“It’s clear there were some significant issues with how license applications were evaluated and scored that cast a shadow over the program.”
By Rebecca Rivas, Missouri Independent
Missouri State Auditor Scott Fitzpatrick released a scathing report Wednesday on the state’s marijuana program, concluding that missteps in the 2019 licensing process triggered costly litigation and raised persistent questions about whether licenses were awarded fairly.
The nearly three-year audit of the Missouri Division of Cannabis Regulation alleges “perceived and actual deficiencies” in the application scoring process contributed to more than $12.5 million in costs associated with litigation and administrative appeals.
It also raised concerns about the “blind scoring” system used to determine who received lucrative medical marijuana licenses, saying weaknesses in the process make it difficult to verify whether inconsistent results stemmed from error or bias.
“It was a monumental task, and I know it was not easy,” Fitzpatrick said in a press release Wednesday, “but at the same time it’s clear there were some significant issues with how license applications were evaluated and scored that cast a shadow over the program and ultimately cost the state millions of dollars.”
In an equally scathing 23-page response, the division defended its 2019 scoring system and panned Fitzpatrick’s criticisms as “baseless” and “flawed.”
The agency noted Fitzpatrick’s team only reviewed 67 of the applications, or 3 percent, arguing that is too small of a sample to make an overarching claim about the legitimacy of the system.
In 2019, more than 2,000 applications were submitted and ultimately 348 licenses were granted—192 dispensary, 86 manufacturing, 60 cultivation and 10 testing facility licenses. Applicants who were denied licenses could appeal the decision by filing a complaint with the Missouri Administrative Hearing Commission.
Nearly 850 appealed, citing concerns related to inconsistent scoring, conflicts of interest within the contracted scoring company, the division’s authority to limit licenses and other issues, the audit states.
The audit also criticized the division for slowly processing requests to transfer ownership of a license and awarding social-equity licenses to applicants who didn’t meet the requirements outlined in the constitution. It recommends that the division improve its procedures for oversight and monitoring of licensed marijuana facilities, as well as the overall market.
The division was also accused of being “uncooperative” throughout the audit, with Fitzpatrick expressing surprise at the “adversarial tone the department took with our audit team and the repeated attempts agency officials made to undermine the legitimacy of this report.”
Amy Moore, the division director, said this is the first time she has heard the auditor felt that way.
In an interview with The Independent, Moore said the division completed 160 requests for information and had more than 70 staff members working “thousands of hours” to assist in the audit, including interviews and hosting site visits.
“We were not aware at any point that this level of cooperation was considered insufficient,” she said, adding that she would have addressed it.
Moore said despite all the work her team put in, they feel the report has “significant errors and misunderstandings.”
“We will absolutely take what is beneficial and constructive from this,” she said. “We will continue to make improvements, as we always have, and I think we’re ready to close the book on this and move forward.”
Licenses
When the division was working in 2019 to build the framework of the state’s now multi-billion dollar industry, it used a competitive bidding process, the audit states, to award the license application scoring contract to Nevada-based company Wise Health Solutions.
The division allowed applicants to create their own unique identifier, the report states, that they included on supporting documents. For example, the company BBMO 3 LLC used the identifying number BBMO0003, while the group Nirvana Bliss III’s identifier was NIRV0003.
Fitzpatrick argues the division should not have permitted these identifiers because “graders or reviewers familiar with the applicant could potentially deduce the applicant’s identity.”
Of the 67 facility license applications reviewed by the auditor’s office, 12 applications, or 18 percent, included identifiers that the auditor’s office felt could be recognizable. Of those, 83 percent were granted licenses.
That’s compared to the rate of 15 percent for the overall population of applications, meaning applicants who chose potentially recognizable identifiers were almost six times more likely to get a license than those who didn’t.
“What was meant to be a blind scoring process was able to be circumvented by applicants who provided indications of their identity throughout their applications,” Fitzpatrick said, “and the numbers show applicants who did that won licenses at a greatly increased rate compared to those who followed the rules and remained anonymous.”
The division pushed back in its response, saying scorers only graded one or two questions of an application to ensure that no grader would have undue influence over any application.
“Due to the small sample size and lack of evidence to the contrary,” the division’s response states, “it is speculation that these applicants received licenses at this rate because of their [identifier] and not due to the merit of their responses.”
The division argued allowing applicants to provide their own identifier saved regulators from having to create a number and include it on documents manually. They also argued the risk of having graders identify applicants was “small.”
