Florida’s First District Court of Appeals issued an opinion in Florida Dept. of Health, et al. v. Florigrown, LLC, Case No. 1D18-4471, last week. The court’s ruling upended Florida’s medical marijuana industry by deeming the state’s current regulatory scheme—and by extension the cap on the number of licenses—unconstitutional.
By way of background, in 2016 Florida overwhelmingly passed a constitutional amendment allowing for the production, possession, and use of medical marijuana. The Florida Department of Health subsequently crafted a regulatory scheme under which a small number of licenses were awarded to a select few cannabis companies. The licenses provided for industry-coveted vertical integration, meaning a company could grow, process, and dispense marijuana under a single license.
After being denied a license, Florigrown (a Tampa-based company) filed a lawsuit challenging the constitutionality of the state’s licensing scheme. Florigrown argued, and the appellate court agreed, that the implementing regulations were unconstitutional because they mandated vertical integration, a business model that requires an entity to undertake several of the activities described in the constitutional amendment. The amendment, however, imposed no such requirement and its plain reading allows an entity to participate in any one aspect of the marijuana business, i.e., to cultivate, process, or dispense. “The State may not regulate an industry governed by a constitutional amendment in such a manner that would severely restrict or diminish the industry,” according to the appellate court. Indeed, Florida’s medical cannabis market was one of the most restrictive in the country under the challenged regulatory scheme, and one regularly beset by product shortages.
This ruling has widespread implications for both businesses and patients, as it potentially cracks the market open for new entrants at various levels of the industry. For the Department of Health, this decision is perhaps the death blow in what has already been a losing battle to maintain the strict regulatory scheme. We expect an overhaul of the current regulatory scheme and license cap in the near future, and will continue to monitor the situation and report on any significant developments.
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