Surprising opponents – and a lawsuit – are coming out of the woodwork against Missouri’s November referendum to legalize adult use cannabis. Although politically, most opponents seem resigned to the idea that the measure would pass.
“I’m pretty sure it’s going to pass,” said State Rep. Ashley Bland-Manlove, a Democratic legislator from Kansas City who opposes the referendum, known as Amendment 3. “I just want to make sure people know what they’re going to get into. We can’t change it.”
Rep. Bland-Manlove isn’t alone in her criticism of the referendum vote. In fact, Gov. Mike Parson told a gaggle of reporters last week that, “I think that thing’s a disaster.” Asked for more detail, Gov. Parson said, “I think that it could be a real trap.”
Opponents’ biggest concern about Amendment 3 is that, like the state’s 2018 referendum that legalized medical cannabis, it puts detailed rules, such as who can licenses, when, and under what conditions, into the state constitution. In Missouri, constitutional changes require either a majority of the state constitution, or 75% of both houses of the legislature to pass, which is about as close to being carved in stone as you can get.
“It would make sense if we were not dropping an anchor in our constitution, as opposed to language that is much more malleable by the people,” said Brennan England, Missouri Director of Minorities for Medical Marijuana. “Still, each of these cannabis corporations that invested more than $25,000 a piece will continue to invest what they need to get it to pass.”
[Read the Missouri referendum language.]
Also last week, a group of anti-cannabis advocates filed suit in state court to bar Amendment 3 from going on the ballot, arguing that the Secretary of State did not follow proper procedure to validate petition signatures. While the suit is unusual, so was the method of how the signatures were approved, which gives Amendment 3 opponents some hope.
State operators, many of whom played a direct role in writing the language of the referendum’s proposed constitutional amendment, are confident of passage.
“We were one of the largest funders of [pro-referendum group] Legal Missouri and assisted some of the drafting of that language,” boasted John Mueller, CEO of Greenlight Cannabis, which has five dispensaries and a grow facility in Missouri. “We have internal polling in the low 60’s for approval rating.”
Mueller, whose company was operating in Nevada during a similar market shift from medical to legalized adult use, is similarly bullish on what will happen after Amendment 3 passes.
“We’re projecting anything from 2.2 to 2.5 times the current sales on a conservative basis,” he said. The stores on the Illinois side of the [Mississippi] river are doing very well [with Missouri buyers]. We don’t think you’ll see the traffic going east any more.”
“Currently the total market is doing about $400 million annually,” said Ankur Rungta, CEO of C3 Industries, which operates five High Profile dispensaries in Missouri. “I think that goes up probably to $1 billion, maybe 2.5 times, and then I think it ramps up from there. I’ve seen estimates for $1.4 billion over time. I’ve seen higher numbers of 1.6, 1.8 billion over time.”
At this point the state has 191 operating medical dispensaries and 49 cultivators, all of which would be eligible to receive an adult use license soon after referendum passage. That’s a high number of stores per capita – about one for every 32,000 residents. Next door, Illinois just approved 182 new dispensary licenses, which will put the state at about one dispensary for every 40,000 residents.
That high ratio of dispensaries to residents has put intense pressure on prices, along with a stagnating number of patient registrations in 2022. Operators say oversupply and stagnating medical demand is slowing down their industry – they need referendum passage so they can thrive.
“Without it, we are all going to struggle,” said Mitch Meyers, Chair of BeLeaf Medical, and an owner experienced with Colorado and Illinois markets. “It’s always interesting for me to talk to people not part of the industry. They think you get a license and you’re printing money. They don’t realize how many years it takes to pay back capital. WIthout adult use you don’t have enough revenue to pay back that debt.”
Meanwhile, a unique blend of conservatism and libertarianism has led to a stall in patient registrations.
“There is still in Missouri a huge misconception, the whole idea that if you get a med card you have to give up your hunting rifles,” said Adam Diltz, COO of cultivator Illicit Gardens. “There’s a lot of people in the state that are avid hunters and outdoorsmen. They let us know they’re excited legal cannabis is here, but they’ll buy from the black market so they don’t go into some database where they will lose their guns.”
Also, Dlitz says, because Missouri does not require cannabis users to transport product in original packaging, many illegal users get medical cards with no intention of going to a dispensary, but instead use it as an excuse if law enforcement catches them with buds in ziploc bags.
“If you have a medical card and you buy illegal, you can’t be arrested,” said Diltz.
So, with a stagnating medical market, Missouri’s cannabis industry is counting on adult use.
“We’re already talking about how do we put more people through our retail locations. We’re already building out capacity,” said BeLeaf’s Meyers. “You need to get more capacity for when the demand comes. We’re expecting a lot more people, a lot more throughput in the dispensaries.”
Capacity build ups in anticipation of adult use has led wholesale flower prices to take an early nosedive, say operators, from about $3,000 a pound nine months ago, to between $1,000 to $1,500 a pound today.
But, some operators believe the low prices are because of Missouri’s liberatarian bent – once you don’t need to go into a state database to buy weed, all those underground market buyers will come out of the woodwork.
“There’s a lot of [price] compression happening quickly,” said C3’s Rungta. “[But] part of why Missouri will thrive is because it’s very consumer friendly. You’ll have high adoption and high competition from the illicit market.”
As a result, some operators are concerned about a whipsaw effect, where adult use anticipation causes operators to ramp up production, surf on a brief surge in new demand, then crash down as adult use demand normalizes.
“People have overbuilt as we sit today, relative to the medical market, so there’s big bets on the adult use market,” said Greenlight’s Mueller, who believes when it comes to adult use, it’ll be hard for existing companies to afford to build more capacity. “We all know it takes a while to build a facility and get operating. But also the capital markets for expanding in the Midwest: Money is not flowing as much as they are in the East Coast states.”
“We’ve actually scaled down our production. We watched what was coming, with oversupply on the horizon,” said Illicit’s Diltz. “The data is there. There is third party information. Other states are case studies now. All you can do is hope the rest of the industry pays attention to that. An oversupply doesn’t do anyone any good.”
Assuming all goes well in the next 12 months, many Missouri operators assume most cannabis businesses will remain in the same hands, and that the state won’t see a burst of acquisitions following adult use passage.
“You look at big MSOs [multi-state operators], they’re not cash heavy. We have conversations with guys, they’re not looking to do anything right now,” said Diltz, who thinks Missouri will be ignored by the big companies until something like the SAFE Banking Act passes.
“Something that allows MSOs to restructure their debt, you might see some activity,” said Dlitz. “They’re not making bad deals any more.”
