin preparations so it can move quickly when the issues resolve.