In 1996 California passed the first “Compassionate Use” law in the nation legalizing marijuana use for medicinal purposes. Multiple states followed suit into the 2000s. In 2016, Florida voters overwhelmingly adopted the Florida Medical Marijuana Legalization Initiative, also known as Amendment 2, into the Florida Constitution. Since that time, Florida’s implementation of this constitutional amendment has led to numerous lawsuits, especially over the constitutionality of the caps on the number of providers and the requirement that providers be “vertically integrated.” Despite the legislative and regulatory obstacles to implementation, Florida is among the fastest growing Medical Marijuana markets in the country. This article details the history of the medical marijuana statutes and rules as they relate to licensing, the lawsuits that arose from them, and where licensing of medical marijuana providers stands now. It also explores Florida’s new statutes and rules related to legalization of the hemp industry and the growing market for CBD products. Finally, this article tries to gaze into the crystal ball to see where this is all heading.
Early History: 2014 Amendment 2 and Compassionate Use
The 2016 passage of Amendment 2 was not the first attempt to allow medical marijuana in Florida. In 2014, the first attempt to amend the constitution to allow for the use of medical marijuana was presented to the voters of Florida. The original Amendment 2 was substantially similar to the Amendment 2 that eventually passed two years later. As discussed in more detail below, with regards to the 2016 Amendment 2, the original Amendment 2 sought to allow patients with “debilitating medical conditions,” as defined by the amendment, to receive “certifications” from physicians to allow them to use and possess medical marijuana. Importantly, the original amendment set forth the first definition of Medical Marijuana Treatment Centers (“MMTC”), which was later adopted by the 2016 Amendment 2. The amendment provided that MMTCs are defined 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 personal caregivers and is registered by the Department.”
This broad definition in the 2016 Amendment 2 will become critical for later legal challenges. While the 2014 Amendment 2 garnered 57.6% of the vote, it did not reach the required supermajority of 60% of the vote to pass.
However, Florida lawmakers apparently sensed the shifting political wind with nearly 60% of the electorate supporting the legal use of marijuana for medicinal purposes. A conservative Republican legislature began taking steps to, in what many viewed as an effort to avoid another constitutional amendment broadly legalizing medical marijuana, allow for limited use of medical marijuana. The first of these steps was the “Compassionate Medical Cannabis Act.” This act allowed for physicians to prescribe certain “qualified patients” low-THC (less than .8% THC) marijuana. Importantly, this act set up “dispensing organizations.” These dispensing organizations were defined by statute as “an organization approved by the department to cultivate, process, and dispense low-THC cannabis” § 381.986, Fla. Stat. (2014) (emphasis added). This definition of dispensing organizations required that the organization be “vertically integrated,” meaning that a single organization needed to do all the steps – from growing to selling to consumers – of the medical marijuana process. An organization could not, for example, simply grow marijuana or just sell marijuana. It had to do everything.
Additionally, the Compassionate Medical Cannabis Act required that dispensing organizations be limited to five in the entire state and that they meet the following requirements:
- Possesses a valid certificate of registration issued by the Department of Agriculture and Consumer Services for the cultivation of more than 400,000 plants;
- Be operated by a nurseryman; and
- Must have been operating as a registered nursery in Florida for at least 30 continuous years.
§ 381.986(5)(b), Fla. Stat. (2014).
Dispensing Organization Rulemaking and Legal Challenges
Pursuant to the Compassionate Medical Cannabis Act, the Department of Health (“DOH”) began drafting rules to implement the statute. In August and September of 2014, DOH published proposed rules that purported to implement the act. Importantly, these proposed rules:
- Established a “lottery” system to determine which applicant would be selected for licensure as a dispensing organization per region;
- Imposed a $150,000 application fee on the selected applicants; and
- Set forth application criteria to determine which applicants were qualified to be placed in the “lottery” for a chance to be licensed.
These proposed rules were almost immediately challenged. Costa Farms, LLC, Plants of Ruskin, Inc., the Florida Medical Cannabis Association, and Tornello Landscape Corp. a/k/a 3 Boys Farm Company all filed a challenge to these proposed rules. These cases were consolidated and heard by the Florida Division of Administrative Hearings (“DOAH”).
In his Final Order, Administrative Law Judge W. David Watkins, invalidated these proposed rules. As to the lottery system, he held that it violated due process, Florida’s licensure laws, and “contravenes a basic expectation of law for reasoned agency decision-making.” Costa Farms, et al. v. DOH, DOAH Case No. 14-4296RP (DOAH 2014). As to the other challenged requirements, he found that they either violated the enabling statute or that DOH exceeded its statutory authority.
