“I am confident that we will hold a lottery before the end of 2024.”
By Peter Callaghan, MinnPost
It isn’t the timing that people hoping to get started in the recreational cannabis business were hoping for.
Some 1,800 potential licensees who have qualified as social equity applicants are awaiting a special lottery to decide which of them will get a head-start on creating cannabis stores, manufacturing, testing facilities and growing operations. But the interim director of the Minnesota Office of Cannabis Management (OCM) said late last week that the lottery will come later rather than sooner.
“We are still in the process of reviewing our 1,818 applications that we received,” said Charlene Briner. “I am confident that we will hold a lottery before the end of 2024.”
While vague, the end of the year is not in line with predictions when the Legislature made significant changes to the legalization law in May. At that point, fall was the target for a lottery—after OCM had conducted the complex process of taking applications from social-equity license hopefuls. The process also required checking whether they were eligible for the advantages allotted to those who suffered most from cannabis prohibition.
More than 1,800 applicants were determined to qualify. But OCM now has to examine their finances, business plans, social-equity ownership thresholds and whether the applicants are, in fact, the financial backers. The later test, what is termed “true party of interest,” was inserted by the Legislature to block people from using eligible applicants as fronts for their own businesses.
The law also says people can have only one license. That is, a single person can’t be an owner of more than one store, or a store and a cultivator. That too was meant to discourage corporate interests or deep-pocketed investors from controlling too much of the new market.
OCM is currently “looking at the ownership structures, business agreements and the capitalization tables to make sure that they all match and that the applicants are not in violation of [state law] in terms of applying for more than one license and that the social equity applicant percentages actually are consistent,” Briner said. The law allows applicants to have some financial partners who don’t qualify as social equity applicants. But such investors cannot own more than 35 percent of any business.
“It is a very complicated review,” Briner said.
Sen. Lindsey Port, the Burnsville DFLer who has been the lead senator on the issue, said the examination of true party of interest was an important change.
“While verification of true party of interest is time intensive, it’s one of the strongest tools we have to ensure an equitable market that does not allow for a single entity to take a large market share,” Port wrote in response to a question about the timing of the lottery. “This is the core of our small-business values in the legislation.”
But Rep. Nolan West, a Blaine Republican and one of the few Republicans who supported the legalization, said delays in the program are caused by what he termed a “needlessly complex bill” by the DFL majorities.
“We have over 1,800 applicants left in limbo, who still don’t know if they will even get a chance to start their new businesses,” West said in a statement last week. He also complained that Gov. Tim Walz has not appointed a permanent OCM director more than two years since the law was signed and a year after a botched attempt to fill the job.
“It has also been over a month since the license application window closed, but there is still no date for the lottery, despite my numerous requests,” West said. There is no reason for the vetting of the license applications to take so long. The applicants only need to meet basic minimum standards rather than a scoring system.
“The interim director has performed admirably despite these needless hurdles from a poorly written law and an absent governor,” West stated.
The early social equity application lottery was designed to give those applicants more time to get their businesses ready for what could still be a springtime rollout. But the lottery was also meant to give one subset of applicants—those who grow cannabis—an additional advantage. Those license holders would be allowed to start growing in hopes of having cannabis supply ready to fill stores in the spring.
It takes months for a grow operation to get set up and for a crop to reach harvest. That means the later cultivator, microbusiness and mezzobusiness licenses are awarded, the longer it will take them to have something to sell. OCM can finish its rules and conduct additional lotteries for non-social equity applicants by early spring. But if there is nothing to sell, the market can’t launch. And because federal law considers marijuana illegal, products grown in already legal states can’t be shipped to Minnesota.
It was legislators who came up with the system to allow early cultivation. Rather than wait until the spring for cannabis rules to be finished and to begin growing, the new law borrows rules adopted a decade ago for medical cannabis. It is those rules that will govern social equity cultivators until final rules are passed next year.
What if OCM put its analysis of applicants for cultivating licenses at the head of the line? That is, could it process those first and hold a separate lottery in order to give them more time to plant and harvest?
No, said Briner.
“They are the ones who are anxious, and we have been asked about that,” she said. “But no, for the very reasons I alluded to. We have to look and make sure there have not been multiple applications and they meet the social equity ownership thresholds.”
“Under this structure, there is no way to accelerate the cultivators,” Briner said.
The legislative changes meant to combat predatory practices were driven by problems in other states where investors use social equity applicants to win licenses and then buy out or freeze out those applicants. There have also been reports of big operators “flooding the zone” with dozens of lottery entries to increase their chances of winning.
Reporting by the Missouri Independent found numerous examples of predatory practices.
“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,” the news site reported. “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.”
The amendment to Minnesota legalization law has lengthy definitions to determine who the applicant is and limits the role of investors. It also attempts to stop “flooding the zone” via the use of straw applicants meant to hide the “true party of interest.”
In May Briner called the law’s language “more robust than what we have seen in other states that have approached this issue.” Other states have ways to discover and cancel improper applicants after licenses were issued, but Briner thinks the methods in the bill will help root them out before.
“I think we have both front-end protections and strategies on the back end that are unique among states,” she said.
This story was first published by MinnPost.
Photo courtesy of Philip Steffan.
“I am confident that we will hold a lottery before the end of 2024.” By Peter Callaghan, MinnPost It isn’t the timing that people hoping to get started in the recreational cannabis business were hoping for. Some 1,800 potential licensees who have qualified as social equity applicants are awaiting a special lottery to decide which Read More