A year after Minnesota legalized recreational marijuana, state lawmakers are back fine-tuning how business licenses can be equitably distributed while minimizing the legal challenges that have plagued other states.
Some stakeholders are concerned that changes proposed in a new bill would favor big marijuana businesses, but they also remain cautiously optimistic that the state will prioritize the needs of small entrepreneurs. Under the proposed changes, entrepreneurs who qualify as social equity applicants would be eligible to obtain licenses early so they can prepare their businesses in advance of sales going live sometime next year. The process of awarding marijuana business licenses would also change from a point-based system to a lottery system.
Minnesota’s recreational marijuana law that was passed last year requires that 100% of a company’s majority party owners meet social equity criteria in order to qualify for a social equity license. The proposed bill introduced on March 8 would reduce that requirement to 65% of a company’s majority party owners.
Marcus Harcus, a local marijuana entrepreneur, said he can’t see how a lottery system is the best option for achieving an equitable industry. Harcus plans to apply for a business license that meets social equity criteria.
“A lottery is not necessarily going to select people who have the most knowledge, skills, and passion,” Harcus said.
Charlene Briner, interim director of the Office of Cannabis Management, said that a lottery system would lead to a more equitable outcome for the state’s marijuana industry.
“On the surface, it would seem that inherently, a points-based system is a little more effective,” Briner said in a news conference this month. “But what we have seen is that even the most objective measures have an element of subjectivity to them.”
The office’s desire to switch to a lottery system could be out of legal necessity. Briner said that point-based systems for issuing licenses created “vulnerability” in other states with legal recreational marijuana.
Local marijuana industry insiders agree.
“The problem with the existing law is it’s litigation bait,” said Leili Fatehi, a principal and partner with the cannabis consulting firm Blunt Strategies. The current law uses a point-based system that scores applicants on factors like their business plan, their security plan, their labor practices, their experience, and their environmental plan, among other issues.
Under the law, applicants can obtain an additional 20 points if they meet social equity criteria, which includes whether they’ve been convicted of a marijuana offense, whether they live in an area disproportionately policed for marijuana crimes, and whether they’re located in an underrepresented area, among other criteria.
Legal challenges hampered the rollout of marijuana licenses in other states with point-based scoring systems. Lawsuits over a similar point-based system in Maryland delayed the launch of marijuana licensing in that state by 16 months. In New Jersey, similar lawsuits prompted a court to order the state to create an entirely new evaluation system for licenses.
In Missouri, more than 800 applicants for business licenses appealed the state’s decision on their applications. It’s expected to take six years for the state to finish reviewing and deciding those appeals.
Defending such lawsuits is also costly. Florida spent around $500,000 on private lawyers defending its scoring system, which wasn’t enough to prevent a delay in launching its licensing system. The city of Pasadena, California, spent hundreds of thousands of dollars to successfully fight lawsuits against its scoring system.
While Harcus and many other marijuana entrepreneurs understand why the state is pushing to change its scoring system, they share a common concern—that big businesses will take advantage of a lottery system and push them out.
Todd Harris, co-founder and CEO of Plift, a local THC and CBD beverage company, said he’s worried that big marijuana businesses might try to stack the deck in the lottery by sponsoring multiple applications for licenses.
“Any time you make it easier to open businesses, it’s a good thing,” Harris said. “But my concern as the bill reads, and which OCM [Office of Cannabis Management] should worry about, is making sure the big boys—the well-capitalized guys—don’t use that and exploit the opportunity to push a bunch of applications in. How they monitor and how they police potential applications from a big business is key.”
During a news conference unveiling the bill earlier this month, Briner described the proposed new system as a “vetted” process that has “due diligence on the front end.” The lottery system would only be used “in the cases where we have more applications than licenses,” she said.
The proposed bill would cap the number of licenses granted to bigger producers but not smaller producers. For example, smaller producers could qualify for the microbusiness license, which allows them to use up to 5,000 square feet of land to grow marijuana. Bigger producers can qualify for mezzo business licenses, which allow them to grow marijuana on up to 15,000 square feet of land and operate multiple dispensaries.
The proposed legislation would cap the number of mezzo business licenses and similar licenses for bigger producers. The number of caps would be subject to reevaluation by the state every two years.
State Representative Zack Stephenson, DFL-Coon Rapids, and state Senator Lindsey Port, DFL-Burnville, are carrying the bill. Both successfully carried the legalization bill last year. They declined to comment on the current legislation, citing busy schedules.Fatehi, who played a key role behind the scenes last year pushing for the legalization bill, said she expects a lot to change in the bill by the end of the legislative session in May, including how the lottery system works. The bill’s proposed lottery-only system has been successfully challenged legally in other states. Fatehi believes that the end result will be a combination of the lottery and point systems.
“There’s a lot of room between a points-based system and a lottery-entirely system, and I think there’s considerable work to be done left in the session to figure out exactly what that right balance is,” Fatehi said.
She emphasized that each state with legal marijuana has its own unique and varying rules regulating how the market works.
“It’s not as easy as looking at a bunch of states and saying, ‘This is a model that works,’” Fatehi said.
Fatehi said the Office of Cannabis Management is listening to stakeholders about potential changes, and that she expects the bill to pass by the end of the legislative session.
There’s also plenty in the current bill that local marijuana stakeholders like. The bill allows social equity applicants to apply for and receive early, temporary marijuana licenses this summer, allowing them to raise capital, buy storefronts, and complete other tasks to get their operations running.
Businesses that receive early licenses would not be allowed to grow, produce, or sell marijuana products until all other businesses can. Non-social equity licenses will be issued next year.
The reason for the early licenses, Fatehi said, is to give entrepreneurs from marginalized communities an even playing field in the competition for business licenses.
“If you are Black, for example, or someone with a criminal conviction, it’s very difficult to get investors or banks or landlords to even talk with you if they feel uncertain that you are going to get a license,” she said, “whereas they are willing to have those conversations with other potential business owners who have a more traditional background and access to capital and things like that. The temporary licensing allows the social equity applicant to have something with the imprimatur of the government that says they will give us our license.”
Harris said he likes the fact that the bill allows for businesses to use all ingredients of the cannabis plant, known as full spectrum, for hemp-based products like those made by Plift. In the law passed last year, some of the cannabinoids contained in the cannabis plant were prohibited from use in low-dose, hemp-derived THC products, Harris said. The proposed legislation drops the restriction.
Under the new legislation, there’s a pathway to include a cannabinoid like THCV, a psychoactive component found in cannabis which can act as an appetite suppressant, in hemp products. That would open the door to creating a hemp-based weight management product, Harris said.
Harris, who plans to apply for a hemp license under the current law and intends to stay in the low-dose hemp market, said the addition of full spectrum hemp-based products allows companies like his to innovate.
“We’ve always thought of ourselves as innovators,” Harris said of Plift. “This gives us an opportunity to create products that have more functional benefits.”
