The largest cannabis retail chain in Missouri, one of the country’s strongest markets, is the mastermind behind an illegal price-fixing “cartel” that used shady tactics to amass a bigger market share than what’s allowed by law, a new lawsuit alleges.
The allegations against Good Day Farm, Greenlight and three other cannabis retailers come in a class-action lawsuit filed Tuesday in Missouri state court by two licensed cultivators and manufacturers.
According to court records, Vibe Cannabis and Local Cannabis Companies allege the retailers used shell companies to evade state law limiting ownership to control “at least” 61 of Missouri’s 224 permitted cannabis stores.
That’s “almost three times higher” than what state law allows, attorney David Feuerstein told Kansas City, Missouri-based Fox4.
The retailers, led by Good Day, then wielded their subsequent disproportionate market power to engage in illegal price fixing that depressed wholesale prices for cannabis cultivators “by more than 20%,” the lawsuit alleges.
Is Missouri cannabis run by an illegal ‘cartel’?
In an emailed statement, a spokesperson for Arkansas-headquartered Good Day Farm called the allegations “baseless and without merit.”
“Our company operates in full compliance with all applicable Missouri state laws and regulations, and we will vigorously defend that record,” the statement added.
“We will not allow aggressive legal tactics to distract us from what matters most: our mission to deliver uninterrupted service and exceptional products to the patients, customers and employees who rely on us.”
In a statement, Bob Hoffman, one of the attorneys for the plaintiffs, called the arrangement “an unconstitutional and clandestine business conspiracy.”
“Missouri’s cultivators and manufacturers have been suffering under this scheme for too long – many of them know something is wrong but don’t realize the scope,” Hoffman said in a statement.
“We filed this suit to restore the fair, competitive marketplace that Missourians voted for when they approved recreational cannabis in 2022.”
The lawsuit’s allegations that Good Day and other firms use limited liability companies (LLCs) to mask true owners echo similar complaints that preceded the opening of Missouri’s $1.5 billion adult-use market.
The lawsuit also indicates that state cannabis regulators were unaware of the situation or unable to stop it.
A spokesperson for the state Department of Health and Human Services, which regulates cannabis in Missouri, declined to comment.
How can state limits on cannabis ownership be evaded?
Cannabis sales have stayed resilient in Missouri, where retailers reported a record $1.53 billion in sales last year.
But somehow, retailers appear to have avoided the price compression that’s seen sales revenue decline even as the number of individual units sold increases.
According to Headset, consumer prices in Missouri are “notably above the national average.”
Like other states that legalized adult-use cannabis after the initial wave in the West, Missouri capped by law the number of available business permits from the start.
Under state law, no one entity or individual can be an owner “in more than ten percent (10%) of the total number of comprehensive and medical cultivation, dispensary, or infused products manufacturing facility licenses.”
“This includes, but is not limited to, parent companies, sub-entities, and individuals.”
According to state data, Missouri has issued:
- 68 cultivation permits
- 224 retail permits
- 91 manufacturing permits
That means that a single company is limited to no more than 22 retail permits.
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How the cannabis cartel worked, lawsuit alleges
According to the suit, “to circumvent the cap,” the related companies operate under five different brand names:
- Good Day Farm, with 21 permits
- CODES, with 20
- Greenlight, with 10
- Fresh Karma, with 6
- 3Fifteen Primo, with 4
The suit alleges that Good Day Farm “arranged for investors to invest into limited liability companies” that would buy out smaller retailers with “a substantial cash payment.”
The investors would then transfer ownership of the retailers to “a manager selected by Good Day Farms,” overseen by “a board of directors comprised of Good Day Farm personnel, investors and/or allies,” the suit claims.
Companies involved then commit to purchasing a certain amount of cannabis product from other involved companies, the lawsuit alleges.
Previous state oversight of such business techniques has been limited to social equity permits.
The state Division of Cannabis Regulation has revoked marijuana social equity licenses after discovering they were issued to out-of-state operators.
