Missouri’s social-equity cannabis program has struggled to get off the ground since it began in 2023, with state regulators routinely revoking business licenses for relying on contracts they’ve publicly characterized as “predatory.”
As it turns out, the attorney who crafted most of those contracts also represents the marijuana industry trade group, whose leaders helped create the microbusiness license program to diversify the market and ensure its benefits went to communities most impacted by the war on drugs.
Eric Walter is a St. Louis-based attorney who represents the Missouri Cannabis Trade Association and a significant percentage of the state’s cannabis licensees. He wrote 22 agreements the state believes would take the microbusiness licenses out of the hands of eligible applicants and put them into the hands of well-connected or out-of-state cannabis investors, according to the administrative appeal case documents obtained by The Independent.
Each of those agreements largely led to the state revoking a microbusiness license issued last year for not meeting the constitutional mandate that the licenses be “majority owned and operated” by eligible applicants. All but one of the license revocations is being appealed to the Missouri Administrative Hearing Commission.
To be eligible for a microbusiness license, applicants must meet certain criteria, including income below certain thresholds, having past marijuana offenses or being a disabled veteran.
Walter’s law firm and the consulting companies who hired the firm to draw up the agreements have vehemently denied the contracts are predatory, arguing the applicants voluntarily signed them.
“Those documents are all transparent, fair, and compliant with Missouri law, including the Department of Health and Senior Services’ rules,” Jamie Moss, spokeswoman for Walter’s law firm, Armstrong Teasdale, said in an email to The Independent.
Walter’s bio boasts being an “influential advisor to the industry” and a member of the committee responsible for drafting the marijuana legalization amendment that created the microbusiness program.
Andrew Mullins, executive director of the Missouri Cannabis Trade Association, or MoCann, praised Walter’s legal acumen on behalf of the industry, though he didn’t respond to questions about the revoked licenses.
“Eric Walter is unquestionably one of the top cannabis lawyers in the Midwest,” Mullins said in an email to The Independent, “and MoCannTrade benefits greatly from his expert legal counsel.”
But legal experts who reviewed the contracts for The Independent say the agreements are an attempt to establish front companies and manipulate the system.
Nimrod Chapel — an attorney, president of the Missouri NAACP and former chairman of the Administrative Hearing Commission — called the agreements “a trick” that results in eligible applicants “receiving little to nothing.”
“This system — because that’s what it is — it’s a system to divest people who are truly or could be truly deserving underneath the constitutional amendment,” Chapel said.
The contracts written by Walter gave applicants two years to pay back loans that can total up to $2 million. If they couldn’t, they’d have to pay a “break-up fee” of up to $2.5 million or give up ownership of the license transfers to the loan holder, according to the state’s response in several of the appeals.
“Therefore, the business would likely be unable to generate revenue to pay back the loan,” the state argues in one of the legal filing responding to a revocation appeal. “This leaves them no option but to convert the debt into ownership.”
In most cases, the same people involved in the consulting company that hired Armstrong Teasdale to draw up the contract are also involved in lending the money.
For the last two years, The Independent has documented a pattern of well-connected groups and individuals flooding the microbusiness lottery by recruiting people to submit applications and then offering them contracts that limit their profit and control of the business.
A majority of the revoked licenses followed this pattern.
Walter’s agreements are nearly identical to a contract The Independent obtained last year circulated by John Payne, who led the campaign to legalize recreational cannabis in 2022. Armstrong Teasdale denied having anything to do with Payne’s agreement.
The consultants who hired the firm
For 16 of the 22 revoked licenses connected to Walter, the contracts were between the applicants and a consulting firm called Goldengrain Ventures LLC. The contracts were signed by Arizona-based cannabis investor Michael Halow, according to exhibits submitted in the licensees’ appeals.
Four of the revoked licenses involved the consulting companies MO Microbusiness LLC and W2 Industries, with either David Brodsky or Scott Wootton signing as managers. Brodsky and Wootton are MoCann board members and “micro reps,” in addition to being investors in the industry.
Two involved the consulting firm Great Granny Gertie LLC, where Springfield-based investor Thane Kifer signed as the company’s manager.