Given the failure of the first proposed rules, for its next attempt at rulemaking, DOH set up a “negotiated” rulemaking process and invited potential applicants to be a part of the new rulemaking process. Importantly, the new proposed rule 64-4.002(2) sets forth seven statutory criteria that an applicant must demonstrate to become a dispensing organization:
- The technical and technological ability to cultivate and produce low-THC cannabis;
- The ability to secure the premises, resources, and personnel necessary to operate as a dispensing organization;
- The ability to maintain accountability of all raw materials, finished products, and any byproducts to prevent diversion or unlawful access to or possession of these substances;
- An infrastructure reasonably located to dispense low-THC cannabis to registered patients statewide or regionally as determined by the department;
- The financial ability to maintain operations for the duration of the two-year approval cycle;
- That all owners and managers have been fingerprinted and have successfully passed a level 2 background screening pursuant to section 435.04, Florida Statutes; and
- The employment of a medical director who is a physician licensed under chapter 458 or chapter 459, Florida Statutes, to supervise the dispensing organization’s activities.
Despite being subject to administrative challenges, these new rules were eventually upheld as valid. See Baywood Nurseries Co, Inc. v. DOH, DOAH Case No. 15-1694RP (DOAH 2015).
While the new administrative rules were upheld as valid, litigation over the implementation of the Compassionate Use Act would continue. With the new rules in place, and only limited “slots” available to fill for the coveted licenses, the unsuccessful applicants for “dispensing organization” licenses began challenging DOH’s selection of the five successful applicants. Ultimately, the unsuccessful applicants asserted their rights under the Administrative Procedures Act, and challenged the license decisions of DOH, arguing that the scoring was flawed, and the decisions to award were factually and legally incorrect.
Amendment 2 Passes
While these administrative challenges to DOH’s selection of dispensing organizations were taking place, Amendment 2 was back on the ballot in 2016 and passed by an overwhelming majority of the voters. Importantly, the amendment adopted the use of the broadly defined Medical Marijuana Treatment Centers, unlimited in number by the Constitutional Amendment, as opposed to the limit of only five “dispensing organizations.” The Constitutional Amendment further empowered DOH to create regulations regarding the licensing of MMTCs. See Art. X, § 29(b) and (d), Fla. Const. Importantly, a MMTC is defined in the Constitutional Amendment to be:
…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.
Art. X, § 29(b)(5), Fla. Const. (emphasis added).
Thus, a MMTC is not just a business that treats patients using medical marijuana, it is any business that is anywhere on the medical marijuana supply chain from growing, to transporting, to selling, to even providing educational materials. However, unlike dispensing organizations that were required by statute to be “vertically integrated,” Amendment 2 provided that a MMTC could perform any one of those steps in the medical marijuana process – that is, instead of providing that a MMTC was an entity that “cultivates, possesses, processes… transfers, transports, sells, distributes, dispenses, and administers marijuana,” the Constitution, as the supreme law of land, provided that a MMTC includes any entity that “cultivates, possesses, processes… transfers, transports, sells, distributes, dispenses, or administers marijuana.”
Following the passage of Amendment 2, in June of 2017, the Florida Legislature passed amendments to the original Compassionate Use Act contained in § 381.986, Florida Statutes as enabling legislation purporting to codify the new constitutional amendment. Importantly, this new legislation:
- Converted existing low-THC and medical cannabis dispensing organization licenses into MMTC licenses;
- Provided for an addition 10 MMTC licenses;
- Required that an MMTC shall cultivate, process, transport, and dispense marijuana (i.e., required that MMTCs be “vertically integrated”); and
- Required that DOH create a procedure for issuing MMTC licenses.
§ 381.986, Fla. Stat. (2017).
With regards to the 10 new MMTC licenses, the amendments to the statute limited these additional licenses only to organizations that had applied for a dispensing organization license under the original statute and were either 1) denied the license and had a pending administrative challenge or 2) within one point of the highest final ranking in the particular region. § 381.986(a), Fla. Stat. (2017). Despite the adoption of the Amendment 2 and the new amendments to statute, DOH did not immediately adopt any rules regarding the registering of new MMTCs.
Almost immediately, litigation ensued.
