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April 30, 2024 |  By: Rebecca Rivas - Missouri Independent

Companies tied to out-of-state firms appeal revocation of social-equity cannabis licenses

marijuana

By Rebecca Rivas - Missouri Independent

Two Missouri social-equity licensees connected to a Michigan company that used Craigslist to recruit applicants have appealed the state’s decision to revoke their dispensary licenses. 

The Michigan company, Canna Zoned, was behind two of the 16 microbusiness dispensary licenses issued by lottery in October — Frankenstein Enemy LLC in Columbia and Seashore Rhythm LLC in Arnold. Both licenses were revoked on March 27.

Their appeals will be argued before the Administrative Hearing Commission on Sept. 26. 

Missouri’s microbusiness license program is meant to boost opportunities in the industry for businesses in disadvantaged communities, and it was part of the constitutional amendment to legalize recreational marijuana that voters passed in 2022. 

The program is designed to provide a path to larger facility ownership for individuals who might not otherwise easily access that opportunity, such as having a net worth of less than $250,000 or veterans with a service-connected disability. 

The microbusiness license must always be majority owned and operated by individuals who meet these eligibility criteria. 

According to the revocation notices for the Canna Zoned-backed licensees, cannabis regulators were unable to verify the licenses would be owned and operated by eligible individuals. 

Canna Zoned’s owner, Jeffrey Yatooma, was listed as the “designated contact” for the two licenses, and the purported owners of the licenses told the state they did not know who Yatooma was, according to the notices. 

“While owning and operating a license may include contracting for management services or consulting services, the lack of knowledge, control, agency or decision-making demonstrated by the individual used to meet eligibility does not meet even the most liberal understanding of owning and operating a business,” the letter from Missouri regulators states.  

Illinois resident Aric Rybacki is listed as the owner of Seashore Rhythm, and he told The Independent he had no comment in a phone conversation Monday. Curtis Floyd, owner of Frankenstein Enemy, did not respond to a request for comment. 

State records show Yatooma was listed as the designated contact on 104 out of the 1,048 applications that were entered into a lottery selection for the dispensary licenses. An investigation by The Independent in October found applicants said that they thought they were partnering with the Michigan investor but had signed agreements requiring them to relinquish all control and profits of the business.

The Independent obtained an agreement between a Missouri social-equity applicant who did not win a license and Canna Zoned. It stated that he must appear to have 100% ownership interest on the application but wouldn’t get revenue or profits from the business. 

After the business passed through all the state and municipal approvals, the contract stated the applicant would be required to sell his share of the business for $1 to the group or be held in breach of contract. 

Frankenstein Enemy’s attorney, Nadeem Harfouch, did not deny that the agreement described in The Independent article existed, in a Jan. 12 letter sent to the Division of Cannabis Regulation that was included as part of the appeal documents.

And Harfouch acknowledged that such an agreement wouldn’t be legally enforceable. 

“Even if the ‘agreement’ described in the news articles exists between licensee and the eligible owners, such an ‘agreement’ would not meet the requirements for transfer of ownership stated in the regulations and would be of no effect,” the January letter states. 

Harfouch states that The Independent’s Oct. 26 article quoted people who weren’t the license winners and their comments “have no bearing on the application that was submitted.” 

The letter also accused state regulators of “cowering” to the press. 

“The department is bowing to public pressure to revoke licensee’s license for arbitrary reasons completely disconnected from the statutory requirements,” it states.

Another company that used the strategy of flooding Missouri’s lottery with applications was an Arizona-based consulting firm called Cannabis Business Advisors. It was connected to more than 400 dispensary applicants, including six winners. All six of the group’s licenses were revoked. 

According to the Division of Cannabis Regulation, the “purported majority owners” of the eight revoked licenses lacked knowledge of agreements or operations of the license — and in some cases did not know the person who applied for the license on their behalf.

The Arizona group has submitted appeals for all six licenses, said Sara Gullickson, founder and CEO of the consulting firm. The cases are not yet available on the Administrative Hearing Commission portal. 

Gullickson told The Independent last month that the state decision was “severely unjust.”

The revocations, she said, “irreparably penalized the qualified social equity applicants who were awarded the life-changing opportunity to become successful cannabis entrepreneurs and provide generational wealth for their families.”