A person can only be the owner of one microbusiness license.
Information on the cannabis microbusiness program posted by the Missouri Department of Health and Senior Services on its website.In an email to The Independent, Halow said he’s confident the Administrative Hearing Commission will reverse the revocation decisions.
“The agreements were designed to create a relationship where these businesses can become operational in a highly competitive, capital-starved industry,” he said. “The marijuana microbusiness program was supposed to open doors and provide social equity and promote diversity within the legal cannabis industry.”
Halow said he can’t control how others “subjectively characterize the agreements,” but he is “focused on our clients’ gratitude and satisfaction with the agreements.”
Brodsky said in an emailed statement the licensees he’s involved with “do not feel exploited. They feel abandoned by the state and targeted for simply trying to raise capital to build a thriving business.”
None of Brodsky’s clients were willing to speak with The Independent because of the pending appeals, he said.
Wootton and Kifer did not respond to requests for comment.
Walter wrote letters to the Missouri Division of Cannabis Regulation in November stating that Armstrong Teasdale represented all four of those consultant companies, according to exhibits submitted as part of the appeals process. He argued applicants are allowed to enter into agreements that would transfer ownership in the future.
“Intentions and possibilities are not reality,” Walter states, “and until and unless the company takes any affirmative action that actually violates the rules, no basis for discipline exists.”
The state couldn’t comment on Walter’s argument in his November letter due to active litigation, said Lisa Cox, spokeswoman for the Missouri Department of Health and Senior Services, which houses the division.
“However, generally, the department reviewed many circumstances, specific to each licensee, before concluding a license was not awarded to eligible individuals who owned and operated the microbusiness,” Cox said.
Last year, state cannabis regulators warned that companies were applying for microbusiness licenses “on behalf of qualified individuals with promises of future ownership in the license” but giving them agreements to sign that stated otherwise.
“Eligible individuals should exercise caution in accepting such arrangements,” the division stated in a press release last year, “as some of the solicitations may be predatory in nature.”
How the social equity program came to be
In 2022, leaders of the campaign to legalize recreational cannabis faced a major hurdle.
Black business owners were largely excluded from the medical marijuana program when licenses to grow and sell cannabis were doled out by the state in 2019. Many feared history was about to repeat itself despite the fact that Black Missourians were 2.6 times more likely to be arrested for marijuana possession than white Missourians.
So to soothe the concerns and win over skeptics, MoCann’s leaders partnered with Black community leaders and cannabis advocates to come up with the microbusiness license program.
But of the 105 microbusiness licenses issued so far, 35 have been revoked, including the 22 involving contracts drafted by Walter and Armstrong Teasdale.
Attorneys who reviewed the contract for The Independent concluded they were unfair and potentially predatory. All four agreed state cannabis regulators should reject any license application connected to the contract because it violates the constitutional mandate requiring licenses to be “majority owned and operated” by the eligible applicant.
Mike Wolff, a former chief justice of the Missouri Supreme Court and dean emeritus of the St. Louis University Law School, said the state has a “serious argument” behind its actions.
The cost to apply for a microbusiness license is $1,500, and those applications are entered into a lottery. If picked, a person could come away with a license that’s worth $1 million to $2 million.
However, in all but two cases, the contract offers to pay the application cost and lend startup money, in exchange for the applicant to walk away with less than 10% of the profits.
The contract requires the eligible applicant to set up an LLC with a three-member board. The applicant has only one vote on the board. And if they ever want to walk away, they are required to pay their consultant a “break-up fee” of up to $2.5 million.
Two years after signing the contract — or around April 2026 — the applicants would have to transfer ownership to the company lending the licensee $1 million or more in startup costs, or pay the break-up fee. Failing to do these steps would be a breach of contract.
“Given the drafted and executed documents, the intent to transfer ownership and operational control to another entity is apparent,” the division stated in a document submitted as part of the appeal.
There was no indication in any document that an eligible ownership would be maintained, the state said in its filing, or proof of eligibility for “the new owners.”
