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Sept. 23, 2024 |  By: Rebecca Rivas - Missouri Independent

Alleged ‘predatory’ contracts continue to surface in Missouri social-equity marijuana program

marijuana greenhouse

By Rebecca Rivas - Missouri Independent

Destiny Brown thought she had been recruited last year to own and operate a small-scale Missouri cannabis dispensary — and get paid $200,000 to do it. 

Cannabis investor Michael Halow told Brown, who is Black, that her disabled veteran status and the marijuana offense on her father’s record qualified her for a Missouri microbusiness license. The qualifications were designed for these licenses to end up in the hands of disadvantaged business owners, including disabled veterans, those with lower incomes and people with non-violent marijuana offenses.

Brown didn’t closely read the 40-page contract she signed with Halow, but says he repeatedly told her he would help her with $2 million to get the business up and running, according to a transcript of Brown’s interview in March with the Missouri Division of Cannabis Regulation investigators. 

“Mike just said he had money to do that,” Brown told officials, according to the document The Independent obtained through a public records request. “He always says that. He just said, ‘I have the money. I can help.’” 

He never told Brown that the contract’s fineprint aimed to give Halow full ownership of the business while using her as the legal front of it. A felony on Halow’s record could potentially disqualify him from holding a license himself.

Brown — who told state regulators she lives in Arizona and declined to be interviewed for this story — was among 16 people who won the lottery for Missouri microbusiness dispensary licenses last October. Six were connected to Halow, and each of those licenses has since been revoked.

After Brown got the license, she hired a lawyer and separated herself from Halow and his consultants. She gave cannabis regulators agreements she signed or that Halow had sent her — including documents the state previously did not have, according to legal filings. 

The agreements stated she would not be allowed to sell any marijuana products in Missouri until ownership changed hands to Halow, or until Brown repaid the full $2 million plus interest.  

Halow’s hired consulting firm, Cannabis Business Advisors, was listed as the designated contact on more than 400 of the 1,048 Missouri dispensary applicants, a practice known as flooding the lottery. The six winners connected to Halow all had similar contracts — each of which are technically complicated and ensure he ends up with control of the business, according to legal filings.

But Halow is not alone in this strategy.

The microbusiness program was sold to Missouri voters as a way to help victims of the War on Drugs get a toehold in this burgeoning industry. But contracts obtained in recent months by The Independent reveal out-of-state companies or cannabis industry insiders have repeatedly attempted to use qualified applicants to win the licenses but then largely shut them out of the profit.

Last year, The Independent revealed that a Michigan-based company was recruiting people on Craigslist to enter Missouri’s social equity license lottery using contracts forcing them to eventually relinquish all control — and profits.

The two licenses connected to the company were revoked, though the company is appealing that decision. 

The Independent reported in July on Missouri cannabis leader John Payne using agreements for some applications that would give him and his partners 90.1% of profits and majority control of the business.

Legal experts who reviewed Payne’s contracts called them unfair and potentially predatory. This summer, cannabis regulators opened an investigation into one license connected to Payne that was awarded in October to verify whether they “continue to be majority owned and operated by eligible individuals.” 

The investigation is ongoing, a department spokesperson told The Independent.

Joseph von Kaenel, a St. Louis corporate governance attorney who reviewed Payne’s contracts for The Independent, said the documents presented to Brown are just as problematic. 

“It’s really the same old story we’ve seen of unscrupulous promoters trying to find a disadvantaged person,” von Kaenel said, “and have them front the business and then take it over when they can’t pay.”

The revocations of the five licenses still connected to Halow are being appealed with the legal representation of St. Louis-based law firm Armstrong Teasdale. 

It’s the same law firm Payne claimed wrote the contract that The Independent obtained for his client this spring. Even though the firm’s name appears in the contract, Armstrong Teasdale adamantly denies preparing or providing it to Payne. 

Halow declined to comment in a phone call with The Independent, and his attorney did not respond to requests for comment.  

Brown has also appealed the state’s decision to revoke the license with the Administrative Hearing Commission, a group of five judges who hear state licensing disputes. However, the commission found her complaint was filed after the deadline, which puts her case at risk of being dismissed.

 

Investing in the Future

 

According to Halow’s LinkedIn page, he lives in Puerto Rico and “holds numerous cannabis licenses spanning multiple states.” 