Florigrown, LLC v. Florida Department of Health
Florigrown, LLC is a Tampa, Florida-based medical marijuana business. On January 17, 2017, days after Amendment 2 became effective and before DOH promulgated any rules regarding the licensing of MMTCs, Florigrown applied to DOH to become a MMTC. This application was denied. After the June 2017 legislative changes, Florigrown filed suit, challenging the constitutionality of the “vertical integration” requirement (i.e., the requirement that a MMTC must provide all aspects of the supply chain from growing to dispensing) and the limitation on the number of new licenses.
On August 2, 2018, Judge Charles Dodson issued an order that found that these requirements were unconstitutional as they violated the plain language of Amendment 2. However, Judge Dodson denied Florigrown’s request for a preliminary injunction, finding that DOH’s rulemaking process was still ongoing and that he would allow more time for that process to finish.
However, two months after that order, Judge Dodson found that DOH had made “no significant changes in [its] regulations or [its] action on the application of Florigrown. In other words, the court order was ignored by [DOH].” Based on this finding, Judge Dodson granted Florigrown’s temporary injunction:
(1) immediately enjoining the Department of Health from registering or licensing any MMTC pursuant to the unconstitutional legislative scheme set forth in Section 381.986, Florida Statutes, (2) requiring the Department by 5:00 PM Friday, October 19, 2018 to commence registering MMTCs in accordance with the plain language of the Medical Marijuana Amendment, and (3) requiring the Department to register Florigrown as an MMTC by 5:00 PM Friday, October 19, 2018, unless the Department can clearly demonstrate that such registration would result in unsafe use of medical marijuana by qualifying patients.
DOH appealed this injunction. On appeal, Florida’s First District Court of Appeal agreed that the new legislation was unconstitutional and that DOH should be prohibited from enforcing those unconstitutional provisions. Specifically, the Court found that:
Section 381.986(8)(e) thus creates a vertically integrated business model which amends the constitutional definition of MMTC by requiring an entity to undertake several of the activities described in the amendment before the Department can license it. Under the statute, an entity must conform to a more restricted definition than is provided in the amendment; therefore, all MMTCs under the statute would qualify as MMTCs under the constitutional amendment, but the reverse is not true.
We thus find the statutory language directly conflicts with the constitutional amendment, and appellee has demonstrated a substantial likelihood of success in procuring a judgment declaring section 381.986(8)(e) unconstitutional.
Florida Dep’t of Health v. Florigrown, LLC, 44 Fla. L. Weekly D1744 (Fla. 1st DCA July 9, 2019), review granted, SC19-1464, 2019 WL 5208142 (Fla. Oct. 16, 2019) (emphasis added).
Further, the appeal court certified the following question as one of great public importance to the Florida Supreme Court:
Whether the plaintiffs have demonstrated a substantial likelihood of success on the merits of their claims that the statutory requirements of vertical integration and caps on the number of medical marijuana treatment center licenses as set forth in section 381.986(8), Florida Statutes, are in direct conflict with article X, section 29, of the Florida Constitution?
Florida Dep’t of Health v. Florigrown, LLC, 44 Fla. L. Weekly D2182 (Fla. 1st DCA Aug. 27, 2019).
On October 16, 2019, the Florida Supreme Court accepted jurisdiction of this case and oral argument is set for April 22, 2020.
DOH’s Issuance of MMTC Licenses
While the Florigrown lawsuit challenging the constitutionality of the MMTC statute was pending, DOH was still moving forward with issuing MMTC licenses pursuant to the revised statute and rules that Judge Dodson had found to be unconstitutional. Thus, in addition to awarding the existing dispensing organizations with MMTC licenses, numerous entities that were currently challenging their entitlement to dispensing organization licenses settled their cases with DOH in exchange for MMTC licenses.
The process of litigation and settlement was convoluted and DOH’s response to the mounting legal challenges was chaotic. DOH implemented Emergency Rules to create criteria for determining which challengers would now be eligible, per the amended statute, for MMTC licenses. The key issue was the “One Point Condition” contained in the new statute that allowed an award of an MMTC license to an organization that applied for a dispensing organization license and was “within one point of the highest final ranking in the particular region.” § 381.986(a), Fla. Stat. (2017). The legal conundrum created by the “one point rule” was made clear by Administrative Law Judge John Van Laningham who stated:
The One Point Condition operates retroactively in that it establishes a previously nonexistent basis for licensure that depends upon pre-enactment events. This is analogous to the legislative creation of a new cause of action, involving as it does the imposition of a new duty (to issue licenses) on the Department and the bestowal of a new right (to become licensed) on former applicants based on their past actions.
