A Missouri appeals court has delivered a sweeping rebuke of the state’s marijuana licensing process, ordering regulators to award Hippos LLC 13 facility licenses after finding the 2019 scoring was inconsistent and, in one case, performed by a grader whose qualifications were never established.
The unanimous ruling lands just weeks after a scathing state audit found the same flaws — erratic scoring, poor documentation and a process so opaque it cast doubt on the integrity of the results.
The decision, issued last week by the Missouri Court of Appeals Southern District, does more than revive Hippos’ long-running challenge over denied cultivation, manufacturing and dispensary licenses. It also undercuts the methodology the Missouri Administrative Hearing Commission has used to resolve cannabis licensing disputes and raises new questions about potentially hundreds of rulings issued in the nearly 850 appeals filed by unsuccessful applicants.
Lisa Cox, spokeswoman for the Missouri Department of Health and Senior Services, which oversees the cannabis program, told The Independent the agency is “evaluating all options,” in terms of appealing the decision.
Hippos officials could not be reached for comment.
When the Missouri Department of Health and Senior Services was working in 2019 to build the framework of the state’s now multi-billion dollar industry, it hired Nevada-based company Wise Health Solutions to score the nearly 2,000 applications.
“In each of Hippos’ applications, there were many instances in which identical answers to the same question received inconsistent scores,” wrote Judge Jeffrey Bates in the ruling. “That should never have occurred if Wise’s scorers had followed the instructions that they were given. Neither the department nor Wise did anything to correct this situation.”
Hippos’ lawsuit challenged the department’s denial applications for two cultivation, six manufacturing and five dispensary licenses.
Their first stop for appealing the denied applications was with the Administrative Hearing Commission, which attempted to rescore Hippos’ applications by picking the most common score for the questions the company was challenging.
The three appellate judges felt the commission’s approach to rescoring “completely flawed.”
“The raw scores provide no evidence of the scorers’ intent because there are no notes explaining why the scores were given,” the ruling states. “The conflict in these unexplained scores cannot be reconciled by simply assuming the more common score for a particular answer is the correct one.”
The judges agreed with Hippos that the commission’s decisions affirming the state’s denial of the company’s applications were “arbitrary, capricious and unreasonable, and these decisions were not supported by competent and substantial evidence on the whole record.”
They remanded the case back to the circuit court with directions that the lower court order the department “to grant Hippos the cultivation, manufacturing and dispensary facility licenses for which it applied.”
No rebuttal
A major blow in the state’s defense, the judges ruled, was that Hippos provided two credible witnesses who testified the applications should have received higher scores – and the judges felt the state didn’t fight back.
The experts were cannabis consultants who had collectively prepared 83 applications in Missouri, the ruling stated, and more than half of their clients’ applications successfully received licenses.
“The department offered no rebuttal to Hippos’ expert testimony and presented no other testimony showing why Hippos should not be given the higher scores about which those experts testified,” the ruling states.
In the department’s response to State Auditor Scott Fitzpatrick’s report released last month, it argued the commission did a “thorough review” of the scoring evidence and heard from many experts during hundreds of appeals.
Cox said the Hippos case was among the first that the commission heard in the process of reviewing the department’s licensing decisions.
“The information the Southern District is seeking – expert testimony supporting the department’s position – has been provided in all subsequent cases and supports the Administrative Hearing Commission’s determination in the Hippo’s case,” she said in an email to The Independent.
The department’s audit response listed several cases where the commission ruled in the department’s favor, and in at least one of the other cases, the commission used the same methodology that the appeals court last week deemed “flawed.”
No notes, no evidence
Hippos challenged the scores given on several questions in the application.
The court found it difficult to justify the scores without seeing any notes on why the grader made them.
“After the commission concluded that it was required to re-score Hippos’ applications due to the noted inconsistencies, the commission stated that it was searching for any ‘evidence’ reflecting the scorers’ subjective evaluation,” the ruling stated. “Obviously, any notes from a scorer about his or her reasons for giving a particular score would have been helpful to show consistency.”
Without any notes, the commission’s decision to use the old scores was “guesswork,” the ruling states.
The lack of notes stems from an instruction in Wise’s training manual, the ruling stated, pointing to the lines: “Don’t write anything that you don’t want everybody to read. Past versions (something deleted) will be discoverable[.] Adhere to this axiom: Say it and forget it; write it and regret it.”
The manual reminded scorers that any emails, notes, or other written materials would be discoverable if any scores were challenged in court, the ruling stated.
In the audit, Fitzpatrick also said these phrases and the lack of notetaking were problematic. In response to the audit, the department said that reading the sentences on their own “fails to consider this language in the context of the rest of the training manual,” and the scorers were encouraged to take notes.
In the lawsuit, Hippos also successfully challenged the credentials of the scorer, which other cases have attempted to do before the commission and failed.
The ruling stated that Wise was required to make sure each scorer had the requisite experience and background to perform their assigned task. In the case of the woman who scored the grades Hippos was challenging, “there is nothing in the record to show that this requirement was met.” The woman didn’t list or describe any experience or background in the cannabis industry or in business evaluation or analysis, the ruling stated.
However, the department has argued that she’s a college professor with good research skills throughout the case. In a 2024 brief, the department pointed out that she also graded three other questions on Hippos applications.
“Yet, Hippos does not criticize her scoring of those questions,” the brief states. “That is because she awarded scores of 10 for each of them.”
The appeals court was unpersuaded.
The unanimous court ruling, taken together with Fitzpatrick’s audit, amount to a devastating assessment on how Missouri awarded licenses that launched its legal marijuana market. It also raises broader questions about other cases in which the Administrative Hearing Commission relied on similar methods to review disputed application scores.
“The commission correctly concluded that the department’s scoring criteria and the scorers’ determinations were based on the subjective valuations of the scorers,” the ruling states. “This fundamental flaw infected the entire scoring process.”
There’s no paywall here.
As a nonprofit newsroom, our articles are free for everyone to access. Readers like you make that possible. Can you help sustain our watchdog reporting today?
