“The department’s scoring criteria and scorers’ decisions were based on the subjective ratings of the scorers. This fundamental flaw tainted the entire scoring process.”

By Rebecca Rivas, Missouri Independent

A Missouri appeals court has issued a sweeping rebuke of the state’s marijuana licensing process, ordering regulators to issue Hippos LLC licenses to 13 facilities after 2019 scoring was inconsistent and, in one case, after a grader had never established the ratings.

A unanimous verdict is issued after a few weeks A rigorous state audit found the same errors-irregular scoring, poor documentation and a process so opaque that the integrity of the results was in doubt.

Last week’s decision by the Missouri Southern District Court of Appeals does more than revive Hippos’ longstanding challenge over denied cultivation, manufacturing and dispensary licenses. It also undercuts the methodology Missouri’s Administrative Hearing Board has used to resolve cannabis licensing disputes and raises new questions about hundreds of potential rulings in 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 that the agency is “evaluating all options” in terms of appealing the decision.

Hippos officials could not be reached for comment.

As the Missouri Department of Health and Aging Services worked to build the state’s multibillion-dollar industry framework in 2019, it hired Nevada-based Wise Health Solutions to source nearly 2,000 applications.

“In each of Hippo’s applications, the same answers to the same question received consistent scores in many cases,” Judge Jeffrey Bates wrote in the ruling. “This should never have happened if Wise’s scorers had followed the instructions given. Neither the department nor Wise did anything to correct this situation.”

The Hippos lawsuit challenged requests for denials of two cultivation, six manufacturing and five dispensary licenses.

The first stop to appeal the denied applications was with the Administrative Hearing Board, which tried to recover Hippos’ applications by choosing the most common score for the questions the company challenged.

The three appeals judges found the commission’s approach to reinstatement “completely flawed”.

“The raw scores do not provide evidence of the intent of the scorers, as there is no note explaining why the scores were given,” the ruling said. “The conflict of these unexplained scores cannot be reconciled by assuming that the most common score for a given answer is correct.”

The justices agreed with Hippos that the commission’s decisions affirming the state’s denial of the company’s requests were “arbitrary, capricious and unreasonable” and that those decisions were not supported by competent and substantial evidence at all.

The case was remanded to the circuit court, with the lower court ordering the department to “grant Hippos the requested cultivation, manufacturing and dispensary facility licenses.”

No rejection

A major blow to the state’s defense, the judges said, was that Hippos provided two credible witnesses who testified that the petition should have received higher scores, and the judges believed the state did not back down.

The experts were cannabis consultants who collectively prepared 83 applications in Missouri, the ruling says, 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 as to why Hippos should not have been given the higher score that the experts testified to,” the ruling states.

In its response to State Auditor Scott Fitzpatrick’s report released last month by the department, it argued that the board had conducted a “thorough review” of the scoring evidence and heard from many experts on hundreds of appeals.

Cox said the Hippos case was one of the first 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 of the following cases and supports the Administrative Hearing Board’s decision in the Hippos case,” he said in an email to The Independent.

The department’s audit response listed several cases in which the commission ruled in favor of the department, and in at least one other case, the commission used the same methodology that an appeals court last week called “flawed.”

No notes, no evidence

Hippos challenged the scores given to various questions in the application.

The judge had a hard time justifying the scores without seeing the grader’s notes on why they made them.

“After concluding that it was necessary to re-score Hippos’ applications due to the inconsistencies noted by the commission, the commission stated that it was looking for ‘evidence’ that reflected the subjective evaluation of the scorers,” the ruling stated. “Obviously, any notes on a scorer’s reasons for giving a particular score would be helpful to demonstrate consistency.”

Without notice, the ruling said the board’s decision to use the old sheet music was “inventive.”

The lack of notice comes from an instruction in Wise’s training manual, the ruling said, pointing to the lines: “Don’t write anything you don’t want everyone to read. Past versions (something deleted) can be found(.) Adhere to this axiom: Say and forget; write and regret.”

The handbook reminded them that e-mails, memos, or other written materials could be discovered if any scores were challenged in court.

During the audit, Fitzpatrick also said those sentences and the lack of note-taking were problematic. In response to the audit, the department said reading the sentences on its own “does not consider that language in the context of the rest of the training manual,” and raters were encouraged to take notes.

In the lawsuit, Hippos also successfully challenged the scorer’s credentials, something they had tried and failed to do before the commission in other cases.

The ruling stated that Wise was required to ensure that each scorer had the experience and background to perform their assigned role. In the case of the woman who got the grades Hippos challenged, “there is nothing in the record to show that that requirement was met.” The woman did not list or describe any experience or background in the cannabis industry or business evaluation or analysis, the ruling said.

However, the department has argued that he is a university professor with good research skills in the entire case. In a 2024 brief, the department noted that it also graded three other questions about Hippos applications.

“However, Hippos does not criticize the scoring of these questions,” he said short the states “Because they gave each of them a score of 10.”

The appeals court was not convinced.

Unanimous court the verdictAlong with Fitzpatrick’s audit is a sweeping assessment of how Missouri has issued licenses that launched its legal marijuana market. It also raises broader questions about other cases in which the Administrative Hearing Board has relied on similar methods to review disputed application scores.

“The board correctly concluded that the department’s scoring criteria and scorers’ decisions were based on the subjective assessments of the scorers,” the ruling states. “This fundamental error tainted the entire scoring process.”

This story was first published by the Missouri Independent.

Photo elements courtesy of the user rawpixel and Philip Steffan.