Nature’s Way Nursery of Miami, Inc. v. DOH, DOAH Case No. 17-5801RE (DOAH 2018).
Nature’s Way challenged these emergency rules, claiming that it was entitled to a MMTC license pursuant to statue as it was within one point of the entity awarded a dispensing organization license, but the new emergency rules would fail to award it a MMTC license.
This challenge led to an in-depth review of DOH’s prior scoring of the dispensing organization license applications. While an entire article could be written on the numerous problems with DOH’s Emergency Rule and original scoring of applicants, ALJ Van Laningham aptly described the problem as a “colossal blunder that turned the scoring process into a dumpster fire.” Id. (emphasis added). Accordingly, he invalidated the emergency rules and found that the scoring methodology used to rank dispensing organization applications was not valid either.
Following this, Nature’s Way and DOH entered into a settlement agreement wherein Nature’s Way would be issued a MMTC license. With this, other challengers appeared and, based on ALJ Van Laningham’s order, DOH quickly settled with them as well, granting eight new MMTC licenses to Spring Oaks Greenhouses, Inc., Redland Nursery, Inc., Dewar Nurseries, Inc, Tree King-Tree Farm, Inc., Perkins Nursery, Inc., Bill’s Nursery, Inc., DeLeon’s Bromeliads, Inc., and Hart’s Plant Nursery Inc., all under one joint settlement agreement.
The hard-fought battle for these MMTC licenses may well be worth the effort, as shortly after receiving MMTC licenses, many entities put them up for sale, including one that was reportedly sold for $53 million.
While the constitutional challenge is still ongoing, DOH has now issued 22 MMTC licenses. If Florigrown’s lawsuit is successful at the Florida Supreme Court, expect those numbers to increase significantly.
Hemp/CBD Statutes and Rules
In 2018, the Federal Hemp Farming Act was signed into law. This act removed hemp (which is defined a cannabis with less than 0.3% THC – compare this to the 0.8% THC content allowed under Florida’s Compassionate Use statute) from the schedule 1 controlled substances list. Further, it enabled states to enact “plans” to regulate the cultivation and sale of hemp. Hemp and CBD are contained in numerous types of products ranging from oils, vapes, pills, skin products, drinks, all the way to “gummy bear” candies.
Moreover, the statutes and rulemaking process for allowing hemp and CBD in Florida appears to be running much more smoothly. The statute and rulemaking process, from the beginning, has been a much more cooperative process, as opposed to the confrontational process that medical marijuana has been. While some disputes and issues have emerged, at this point, the hemp and CBD process has stood in stark contrast to the medical marijuana approval process.
With the passage of the Federal Hemp Farming Act, the Florida Legislature issued wide-sweeping statutes regarding hemp and hemp extracts (“CBD”). In 2019, Florida’s Governor signed into law Senate Bill 1020. This law, codified at Section 581.217, Florida Statutes, sets forth the general guidelines for hemp cultivation and the distribution and sale of hemp extracts. Importantly, these guidelines empower Florida’s Department of Agriculture to implement rules in these areas. These new rules, located at 5K-4.034, Florida Administrative Code, took effect January 1, 2020.
The biggest change is that anyone who cultivates hemp or manufactures or sells CBD for human or animal consumption must be licensed. Guidance from the Department of Agriculture states that this licensing requirement applies to everyone in the distribution and retail chain – including manufactures, middlemen, and the individual stores that sell CBD products.
Further, the statute requires that CBD may only be sold in Florida if it has a certificate of analysis prepared by an independent testing laboratory proving:
The hemp extract is the product of a batch tested by the independent testing laboratory;
- The batch contained a total delta-9-tetrahydrocannabinol concentration that did not exceed 0.3 percent on a dry-weight basis pursuant to the testing of a random sample of the batch; and
- The batch does not contain contaminants unsafe for human consumption.
Fla. Stat. § 581.217(7)(a).
The statute also mandates labeling requirements that include:
- A scannable barcode or quick response code linked to the certificate of analysis of the hemp extract by an independent testing laboratory;
- The batch number;
- The internet address of a website where batch information may be obtained;
- The expiration date;
- The number of milligrams of hemp extract; and
- A statement that the product contains a total delta-9-tetrahydrocannabinol concentration that does not exceed 0.3 percent on a dry-weight basis.
