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Dec. 2, 2024 | By: Rebecca Rivas - Missouri Independent
By Rebecca Rivas - Missouri Independent
The Missouri Cannabis Trade Association describes David Brodsky as “instrumental in developing the Missouri microbusiness community” and a mentor to disadvantaged business owners.
In his cannabis consulting work, Brodsky is part of a group that charges up to $4,000 to help eligible applicants enter the microbusiness lottery. It’s a program intended to help steer small-scale marijuana facility licenses to disabled veterans, those with lower incomes and people with non-violent marijuana offenses.
That price doesn’t include the state’s $1,500 refundable submission fee.
“We have also assisted clients who won licenses in lottery based application systems in Ohio and Connecticut and have never had an application that did not meet the criteria to go into the lottery,” Brodsky and his partners say on MOmicrolicense.com.
Yet in Missouri, microbusiness applications connected to Brodsky have repeatedly run into problems with state regulators.
Of the 96 microbusiness licenses issued by the state through a lottery since the program’s inception last year, Brodsky is connected to seven. And all of them are under investigation or facing revocation because the state questions whether a qualified applicant will actually be running the business.
In October, the Division of Cannabis Regulation sent letters of pending revocation to four of the seven licensees connected to Brodsky, stating that their agreements included “false or misleading information.”
“The licensee entered into an agreement that transfers ownership and operational control to another entity,” the letters stated.
Notices of investigation were issued involving the other three licenses back in July, stating regulators wanted to ensure the businesses continue “to be majority owned and operated by eligible individuals.”
For more than a year, The Independent has documented the pattern of well-connected groups and individuals flooding the microbusiness lottery by recruiting people to submit applications and then offering them contracts that limited their profit and control of the business.
State regulators have been sounding the alarm about the scheme, warning of potentially predatory practices in the microbusiness application process.
Financial agreements for the seven licenses connected to Brodsky are closed records. But The Independent was able to obtain a portion of one agreement connected to Brodsky through a public records request last year.
The agreement only provides the qualified applicant with one-third of the voting power to make company decisions.
An almost identical agreement was used to recruit applicants by John Payne, who led the campaign to legalize marijuana in 2022. Payne’s listed as part of the momicrolicense.com team and is the designated contact for all seven licenses connected to Brodsky.
Payne has drawn scrutiny after The Independent revealed he asked at least one applicant to sign a 47-page contract that would give him and his partners 90.1% of profits and majority control of the business.
Despite only owning a fraction of the business, under state law the applicants would be seen as the owner and bear all of the regulatory scrutiny. If applicants ever want to walk away from the deal, they would be required to pay a nearly $1 million fee.
It’s unclear if the financial agreement in that contract is also in place for the licenses connected to Brodsky or his business partner, Scott Wootton. In an email to The Independent, they declined to comment on their roles in the seven licenses “due to confidentiality clauses in the agreements, which is standard practice in business contracts.”
However, they said Payne “has no involvement beyond being the designated contact to handle communications with the division” for all seven licenses.
Andrew Mullins, executive director of the Missouri Cannabis Trade Association, said he’s seen contracts that look like Payne’s 47-page agreement. In some cases, he said if it weren’t for these types of agreements, the licensees wouldn’t have the resources on their own to make a business work.
“Were it not for some of those partners and the way that they’re doing that,” he said, “you basically would have people who have a license but no ability to do anything with it.”
If the 47-page contract was submitted to a federal Disadvantaged Business Enterprise program, it could be considered fraud, said attorney Rod Chapel, president of the Missouri NAACP.
“When I go and I get a loan to buy a house that I don’t have the cash to actually buy, the bank does not send over two tellers and a dog to live in the house with me – not how that works,” he said. “Ladies and gentlemen, that’s why this is a front.”
Brodsky helped establish the networking group Missouri Microbusiness Association, where he and Wootton serve as advisors. All of the association’s advisors are also advisory board members for MoCann, which represents the cannabis industry overall.
On a September call with microbusiness licensees, Brodsky said Missouri is the fourth state he’s operated a cannabis business in, along with California, Colorado and Illinois. He returned to Missouri in 2020 as a dispensary owner and operator, he said on the community call hosted by a licensee.
His association bio states that he sold his stake in Farmer’s Wife cannabis dispensaries in southwest Missouri in 2023, and “dove headfirst into the new Missouri microbusiness license opportunity.”
Similar to most of the microbusiness licenses and their investors, Brodsky and Wootton’s connection is buried in Missouri Secretary of State business filings and documents only available through public-records requests.
This spring, there were more than 80 dispensary applications entered into the lottery with the same St. Peters location address as MO Microbusiness LLC. Brodsky and Wootton are listed as organizers on the MO Microbusiness LLC business filings.
Two of those applications were successful in the lottery and licenses were issued under the name “Individual.” Both are facing revocation.
The partners are also connected to 65 wholesale applications that all share the same Elsberry location address. They landed two of those licenses to cultivate up to 250 plants and sell to microbusiness dispensaries.
Both are filed under the name “Individual” and are facing revocation.
The first lottery for microbusiness licenses took place last year, and that same Elsberry address is on nearly 70 wholesale applications. They were all filed by LLCs organized by Cloverleaf Registered Agent, where Wootton is listed as president.
Two of these applicants landed licenses issued to TEB Industries LLC and JRS Industries LLC. In July, state regulators sent Payne notices of investigation for both companies, and the investigation is still underway, according to the division.
A similar Elsberry address is also connected to 70 dispensary applications submitted to last year’s lottery. One license was issued to Green Zebra LLC in October 2023. It’s been under investigation by state regulators since July.
Brodsky mentions this license in his association bio.
“We were fortunate,” it states, “to win a dispensary license in Congressional District 3 with the first lottery round that we will be branding as Heirloom Dispensary along with several others throughout the state.”
The eligible applicant who won the license for Green Zebra signed a contract accepting a loan from Black Krim LLC, where Brodsky is the sole member, according to documents The Independent obtained through a public records request.
The contract established a three-member board that would vote on all company decisions. The lender and the “consultant” each get to select a member.
That left the qualified applicant with only one-third of the voting power.
“While you are correct that technically it only takes a 2/3 vote to make day-to-day decisions for the business,” Brodsky said in an email to The Independent, “in practice we have made all day-to-day business decisions unanimously, and we do not anticipate that changing in the future.”
He also said the majority of the three managers for Green Zebra “are and will continue to be” qualifying individuals for the microbusiness program.
The loan information for the Green Zebra contract is a closed record. However, the available operating agreement is almost identical to the one Payne used to recruit applicants this spring that legal experts called “predatory.”
“To clarify, the rest of the Green Zebra LLC contracts, including the operating agreement, have been reviewed and approved by,” regulators, Brodsky stated.
Division of Cannabis Regulation Director Amy Moore told The Independent last month that the state is considering making changes to the application process to curb potentially predatory practices.
However, she said many of the possible changes would require a public hearing before a legislative committee for approval and would delay a third round of licenses.
Mullins told The Independent he believes the association would support these changes if they encourage participation.
“In some ways, I’m not sure it’s completely DCR’s obligation to be sort of in between a business owner and the business dealings that they’re doing,” Mullins said, “unless it’s something that’s in opposition to the law.”
However, he believes the association would be supportive of rules that curb practices that could be “hurtful” to microbusiness owners.
“We want to see the micro industry succeed in the same way that we want to see the rest of the industry succeed,” Mullins said, “and we’re supportive of all that. So if there’s an area where we can lend our voice and it helps ensure the success of those microbusiness owners’ journeys, then I don’t know why we would come out against it.”
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