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Florida is one of at least 12 states that require vertical integration.EXPAND
Florida is one of at least 12 states that require vertical integration.

Florida Officials Make "Same Old" Argument for Restricting Medical Marijuana Licenses

Florida officials last week launched the opening salvo in a high-stakes legal battle over the future of the state's nascent medical marijuana industry.

Last Thursday, lawyers from the offices of Gov. Ron DeSantis and the Department of Health filed a brief with the Florida Supreme Court in defense of a 2017 law that established the state's "vertical integration" system, which limits business licenses to marijuana operators that grow, process, transport, and sell their own cannabis products. The controversial legislation, which also sets a hard cap on the number of licensed operators allowed in the state, has drawn outcry from critics who say the regulations block newcomers from joining an industry dominated by only a handful of companies. (In January, DeSantis infamously called vertical integration "a cartel" before walking back his statement days later.)

One of those critics, the Tampa-based marijuana operator Florigrown, believes the law is not only anti-competitive but also in violation of a constitutional amendment passed by Florida voters in 2016. A few months after lawmakers approved statutes implementing the amendment, Florigrown sued the state over provisions in the law that required operators — known as "medical marijuana treatment centers" — to be vertically integrated. The case percolated between trial and appellate courts for more than a year and a half before ending up on the docket of the Florida Supreme Court. Now it's Florigrown's turn to respond with its own brief.

"Our take is that [state officials] are making the same old arguments, nothing new. They are just shouting louder and being more indignant about it," Florigrown CEO Adam Elend says.

The disagreement between the state, Florigrown, and other unlicensed marijuana operators boils down to one tiny word — the conjunction or — in the 2016 constitutional amendment, which defines a medical marijuana treatment center as an entity that "acquires, cultivates, possesses, processes... transfers, transports, sells, distributes, dispenses, or administers" marijuana products. The language in the 2017 law, on the other hand, is far less flexible and requires a licensed operator to handle the entire supply chain ("cultivate, process, transport, and dispense marijuana for medical use").

As the state tells it, the constitutional amendment does not preclude legislators from implementing strict requirements on operators and capping the number of business licenses in circulation. Moreover, officials argue that the amendment "contemplates a highly regulated medical marijuana industry in Florida" due to its requirement that all medical marijuana treatment centers be registered with the Department of Health.

But Florigrown argues the state's implementation of the amendment has led to an arbitrary application of criteria for medical marijuana treatment centers.

"The reason we sued is that they are unconstitutionally restricting that registration process at the front end by mandating vertical [integration], unreasonably capping the number of registrants, and subjectively picking and choosing who they want to award these limited registrations to," Elend says.

What appears to be little more than a semantic splitting of hairs would have significant implications for medical marijuana in Florida. Operators such as Florigrown prefer a more business-friendly "horizontally integrated" or "unstacked" system, under which medical marijuana treatment centers can register to perform one or more functions. In such a system, an operator interested in only growing cannabis wouldn't have to worry about transporting the product. Similarly, a dispensary could carry products for resale without being involved in cultivating.

Florida is one of at least 12 states that require vertical integration, while other states, including Washington, California, and Illinois, mandate horizontal integration. More than 75 percent of the 205 dispensaries open in Florida are owned by just six companies, according to the latest figures from the Health Department's Office of Medical Marijuana Use. Critics say this market concentration is an example of the state picking winners and losers.

In the state's filing, officials argued that lawmakers did their best to balance public safety with ready access to medical marijuana.

"The legislature had to create a regulatory structure that... would ensure that medical marijuana that is legal in Florida would not be diverted to other states where it remains illegal, that it would not be diverted to minors, and that this state-authorized activity would not be used as a pretext by [operators] for other illegal activities."

According to Elend, the deadline for Florigrown to file its response to the state's brief is January 5; then the state would have 30 days to reply. 

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