“Manually adding an anonymous identifier to hundreds of thousands of documents presented logistical challenges and created new risks,” the division said, “such as errors or perceptions of agency manipulation of applicant responses.”
Moore said that over five years of extensive litigation through the administrative appeals, there’s never been any evidence that a grader knew the identity of an applicant. And fewer than 1 percent of challenges, she said, have been successful.
“That has been examined thoroughly,” Moore said. “And on the contrary, we have numerous decisions and we can now know without a doubt that the scoring system was implemented in a way that protected anonymity, it provided impartiality and resulted in highly consistent scoring.”
But in a system where small differences in scores made a big difference, Fitzpatrick said, even minor inconsistencies could determine who walked away with a lucrative license and who didn’t.
“Generally speaking, the scoring was tight,” Fitzpatrick told The Independent Wednesday. “A slight shift in score one way or the other could have resulted in a license being granted or not being granted.”
It’s impossible to say whether the scorers used the information “nefariously,” Fitzpatrick said, “but we also can’t say that they didn’t, and that’s, I think, the concern that should be taken from that. It created a huge risk.”
Adding to the confusion, the audit found, was the fact that scorers were instructed by Wise Health Solutions to take limited notes while scoring applications to reduce the records available in the event of lawsuits.
The auditor’s accusation unearths a line of questioning that lawmakers on a Missouri House legislative oversight committee began in 2020 regarding potential conflict of interests between marijuana industry leaders and leaders of Wise Health Solutions.
Lawmakers were, in part, investigating whether groups behind Wise Health Solutions were acting as consultants for applicants that the company eventually ended up scoring.
The committee’s inquiry was cut short by the pandemic.
Inconsistent scores
The audit’s review of the 67 applications found identical answers were often given different scores.
It identified 59 instances involving 14 of the 67 applications reviewed, or 21 percent, in which two applicants submitted identical, nearly identical or substantially similar responses and the grader assigned different scores. The audit also identified 38 applications (57 percent) in which at least one response that met the minimum criteria of the evaluation question was assigned a score of zero.
The division provided a number of appeal case decisions where the Missouri Administrative Hearing Commission weighed in on the issue.
In one case, a scorer gave 764 applicants, or 63 percent, a score of zero for one question. Commissioner Philip Prewitt stated in his 2022 decision of the Missouri Delta Cannabis Company LLC’s appeal that the scoring “though harsh, was not inconsistent.”
“For us to review the responses and put our own valuation on them would make the scoring not follow the impartiality and consistency that the regulations call for,” Prewitt stated.
The division argued that in “years of litigation,” the commission has reviewed analysis by experts, including University of Missouri professor Wes Bonifay, an expert in measurement theory. Bonifay reviewed answers to all the application questions and found they had a 98 percent average consistency, which he called “very reliable.”
Commissioners found Bonifay’s analysis “reliable and useful,” in at least one appeal decision.
The audit notes the division improved its processes throughout the audit period, but many licensees were allowed to operate without required inspections. And when regulators “did perform inspections, passing grades were sometimes given without the licensee proving compliance.”
Fitzpatrick found the division performed minimal inventory inspections to ensure cannabis was not being diverted into the black market.
Other findings in the report include the division failing to process business change requests timely or to adequately track the progress of the requests and officials approving microbusiness licenses that were not compliant with constitutional requirements and state regulation.
It also concludes the statewide track and trace system, Marijuana Enforcement Tracking Reporting & Compliance (Metrc), does not currently have the capability to identify purchases over the legal transaction quantity limits in real time.
The division pushed back on all these claims, even stating some were “egregiously inaccurate.” Regulators argued all licensees must go through rigorous inspection to begin operating, and ongoing inspections may look different than other industries because they could be in person or a review of Metrc records.
The division argued the auditor’s team “has not understood basic concepts” of marijuana regulations and licensing.
“The [State Auditor’s Office] has failed to obtain the proper expertise,” it wrote, “to legitimately review DHSS’ performance in cannabis regulation.”
Fitzpatrick praised his team’s efforts digging into a program that makes up 20 percent of the state’s constitution.
“Hopefully parts of the report could be a benefit to the department in the immediate future,” he told The Independent, “and hopefully other parts of it can be a benefit to other state agencies down the road, if they have to go through a similar process that DHSS went through with the cannabis programs.”
This story was first published by Missouri Independent.
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