The Florida Supreme Court on Wednesday heard oral arguments regarding a case that could, depending on the outcome, throw the door open to new players in one of the most lucrative cannabis markets in the United States.
The case, Florida Department of Health v. Florigrown, LLC, is focused on whether the state’s 2017 medical cannabis law is constitutional. Florigrown, an aspiring medical cannabis company based in Tampa, says no, because the law places a limit, or cap, on the number of available licenses for those hoping to operate a medical cannabis business in the state. The law also requires licensed companies to be vertically integrated, which means that they must control the growing, processing, and sale of their medical cannabis products. (Read Cannabis Wire’s deep dive into the backstory of the Florigrown case.)
Before the case reached the Florida Supreme Court, two lower courts had already sided with Florigrown. The Court has already heard oral arguments once, on May 6. In July, in a surprise move, the Court decided to allow oral arguments once more, this time focused on “whether Florigrown has a substantial likelihood of success on the merits of its challenge to certain provisions of Florida law as invalid special laws under the Florida Constitution.” A “special law” is one that would benefit certain entities over others. In this case, Florigrown argues that those entities are the existing licensees.
There are currently 22 medical cannabis companies licensed in the entire state. This includes some of the highest valued companies in the US, like Curaleaf, Trulieve, and Parallel (formerly Surterra). If the Court sides with Florigrown, the door would be opened to newcomers, and it would also give licensees the option to focus on one part of the supply chain, such as cultivation or retail, instead of the entire chain.
The oral arguments on Wednesday began with Joe Jacquot, representing the Department of Health, who emphasized that the law is a “general law” and the licensing process represents an “open class,” or in other words, open to any qualified applicant.
(Jacquot is also the General Counsel to Florida Governor Ron DeSantis, which is notable considering DeSantis referred to Florida’s industry as a “cartel,” as Cannabis Wire previously reported.)
“This is a comprehensive regulatory scheme that brings a certain number of licenses online at different times based on the readiness of those MMTCs,” he said, referring to the Medical Marijuana Treatment Centers, as licensees are known.
Jacquot also noted that 11 licenses are currently available to applicants.
“And if Florigrown met the statutory requirements, including vertical integration, it certainly could apply for one of those remaining eleven licenses,” he said, again reiterating that “this is an open class.”
Jacquot said that another reason this is an “open class” is that “the statute serves the state interests, and it does so in a uniform and rational way.”
The conversation eventually turned to the fact that licenses can be sold, which Judge Alan Lawson called a “privilege” for those holding a license. Jacquot said, in response to Judge Lawson, that this, in fact, “proves the point that this isn’t a closed class,” because licenses can “migrate to other entities.”
Jacquot proceeded to argue that a law is considered “special,” for example, if some aspect of it is “arbitrary.”
Chief Justice Charles T. Canady asked, in reference to a group of licenses that were awarded as a result of a settlement agreement in 2019 between the Department of Health and applicants who didn’t initially make the cut, “Why it’s not arbitrary to have a provision that provides that someone is eligible for a license because they brought a lawsuit?”
Jacquot responded that these entities were already evaluated and scored, and that the Department deemed them “at least close to receiving a license.” Therefore, the Department “already has a comfort level and experience with them.”
“Well, no,” Canady responded, “I don’t know how you say they’ve got a comfort level because they were scored and ranked and found lacking.”
Near the end of his initial comments, Jacquot noted that Florigrown wouldn’t even agree to be vertically integrated, unlike some of the others who were eventually licensed, and said, “If there’s any claim to advantage that Florigrown makes here, it’s purely competition. It’s that someone got a head start ahead of them, which has not been deemed to be a basis of a special law.”
Then, Katherine E. Giddings, of Akerman LLP, representing Florigrown, responded.
“The department has never accepted an application from anyone but these 22 entities,” she said. “This is definitely a closed class because no one can ever receive the same privileges that these have had.”
In response to Jacquot’s earlier point that these licensees were ready, Giddings responded that they are not, and “many of them are not dispensing.” (According to the latest update from the state’s Office of Medical Marijuana Use, as of this month, 8 of the 22 are not yet dispensing.)
Judge Carlos Muñiz responded that while these licensees had “priority in line,” they were not “exempted from the requirements” set by the legislature.
In response to a comment by Giddings that several early licensees sold their licenses, Judge John Couriel asked, “Because there is a liquidity to these things, the fact that they’re transferable, doesn’t that speak quite directly to the openness or closedness of the class? I mean, if it can be resold, aren’t we to understand then that basically anybody can come to acquire it?” This, he suggested, works against “the argument that that original group is somehow privileged, if indeed it doesn’t even contain the same set of players that it used to.”
Giddings responded, “Your Honor, that goes to show just how arbitrary the whole scheme is, because they state that these 22 can get their licenses because they’re more ready, but then they’re going out and selling.”
Muñiz later noted, “It seems like it’d be a stretch to say that it’s irrational to say that ‘I’m going to prioritize people who’ve already met my licensure requirements … then I’m gonna go down the list.’”
To this, Giddings responded, “These entities were previously deemed to be unqualified. So how can you say that this is a rational classification?”
“They’re unqualified if you only want 10,” Muñiz said. “My criteria are going to be different if I need 20. So that’s rational.”
Near the end of her comments, Giddings said that the Department had said it would take nearly 2,000 MMTCs to meet the demands of the state’s patients“ And the legislature came in and said, ‘we’re going to limit that.’ And the department was already ready to begin that registration process. And the legislatures stopped them. This is a class, and it’s a closed class because only these entities received these reserved licenses. The legislature might as well have just named them in the statute. And that’s what it did by describing who can get the license.”
During his rebuttal, Jacquot pointed to a recent incident in which mold was found in products produced by Parallel (Surterra). He said that while the Department couldn’t pinpoint at which stage the product became moldy, the vertical integration requirement allowed the Department to hold the company accountable because they “controlled the entire pipeline.”
“That’s exactly why vertical integration is necessary to have this kind of safe and available regulatory scheme,” he said. (It’s worth noting that many states have quality control measures in place, and don’t require vertical integration.)
In closing, Jacquot reiterated that “because eleven licenses are now available, it’s an open class.”
“One of the things that Florigrown mentions is that there aren’t any current applications,” he continued. “Well, the reason why is because the Department has been in litigation the whole time, including the injunction that we’ve been facing from this litigation. As soon as this court is able to rule … hopefully we’ll get some clarity and reopen the application process.”
