Missouri tightened the rules. The wait still leaves microbusiness owners vulnerable

Missouri drew its final round of marijuana microbusiness applicants on Sept. 9. The state received 888 applications and expects to issue approximately 77 licenses beginning in December.

I want to write about the months in between, because I work in the trade that operates in them.

I am a consultant. I run licensing, compliance and operations work for cannabis operators, and I have sat across the table from first-time licensees more times than I can count. When the state put new microbusiness rules in place in May, I did not read them as an attack on the trade. I read them as rules aimed at the right problem that stop just short of solving it.

The rules are good ones. They spell out what it means to majority-own and operate a license. They let regulators review ownership arrangements before a license issues rather than after, which is the change that should have come first. They require a compliance course before applying and again after the award. And they require eligible owners to serve as the primary point of contact with regulators during the application process, limiting one of the ways consultants can make themselves indispensable.

All of that reaches the contract. None of it reaches the wait.

Consider what a top-drawn applicant actually holds this fall: the prospect of a license coming as soon as December, a facility they may not have secured, capital they may not have raised and no experience operating in a regulated industry. Forty-six licenses from the first two rounds are active but not yet approved to operate. As of Aug. 18, only 21 microbusinesses were operating. Jimi Poe, who won in the first round and became the first to open a microbusiness dispensary, told the division’s own podcast it took him two years rather than the six months he expected.

That is the exposure. Not necessarily a bad clause. It is a long, unfunded, inexperienced wait, during which somebody will offer to carry it for you.

A wait does two things to a person. It drains cash and it makes them feel behind, and both push toward signing. The offer usually arrives sounding like relief: We will fund the build-out. We will handle compliance. We will run it until you are ready. Some of those offers are honest. Others can look just as reassuring on the first read, which is precisely the problem.

Most people who sign a bad agreement are not careless. They are outmatched. The licensee has never done this before and the person across the table may have done it dozens of times.

So let me be useful rather than righteous, and name some things licensees should watch for when dealing with people in my own industry.

Watch for equity that vests on signature rather than on delivery. Ask why an adviser is receiving ownership before the promised work has been completed, and whether that equity could instead be tied to specific milestones.

Watch for a management agreement wearing a consulting label. If the document hands someone else hiring authority, banking authority or control of the seed-to-sale account, that is not simply advice. Under the new rules, those kinds of provisions could also raise questions about whether eligible owners retain the control Missouri now requires.

Watch for fees calculated against gross rather than net. A percentage of revenue does not care whether the operator ever makes money.

Watch for standard operating procedures that do not describe your building. Everyone starts from a template. But if the document refers to rooms you do not have, nobody walked your facility closely enough.

And ask the question that sorts this trade quickly: Which licensees have you taken from award to operation, and may I speak with them? A consultant with a successful track record should be able to provide references.

Lesley Turek, the division’s chief equity officer, has already offered another safeguard. She has advised current and future licensees to run proposed arrangements or agreements past the division so regulators can identify potential compliance problems. That is an open door, offered by the regulator, and in my experience new licensees do not alwayswalk through it because asking feels like admitting you do not know.

That reading is backwards. Running a draft agreement past your own regulator is among the cheapest diligence available in this industry, and it costs nothing.

The state spent this cycle making the paperwork harder to abuse, which was the right move. What regulation cannot eliminate is the vulnerability created during the months when a new licensee has something worth taking and littleexperience defending it.

That is why the most important protection for Missouri’s newest cannabis entrepreneurs may not be another rule. It may be knowing when not to sign.

This article was originally published by Missouri Independent and is republished by MetroSTL under a Creative Commons license. The reporting is the outlet’s; please support them.