Halow told The Independent the division is “entitled to its opinion, but it does not reflect the commercial reality or the range of options available to our microbusiness owner clients.”
Michael Goldberg, managing partner of the Chicago-based firm Goldberg Law Group that specializes in health care, administrative and cannabis law, said the contract “should not get past the state.”
Joseph von Kaenel, a St. Louis corporate governance attorney, said the state’s reasoning for revoking the licenses is “pretty obvious.”
“These people are trying to find a disadvantaged person and have them front the deal,” he said. “And the way it’s set up, the disadvantaged people are more likely than not going to be thrown out.”
Von Kaenel worked for Armstrong Teasdale from 1972 until he was required under a firm policy to retire in 2014 after he turned 70. He sued the firm for severance and lost his case.
Von Kaenel, Wolff and Chapel likened the arrangement to companies “abusing” public contracting dollars meant to empower minority businesses by, as Von Kaenel put it, “finding a woman or minority to front the business.”
But the harshest criticism came from Adolphus Pruitt, president of the St. Louis chapter of the NAACP who served on the committee that helped write the 2022 legalization amendment.
Pruitt compared the contract to “the slave owner giving me some land to work on. It’s their company, they put up the capital, they’re preparing the applications, they’re paying the fees, they’re managing the business. And if at any time me as the slave fails to do something, I owe them.”
Changing the rules
Armstrong Teasdale didn’t comment on accusations that the contracts are predatory, instead offering a general statement.
“As lawyers our job is to help our clients attain their business goals within the bounds of the regulatory and legal framework that exists,” Moss said in an email to The Independent. “That is exactly what we did here and what we do every day to assist our clients.”
However, Walter addressed the accusation in his letter to the division.
The state regulators’ notice of pending revocation for these licenses, he wrote, reflect their “disapproval” of companies like his clients.
“But (the Missouri Division of Cannabis Regulation) knew those relationships existed during the first round of microbusiness license applications,” he said, “and it took no steps to prohibit such relationships or alter the license application to prevent them.”
Walter pointed to the guidance the division published on April 4, 2024, “specifically acknowledging the existence of such relationships and characterizing them as potentially predatory.”
In his clients’ agreements, the applicants had to say they “reviewed and understood” the guidance, he wrote in his letter.
“Absent any other changes to the rules or guidance regarding microbusiness applicants working with consultants, the licensee was entitled to reasonably conclude that (the division) had no broad policy objection to applicants working with a company like consultant,” the letter states.
Walter also argues that his clients invested significant resources assisting applicants in the spring of 2024, “because it reasonably relied on the absence of any rules amendments or DCR guidance prohibiting its business model.”
Amy Moore, director of the Missouri Division of Cannabis Regulation, speaks with a microbusiness owner at the National Cannabis Industry Association’s summit in St. Louis in 2024 (Rebecca Rivas/Missouri Independent).In an email last week, Cox said the department couldn’t comment on Walter’s letter specifically due to litigation, but said the state ramped up education about the requirements for microbusiness licenses before applicants applied to the program in spring 2024.
“It is up to the applicant to ensure its specific arrangements, agreements, and partnerships follow the law and the department’s guidance,” Cox said.
Walter sent his letter one month before the division announced new proposed rules for its marijuana microbusiness program designed to address the issue.
Those rules are still not officially in effect, as they wind through the normal promulgation process that could take up to eight months.
Chapel said the problem isn’t that people don’t know the rules. The state has rules about “good faith and fair dealing,” he said, but it does not seem to be honored when “working people” seek entry into the cannabis industry.
“It’s tragic, really, because in those rare cases where the state actually shines a light and finds fraud or predatory practices, the industry doesn’t step up to do better,” he said.
It’s not the first time the state has seen “the forces of industry dividing Missouri,” he said, where the working-class pays the cost while someone else reaps the benefit.
“So here we are again, talking about whether we need a regulation for every single abuse, every single loophole, every single trick,” Chapel said. “Missourians deserve a system that is transparent, accountable, and fair — not one that rewards predatory contracts and strips opportunity away from the very communities this program was supposed to lift up.”
Rieden Harlow-Rivas contributed to this report.