“But I’ve always had my eye on the bigger picture – championing social equity and empowerment,” he stated in a recent post. “It’s why I’m dedicated to mentoring underrepresented candidates and guiding them through the complex licensing process.”

While that may be his goal, he’s also faced controversy in Arizona over his practices obtaining social-equity licenses. 

In August 2023, he was sued by a woman who said Halow recruited her to apply for the social-equity license and then took over the business license without her knowledge or permission.

Halow and his Wyoming-based companies Investing in the Future LLC and Helping Handz won the suit and he retained the license. The judge awarded him $45,000 in legal fees. 

Halow’s LinkedIn page says he studied in criminal justice and business at University of Texas at El Paso and Arizona State University.

In 2003, a grand jury in El Paso indicted Halow on several counts of sexual assault of a child, along with several more for producing child pornography. The charges were dismissed as a part of a plea agreement, in which he pled guilty to a second-degree felony offense of aggravated assault. He received three years of community supervision.

The constitution states that people with a “disqualifying felony” can’t work in the industry, but it doesn’t specify what types of felony offenses. It exempts marijuana offenses that are eligible for expungement. It also says that if it’s a nonviolent felony offense, employees are in the clear if it has been more than five years since the charge. 

For other felonies, “more than five years have passed since the person was released from parole or probation, and he or she has not been convicted of any subsequent felony criminal offenses,” it states.

According to DHSS, a lot of their review is subjective.

“What is written into law is then applied to each individual record, so it is a case-by-case analysis and can’t simply be determined by a checklist of potential offenses,” Lisa Cox, a spokeswoman for DHSS, told The Independent last year.

 

The contract

 

Brown told state regulators this spring that she filled out an “inquiry” online, stating that she’d like to run a dispensary to help veterans like herself. 

Halow’s brother, whose name Brown says she doesn’t remember, responded by calling and requesting documents, including her driver’s license and veterans disability paperwork. He asked her to sign several agreements that she thought were outlining how the business would be run and that she would be paid $200,000 to do it. 

She didn’t realize that the documents would give away ownership of the company to Halow after the license was issued.

She also didn’t know about Ever Eco LLC, which is the business the microbusiness application was filed under.

According to the state’s response to Brown’s April appeal of the license revocation, Ever Eco is an Arizona limited liability company formed on July 23, 2023. At the time of filing, Halow was listed as the sole member and manager of Ever Eco — yet he was not listed as an owner or designated contact in the microbusiness application.

A month later, and after the application was submitted, the business’ articles of organization were amended to remove Halow as the sole owner and operator, replacing him with Brown.  

The license’s designated contact was Maxime Kot, with Cannabis Business Advisors. In her interview, Brown said she had never met or heard of Kot. 

On Oct. 17, the department requested that Ever Eco provide several documents, including all agreements, verbal or written. 

A couple weeks later, Kot responded to the department, saying her company was “unable to provide the requested information and documents due to a lack of response or interest by the purported owner.”

However, on Nov. 15, Brown’s attorney requested that Kot be removed as designated contact. The attorney then provided a number of documents, including a memorandum of understanding, a consulting agreement, a promissory note and a conditional management services agreement.

Each document was signed by Brown, either on behalf of herself or on behalf of the company, with a separate signature block for Halow, the response states. 

The memo of understanding and promissory gave Halow the right to convert the loan he promised to provide Brown’s LLC into 100% of the “membership interest” — or all of the profits and voting rights of the business.

The state revoked the license on seven grounds, including that the application included “false or misleading information” and the licensee withheld information.

Armstrong Teasdale is not representing Brown in her case. However, in the appeals of the other five licenses Halow is connected to, his attorney responded to the state’s allegation that the licensee “entered into an agreement that transferred ownership and operational control to another entity.” 

“…this contention envisions a hypothetical situation at most,” Halow’s attorney writes, “as the documents alleged to grant such ownership and operational control are expressly conditioned on DHSS approval and such rights for third parties are optional to exercise, not mandatory.”

In Brown’s March 4 interview with cannabis regulators, her attorney said she wants to move forward with the license. 

“She has every intent of it,” he said. “And from everything I can see, she’s more than qualified under the program and is eager to move forward either way. So, whatever we can provide to you to allay any concerns, just let us know.”