State appeals court says marijuana tax stacking is unconstitutional

Alex Paulson: Court decision proves tax stacking is illegal in this case.

Mark Hendren: Flora Farms plans to add a dispensary in Sikeston next year.

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A Missouri appellate court has ruled that counties are unauthorized to add a 3% sales tax on recreational marijuana on top of local governments.

The Nov. 12 decision by the Missouri Court of Appeals Eastern District against stacking taxes reversed a May ruling by a lower court in St. Louis County that allowed the practice. Judge John Torbinsky wrote in the unanimous opinion that the “plain language” of Article 14 of the state constitution is unambiguous.

“Only one local government is authorized to impose an additional 3% sales tax,” Torbitzky wrote.

Florissant-based dispensary Robust Missouri 3 LLC sued St. Louis County over the so-called tax-stacking practice. St. Charles County later joined the suit.

Amendment 3, which voters approved in 2022 legalizing recreational marijuana, allowed local governments to impose additional sales tax on the products. It defines local governments as “in the case of an incorporated area, a village, town, or city and, in the case of an unincorporated area, a county.”

The dispensary argued that voters intended for a county to be able to impose a sales tax only in unincorporated areas, while St. Louis and St. Charles counties disagreed with the interpretation of the local government definition.

Torbitzky wrote in the ruling that “an incorporated area like Florissant, the village, town, or city is the ‘local government,’ not the county.”

Citing Missouri Department of Revenue data, the Missouri Independent noted 90 of the state’s 114 counties have enacted a 3% marijuana sales tax. Of that total, 74 also include a municipality that has imposed the tax. In those cases, both city and county governments have been imposing a 3% tax at dispensaries.

While Springfield voters approved the 3% tax in August 2023, Greene County had kept the issue off the ballot until the stacked taxes legal uncertainty was determined.

Locally, Christian, Dallas, Taney and Webster counties are among those charging both county and city taxes, according to state Department of Revenue officials.

Industry reaction
Officials with Missouri Cannabis Trade Association say the decision could be worth as much as $3 million a month in money back in consumers’ pockets. However, no fiscal impact was mentioned as part of the court’s decision.

Alex Paulson, co-owner of Easy Mountain Cannabis Co., estimated if Greene County had been collecting the tax, it likely would have amounted to between $100,000 and $200,000 a year at his Republic dispensary.

“The practice of stacking the 3% on an area that was inside city limits that already had a 3% tax increase is just not what’s in the best interest of the people and not how the law was originally intended to be written,” Paulson said. “To try to stack that 3% to me is illegal and immoral. And we’ve seen the court prove that.”

The tax stacking legal decision will hopefully bring more customers to dispensaries rather than the black market for products, Paulson said.

“The black market for cannabis is not something that we’ve squashed in just a couple of years of a legal market. It is still alive and thriving,” he said. “So, if the goal is really to regulate and tax and make sure that the products are safe, we would really want to make sure that we’re keeping as many people as we could inside the legal market.”

As for the legal marijuana market, sales are growing over 2023, according to state DOR data. October sales exceeded $123 million, with over $108 million of the amount coming from the recreational side. Medical marijuana sales have generally hovered in the $14 million-$15 million per month range this year. Year-to-date cumulative sales are roughly $1.2 billion and on pace to exceed the nearly $1.4 billion sold in 2023.

Mark Hendren, president of Humansville-based Flora Farms LLC, said he expects the counties to appeal the court’s decision.

“We anticipate that it will get appealed to the [state] Supreme Court,” he said.

Paulson agreed.

“It wouldn’t surprise me if there was another appeal, but I would be shocked if the final decision isn’t what our current decision is today,” he said.

Flora Farms currently operates seven dispensaries and has been collecting the additional 3% tax in the counties that were stacking the taxes.

“Flora Farms has been collecting all tax all along and submitting it to the [Missouri] Department of Revenue,” Hendren said. “So, we’ve been complying with what their interpretation was from the very beginning.”

However, following the court ruling, he said the company wants to refund the stacked tax revenue to customers.

“That’s our goal and we’ll have to of course get direction from the state on how to handle that,” Hendren said. “Our goal would be if we collected it and we are refunded it as the dispensary owner, we will pass it right back to our customers if we can.”

As it isn’t required for recreational marijuana customers, Hendren said not everybody supplies identifying information when making purchases. That will make it a challenge to return all the money, he said, adding the company is still working out the mechanics of notifying customers.

Additionally, Hendren said Flora Farms is planning an eighth dispensary in the state next year.

“I have a contract that has not closed to buy a piece of property,” he said, declining to disclose the location or estimated investment for the planned dispensary in Sikeston.

The goal will be to have the building renovated and ready for operation by April 2025.

Ballot issues fail
Aside from its tax-related language, Amendment 3 also had a provision allowing individual cities or counties a vote to ban the sale of recreational marijuana.

St. Louis suburbs Des Peres and Olivette, along with Dade County, all had ballot issues for this month’s general election seeking to ban recreational weed sales and forego any tax revenue the dispensaries could generate. None of the issues passed, according to the Missouri Secretary of State’s office.

Chip Sheppard, an attorney and chair of the cannabis and marijuana law group at Carnahan Evans PC, said via email the issue can only be added to the November ballot in presidential election years and must pass with at least a 60% majority. According to the SOS data, just over 52% of voters in Dade County approved the ban, short of the required total for passage.

Sheppard said, if passed, the Dade County ballot measure would have been effective throughout the county.

“It can be a county or a city,” he said of those eligible to ban recreational marijuana sales. “But if for a county, it would not apply to incorporated – city, village, township – areas within the county.”