Is Minnesota’s cannabis program on track to hold a license lottery in 2024? Let’s do the math.

Like everyone in and around the fledgling legal cannabis industry in Minnesota, Carol Moss was anxious to know when the first cannabis licensing lottery might be held. 

Reading tea leaves wasn’t helping, so the Minneapolis attorney with a cannabis law practice tried some math last month.

• According to the state Office of Cannabis Management, 1,817 hopefuls for 280 various preapproval licenses qualified for the early advantage state law gives social equity applicants.
• OCM has estimated that it will take staff six-to-eight hours to process and examine those applicants to assure that they meet minimum standards and that their partners and backers are not illegally applying for multiple licenses.
• Those reviews, therefore, could take between 10,902-to-14,536 total hours divided among the 20 staffers doing the review.
• If they worked 45 hours a week, the 20 could accomplish 900 work hours per week.
• To process all 1,817 applicants, it would take OCM 12-to-16 weeks.

“If this timeline holds,” Moss wrote in an article posted on her law firm’s website, “we could be looking at late November before the first review is done…I am hopeful the lottery happens in 2024, but we’re asking OCM — a brand new agency — to take on a herculean feat.”

How was Moss’ math?

“I wanted to give her a hug because I think she was pretty grounded in the reality of the task,” OCM’s interim director Charlene Briner said Monday. OCM is being pretty close-mouthed about details of the timeline. But two weeks ago it sent out letters to 350 applicants with what it termed “deficiency notices” and requests for more information. The deficiency notices had to be responded to by Wednesday, Oct. 30.

OCM then completes the processing of those applications and continues to examine license hopefuls for something called “true party of interest” which tries to assure that the certified social equity applicants — generally those who suffered from cannabis prohibition — will own at least 65% of the business and that no single person is a significant partner in more than one license application.

A more thorough examination of the investors and partners will be conducted only on applicants who win the lottery. And when might that lottery occur?

“I have always said we will conduct the lottery before the end of 2024,” Briner said. “We will provide applicants with information about whether they are moving into the lottery or not in advance of that lottery. OCM will be communicating with them at each stage.

“I am just reluctant to set arbitrary dates based on projections. It’s something that seems irresponsible to me,” Briner said. “As frustrated as folks are, I would rather be cautious in not promising a date than to give information that we have to then walk back.”

Complexities lead to vague timeline

Something legalization legislators and OCM leadership has been specific about is not being specific. That is, when asked for predictions about when rules will be finished, when the lotteries will be held, when the first stores will open, they have been frustratingly vague. Briner often uses the metaphor of trying to build the airplane while flying it to illustrate that this is all new and timelines are fluid. Even comparisons to other states that have legalized cannabis aren’t helpful because many of the processes in Minnesota law were put in place to correct for mistakes made in other states.

The lottery for licenses, for example, was adopted in May in response to heightened litigation in other states centered on allegations that their merit-based licensing lacked objectivity. The limits on the number of license applications any single person can apply for was meant to correct for “flooding the zone” by certain well-financed applicants. True party-of-interest examinations were adopted to stop the kind of straw applicant problems seen elsewhere that resulted in non-social equity applicants using social equity applicants to gain licenses only to take over the business once licenses were granted.

At the same time, the Legislature approved changes to speed up the market launch. It allowed preapprovals for social equity licensees, it replaced a merit — or points-based process — with a lottery, and it allowed for early cultivations of cannabis by some lottery winners by using existing rules for medical cannabis cultivation. Without these changes passed in May, none of this could begin until final rules are adopted early next year.

Still, the process for granting licenses has led to frustration and complaints from potential applicants. But there is no strong evidence that it is behind schedule, mostly because there has never really been a schedule. In January 2023, when House File 100 was introduced, bill drafters speculated that the first legal sales would be in 2025. That was made more specific in the final bill with predictions for the first quarter of 2025 when the existing medical and hemp-derived edibles regulators were to be merged into the new Office of Cannabis Management.

In 2024, when the Legislature made major changes to the recreational cannabis program, it advanced the regulatory merger from next spring to this past July.

Finally, in order to build a cannabis supply before retail stores open, applicants for cultivator, mezzo business and micro business who win the lottery can begin growing cannabis as soon as they are able. To get there, the OCM can use existing medical cannabis rules rather than wait for its own rules to be completed later this year or early next year.

All of that both added to OCM’s chores but also sped up some processes. OCM still could — conceivably — open the market next year.

Growing of small amounts for personal use, possession of cannabis and use by those 21 and older has been legal in Minnesota since August 2023. And the two-year-old hemp-derived THC market continues.

‘Quickly for government work’

Jen Reise is an attorney with a cannabis law practice who has been working with clients hoping to win licenses in the social equity lottery. She said most of the deficiencies her clients have been asked to correct are technical such as links not working or boxes not checked.

“It’s good that OCM is giving them an opportunity to fix it now but at the same time, really, is this all that OCM has found in this long review period?” Reise said. “Are they giving people an opportunity to fix these kinds of file errors and then just deny other applications that were either more incomplete or violated true party-of-interest?

“But I haven’t seen them say, ‘rewrite this (standard operating procedure) to better answer the question,’ which is what I thought I would see,” Reise said. “Instead it is, ‘we can’t open this.’”

But Reise said she remains optimistic about the new industry and said she thinks OCM is doing the best it can under that law.

“Fundamentally,  government moves at a different pace than entrepreneurship,” she said. “I have tried to set realistic expectations for my clients, that OCM has a lot of steps to get through and they are moving quickly for government work. This is hard.

“But in part it is the waiting and in part it is the not knowing,” she said about applicants who got their paperwork in by the Aug. 12 deadline. “To not have any idea when the lottery might happen is causing entrepreneurs to stop working on building their businesses.

“We’re just in the messy middle right now,” Reise said.

Three types of license applicants will not have to go through a lottery because the number of applicants is less than the number of preapproval licenses that can be given in the first lottery: cannabis wholesalers, cannabis transporters and cannabis testing facilities.

A second lottery will be held early next year for all other applicants, as well as for social equity license applicants who didn’t prevail in the lottery.

And while the social equity lottery will grant only 100 micro business licenses — the small businesses that can both grow and sell in cannabis operations similar to small craft brewers — that license type is not capped under the law, and losing applicants can reapply next year and will likely win licenses.

Reise said there are only 20% odds of getting a micro business license in the preapproval lottery but applicants can look forward to better odds in the next one.

“That is the point on which many people are pinning their hopes,” she said.

Peter Callaghan

Peter Callaghan covers state government for MinnPost. Follow him on Twitter @CallaghanPeter or email him at pcallaghan@minnpost.com.

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