Fla. Stat. § 581.217(7)(a).
The Florida Department of Agriculture has already started sending out enforcement teams to inspect cultivation and retail establishments for compliance with these new laws and regulations.
While the federal government does issue hemp growing licenses, states like Florida can submit hemp production plans to the USDA and, once approved, become the sole licensing authority in that state. Florida has chosen this option. Florida has submitted plans for seed, cultivation, food safety and animal feed. Unfortunately, the cultivation plan had was not approved by the USDA. While the other plans have been approved, cultivation is still at issue.
Due to concerns raised by the USDA, on March 6, 2020, Florida published new proposed rules on hemp cultivation, located at Rule 5B-57.014, F.A.C., that Florida believes will bring its cultivation plan into compliance with USDA rules. These rules include numerous changes, including a requirement that state agents collect a representative sample at least 15 days prior to harvest for sampling to ensure that the THC content does not exceed the regulatory maximum. Assuming there are no challenges to these rules, 21 days after publication, they will be adopted and become effective 20 days after that. After these rules become effective, they will need to be approved by the USDA. Assuming this process goes smoothly, cultivation licenses should start becoming available by the middle or end of summer 2020.
Looking into the Crystal Ball
So, what does the future hold for marijuana and hemp-related industries in Florida? One sure bet is that the industry will be highly regulated. Regardless of the Florida Supreme Court’s ultimate decision in the Florigrown case, Florida’s Legislature and DOH seem intent on making the process as difficult and limited as possible. Even assuming caps on the number of licenses and the vertical integration requirements are stricken down as unconstitutional, it is unlikely that Florida lawmakers will allow a MMTC free-for-all.
While no one can predict what a Court will do, Judge Dodson and Florida’s First District Court of Appeal set forth detailed, well-reasoned positions as to why the statute was unconstitutional. It is likely the Florida Supreme Court will agree. If this happens, the Florida Legislature will need to consider a new regulatory scheme to handle the licensing of MMTCs. Whether the Legislature will allow for the issuance of a MMTC license to any entity that meets a certain set of minimum criteria (unlikely) or set up an new regime that requires DOH to determine the need for new MMTC licenses in a particular area for a particular time period and only issue the “needed” number of license (much more likely), new requirements are likely to be forthcoming.
Regardless of the new rules, one thing that has been consistent throughout this process is that incumbents and entities challenging the current regime have been given a statutory leg-up over their competitors. Any entity thinking about entering the Florida Medical Marijuana market should seriously consider attempting to get in now, even if the current system would prohibit them from getting a MMTC license. As the recent past has shown, even entities that were denied a dispensing organization license but challenged the denial were given MMTC licenses. Challenging the current MMTC licensure system may end up being a good foot in the door for whatever the Florida Legislature comes up with next.
Additionally, recreational marijuana is on Florida’s horizon. While a proposed constitutional amendment for recreational marijuana did not garner enough signatures in time to appear on the 2020 ballot, by 2022 the amendment is expected to have enough votes to appear. That is, of course, unless the Legislature listens to the will of the people and makes it legal before then. In any case, the question of recreational marijuana in Florida is a question of when – not if.
Like medical marijuana, it is expected that incumbent providers will have a regulatory leg-up on recreational marijuana licensing when it finally occurs. Entities that wait for the legal dust to settle on all these issues may end up being too late.
Meanwhile, hemp cultivation licenses are on the horizon. Entities looking to apply for these licensed can review the proposed rules and began preparing to submit applications once they become effective and approved by the USDA. Anyone looking to get in on this process, should start working on their applications now, if they haven’t already.
Florida’s Medical Marijuana statutes are currently up in the air. If the Florida Supreme Court upholds the unconstitutionality of the existing statutes, all new licensing statutes and regulations will be coming. Further, even non-THC hemp and CBD products are coming under increasing regulations. In addition, when recreational marijuana becomes legal in Florida, new statutes and regulations will be added for that.
If you are a business entity thinking of breaking into Florida’s massive medical marijuana market, now may be your time to act. As history has shown, Florida’s Legislature has tipped the scales in favor of incumbents and that is not likely to change. Getting in now, while medical marijuana is in its infancy, may be your only chance (though thorough consideration of its illegality under federal law should be considered as well).
If you have questions about establishing a Medical Marijuana Treatment Center in Florida, please contact an attorney at Smith & Associates for a free consultation.