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State Reexamines ‘Vertical Integration System’ In Medical Marijuana Case

Cannabis plant
Wikimedia Commons
The Florida Channel
Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.

In a case that could create a major upheaval in the state’s pot industry, health officials on Thursday asked the Florida Supreme Court to uphold a 2017 law that carried out a constitutional amendment broadly legalizing medical marijuana. 

Lawyers for the Department of Health argued that, in creating and passing the law, the Florida Legislature carried out its “constitutional prerogative to serve as the state policymaker and to protect the welfare of the citizenry.”

The state agency urged the Supreme Court to overturn a ruling by the 1st District Court of Appeal that said a key part of the law conflicted with the 2016 constitutional amendment, approved by 71 percent of Florida voters.

The controversy is centered on a key component of the law that established a “vertical integration system” in which a limited number of companies that receive medical marijuana licenses must handle all aspects of the business, including growing, processing and distributing products. The alternative to vertical integration would be to allow companies to play different roles, potentially leading to more players in the industry.

The law “is consistent with the text of the amendment,” the health department’s lawyers argued.

“The Legislature acted within the scope of policy discretion afforded it by the Florida Constitution in setting requirements for licensure and initial market participation. The criteria are consistent with and fall within the broader boundaries of immunity set by the amendment,” they added.

Thursday’s court filing came in a long-running dispute between the state and Florigrown, a Tampa-based company that has unsuccessfully sought Department of Health approval to become one of the state’s medical marijuana operators.

A three-judge panel of the 1st District Court of Appeal in July upheld part of a temporary injunction issued by a Leon County circuit judge, who found that the 2017 law conflicted with the constitutional amendment.

At least in part, the court focused on the difference in the words “or” and “and” in the definitions of medical-marijuana operators, which are known as medical marijuana treatment centers.

The constitutional amendment defined the centers as “an entity that acquires, cultivates, possesses, processes … transfers, transports, sells, distributes, dispenses, or administers marijuana, products containing marijuana, related supplies, or educational materials.”

Meanwhile, under the 2017 law, “a licensed medical marijuana treatment center shall cultivate, process, transport and dispense marijuana for medical use” --- wording that establishes the vertically integrated system of performing all aspects of the business.

In a brief filed last month, Florigrown argued that the constitutional amendment created a “horizontal market” allowing multiple businesses to perform a variety of business functions and made the Department of Health responsible for administering the new medical marijuana policy.

“The Legislature responded by simply turning back the clock and reverting to its oligopoly-style ‘vertical’ medical marijuana system,” lawyers for Florigrown wrote in a Jan. 6 brief.

The state “has a robust system in place to ensure that the medical marijuana program is safe and regulated,” they wrote.

“But the state is unconstitutionally restricting access to that system and picking and choosing who to let in, creating what Gov. (Ron) DeSantis himself characterized as a ‘cartel.’ Indeed, the governor has said that the current system does not adhere to free market principles and should be ‘opened up,’” Florigrown argued.

But the health agency’s lawyers wrote that the vertical integration system “makes sense.”

Initial market participation was limited to those entities that could perform all aspects of the marijuana business, they argued in Thursday’s brief.

There is no evidence “that the medical marijuana industry in Florida is commercially infeasible,” the lawyers wrote.

“Evidence in the record suggests that it is a highly profitable enterprise, and Florigrown’s substantial investment in protracted litigation only underscores this point,” the health department maintained.

The state’s lawyers also asked the Supreme Court --- which on Thursday scheduled arguments in the case for April 22 --- to uphold a portion of the law that set caps on the number of medical marijuana licenses, saying it would fail to pass constitutional muster “only if it is entirely irrational.”

“But the cap readily satisfies this low burden. The creation of a narrow initial market with growth commensurate with need allows the state to balance the demand for medical marijuana against the state’s ability to ensure safe production and distribution,” the state argued.

Asking the court to overturn the appellate ruling, the Department of Health argued that the amendment “is not an exhaustive, field-preemptive framework preempting the Legislature’s traditional and constitutionally recognized role in establishing Florida’s regulatory policy over controlled substances through its exercise of the police power.”

But in its brief last month, Florigrown argued the Legislature “arbitrarily” gave away a limited number of licenses. The 2017 law also gave licenses to businesses that had been in litigation with the state over licenses, Florigrown pointed out.

“And, it is allowing those licensees to sell these coveted licenses for $50 million or more without ever operating to produce any marijuana at all, or serving even one single patient. These actions are not only unconstitutional --- the entire scheme is a ‘hoax’ that undermines the explicit will of the voters who chose to add horizontal licensing to their constitution in order to ensure the availability and safe use of medical marijuana,” Florigrown’s lawyers wrote.