Marijuana farm/Credit: Canna Obscura/Shutterstock.com

Florida's law requiring pot operators to grow, process and distribute cannabis and related products created an "oligopoly" and runs afoul of a constitutional amendment that broadly legalized medical marijuana in the Sunshine State, an appellate court ruled.

The First District Court of Appeal's decision sent shock waves through the state's highly restricted but rapidly growing medical marijuana industry, in which licenses are routinely selling for upward of $50 million.

The three-judge panel's ruling upheld in part a decision issued last year by Leon County Circuit Judge Charles Dodson, who sided with Tampa-based Florigrown in a lawsuit alleging a state law, passed during a 2017 special legislative session, did not properly carry out the amendment.

Dodson issued a temporary injunction requiring state health officials to begin registering Florigrown and other medical-marijuana firms to do business, but the judge's order was put on hold while the state appealed.

Dodson's ruling also struck down a portion of the state law that set a cap on the number of medical marijuana operators in the state, which Tuesday's appellate decision supported.

The amendment, approved by more than 71 percent of Florida voters in 2016, defines "medical marijuana treatment centers" as "an entity that acquires, cultivates, possesses, processes … transfers, transports, sells, distributes, dispenses, or administers marijuana, products containing marijuana, related supplies, or educational materials" to qualifying patients or their caregivers, and is registered by the Department of Health.

Meanwhile, under the state law aimed at carrying out the amendment, "a licensed medical marijuana treatment center shall cultivate, process, transport and dispense marijuana for medical use."

The statute "creates a vertically integrated business model which amends the constitutional definition of MMTC [medical marijuana treatment centers] by requiring an entity to undertake several of the activities described in the amendment before the department can license it," Judges Scott Makar, James Wolf and T. Kent Wetherell wrote in the majority opinion. Makar and Wetherell also wrote separate opinions.

The state law requires entities to "conform to a more restricted definition" than is provided in the amendment, the majority said.

"We thus find the statutory language directly conflicts with the constitutional amendment, and appellee [Florigrown] has demonstrated a substantial likelihood of success" in procuring a judgment declaring the statute unconstitutional, the majority wrote.

"Our ruling that the vertically integrated system conflicts with the constitutional amendment thus renders the statutory cap on the number of facilities in [a section of state law] unreasonable," the judges added.

Tuesday's ruling is "a good thing for the state of Florida," Joe Redner, a Tampa strip-club operator who is one of Florigrown's owners, told The News Service of Florida in a telephone interview.

"If the Legislature can create oligarchies in any field, it's crony capitalism. They're picking winners and losers. And that's not fair. It's not right. It's not constitutional," Redner said.

The appellate court found "it is in the public interest" to require health officials to register medical marijuana operators "without applying the unconstitutional statutory provisions." But that finding "does not support requiring the department to immediately begin registering" medical marijuana operators at this stage of the proceedings, the majority decided.

"While it is in the public interest for the department to promulgate rules that do not thwart the purpose of the amendment," it is also clear that the public interest would not be served by requiring the Department of Health to register medical marijuana treatment centers "without applying other regulations to uphold the safety of the public," the majority wrote.

Gov. Ron DeSantis, who forced the Legislature to do away with a ban on smoking medical marijuana, expressed concern about Florida's vertical integration system shortly after he took office in January.

The governor's legal team is reviewing Tuesday's ruling, DeSantis spokeswoman Helen Ferré said in an email.

Doing away with the caps on the number of medical marijuana operators in Florida would almost certainly cause the value of existing licenses to plummet, a possibility Wetherell addressed in a separate opinion.

The majority's decision "will effectively mandate an immediate change in the entire structure of the medical marijuana industry in Florida," wrote Wetherell, concurring in part and dissenting in part with the majority opinion.

But "although such a change may ultimately be warranted," Dodson and Florigrown failed to show "how the public interest would be served by mandating this change through a preliminary injunction," according to Wetherell.

The statutory scheme put in place by the Legislature and implemented by the health department "appears to be serving the public interest" because, despite a limited number of operators, "it is undisputed that medical marijuana is being produced and sold to qualifying patients," Wetherell wrote, adding that "the confusion and uncertainty that the change would inject into the fledgling industry is not in the public interest."

The court should leave the "carefully-crafted statutory scheme enacted by the Legislature" in place until the lawsuit is finalized, the judge advised.

That would allow existing medical marijuana operators "to join the fray because it is their golden geese that may be killed — or at least devalued — if the oligopolistic statutory scheme established by the Legislature to implement the medical marijuana amendment is ultimately invalidated," concluded Wetherell.

Tuesday's opinion came from a conservative-leaning bench that has frequently sided with the state. The ruling won't result in an overnight upheaval to the state's pot industry, but it will require state health officials to come up with new regulations, which could include caps on licensure.

For example, the state could set limits on the number of growers or on the number of dispensaries or decide to do away with caps altogether.

"While today's decision raises certain questions as to how Florida's medical marijuana industry will be regulated in the future, it will not result in any immediate changes and is not the final word from the courts on the issue," Jim McKee, an attorney who represents a number of medical marijuana operators as well as entities seeking licenses in Florida, told the News Service.

But Florigrown CEO Adam Elend called the ruling a "game changer."

"It drops a bomb on the current licensing scheme. It's just changing the whole regime," Elend said in a telephone interview. "People are not getting medicine. The dispensaries are out of stock all the time. The products are limited, and the prices are high. That's what happens in an oligopoly and that's what we have."

Dara Kam reports for the News Service of Florida.