Vertical Integration Upheld By The Florida Supreme Court in Florigrown; What Now?

Cannabis Blog
May 28, 2021

The long awaited Florida Supreme Court decision in Florida Department of Health v. Florigrown, LLC dropped yesterday. Quick recap—this case challenged the Florida’s medical marijuana regulatory scheme, which required license holders to be vertically integrated (i.e., participate in all segments of the cannabis business from cultivation to dispensing). In 2017, Florigrown challenged this framework on a number of constitutional grounds, including that the mandatory vertical integration and caps on licenses were inconsistent with the Florida Constitution, and that portions of the enabling legislation (most specifically F.S. 381.986(8)(a)(2)(a), which awarded licenses to the one-pointers) were special laws granting privileges to private corporations. The lower courts found a substantial likelihood that Florigrown would prevail on these claims and granted an injunction in Florigrown’s favor to preserve the status quo in the state with regards to issued MMTC licenses. This meant a halt on issuing any new medical cannabis licenses (which number was supposed to track with the number of registered patients in the state), and generally had a chilling effect on Florida’s cannabis market due to the uncertainty of the value and viability of existing licenses. Importantly, it is in the context of injunctive relief that this case was appealed all the way up to the Florida Supreme Court.

Yesterday, the Supreme Court quashed the existing injunction and held that Florigrown does not have a substantial likelihood of success in its challenge to Florida’s medical marijuana scheme. To better understand what that means, it is important to know that injunctions are extraordinary relief that should be granted only when the party seeking the injunction (in this case Florigrown) has established four elements: (1) a substantial likelihood of success on the merits, (2) the unavailability of an adequate remedy at law, (3) irreparable harm absent entry of an injunction, and (4) that the injunction would serve the public interest. The standard of review for injunctions is complicated. First, any factual findings are reviewed for competent substantial evidence in the record. Next, any legal conclusions and constitutional questions are reviewed de novo (from the beginning). Then, to the extent there is an element of judicial discretion, the exercise of that discretion is reviewed for abuse. Here, Florigrown’s questions were largely of constitutional interpretation and interplay so the Supreme Court reviewed much of the matter de novo and was largely unfettered by the lower courts’ findings. In the end, the Supreme Court found that “Florigrown has failed to show a substantial likelihood of success on the merits of its constitutional challenges” because F.S. 381.986(8) (vertical integration and license caps) was likely constitutional.

Although the decision was made through the lens of injunctive relief, we suspect it will effectively end this issue. The final footnote of the majority’s opinion does state that “[o]ur conclusions…on the merits of Florigrown’s claims…should be understood as limited to the point that Florigrown has not established a substantial likelihood of success on the merits of its claims, based on the arguments and evidence presented in this proceeding.” Taken literally, this footnote means that Florigrown simply failed to prove at the preliminary stage that it had a substantial likelihood of success on the merits, but that it will continue to have the opportunity to so prove in the merits phase of the litigation that will now continue in the lower court. Practically speaking, however, the Florida Supreme Court has spoken and we would be surprised if any lower court judge failed to read the tea leaves of the Supreme Court’s opinion. It seems abundantly clear that the Florida Supreme Court, which would be positioned to review any further decisions from the lower courts, believes that Florida’s existing vertical infrastructure and regulatory scheme is constitutional. We anticipate that the lower courts will follow that guidance, and the state will proceed to issue new, vertically-integrated licenses to select companies as patient population numbers grow. Correspondingly, the value and saleability of existing licenses will at least stabilize, if not rise.

The big takeaway is that vertical integration for Florida’s medical marijuana program is likely here to stay—now it’s time to issues more licenses so that patients can have adequate access. For assistance with Florida licenses or questions about the process, please contact us and be sure to follow our blog to stay up to date on Florida and everything else concerning the cannabis industry.

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