REGIONAL- Minnesota’s Office of Cannabis Management, or OCM, has ignited a firestorm of criticism after rejecting two-thirds of applicants vying for the state’s first social equity cannabis business licenses. The contentious decisions come as the agency prepared to hold a lottery on Tuesday to determine who will operate the initial batch of non-Native legal marijuana businesses in the state.
Last week, OCM announced that 1,169 of the 1,817 social equity applicants pre-approved in September had been disqualified. Reasons cited included failure to meet legal standards, insufficient documentation, and failure to comply with ownership requirements. Some were accused of “flooding the zone” by submitting multiple applications, a tactic allegedly used by bad actors to increase their chances in the lottery. Notably, only 802 in the pre-approved applicant pool were Minnesota residents.
OCM Interim Director Charene Briner defended the process in a statement.
“While the disappointment is understandable, the basic proxy for readiness is your ability to submit a successful application,” Briner said.
Social equity challenges
The social equity licenses aim to provide opportunities for individuals harmed by cannabis prohibition, veterans, and residents of high-poverty areas. Applicants who win a license will be able to secure investors, landlords, and necessary approvals to start operations. Cultivators will be allowed to begin planting immediately to prepare for the retail cannabis market expected to launch next spring.
While the program seeks to level the playing field, the high rejection rate has raised concerns about fairness and transparency. Edina-based attorney Carol Moss, whose firm advised 15 applicants, told MPR News that roughly half were rejected.
“The most frustrating thing is that these are clerical errors, ones that would take five minutes to fix,” Moss said.
Applicants who were allowed to correct deficiencies during an earlier review period expressed relief, but others, including Moss’s clients, say they were not given the same opportunity.
Legal challenges emerge
The rejections have spawned a wave of lawsuits, with several applicants alleging the process was arbitrary and lacked transparency. In a lawsuit filed in Ramsey County District Court, plaintiffs Jodi Connolly and Cristina Aranguiz argue the denials were “arbitrary and capricious” and demanded a halt to the lottery while their case is heard.
Other lawsuits contain similar allegations, claiming that OCM failed to follow statutory requirements and did not provide clear reasons for the rejections. Many rejection letters reportedly contained no explanation at all for the decision, while others lacked sufficient detail.
OCM responded to the legal actions sharply, accusing some plaintiffs of attempting to manipulate the system. In a press release, OCM officials described the legal action as an effort to “thwart the ambitions and dreams of legitimate social equity candidates.”
Application fraud
OCM claimed that they had discovered numerous cases of alleged system abuse, including applicants who submitted identical business plans, used fake addresses, or posed as straw entities for out-of-state interests. Some applications were flagged through whistleblower tips, including one that exposed a recruitment scheme to flood the lottery with straw applicants.
Applicants found to be engaging in fraud or other violations may be barred from future licensing opportunities, OCM officials said.
Critics argue that OCM’s process lacks consistency and clarity, noting some applicants had a chance to correct errors while others did not. State law prohibits appeals of application denials, though rejected applicants may request a record review within seven days.
Defending the process
State lawmakers who led the push for the legalization of adult-use marijuana praised the OCM’s efforts to uphold equity and integrity in the social equity licensing process.
Briner said that the strict review process ensures the legitimacy of the applicants moving forward.
“We want to make sure the right universe of fully qualified and vetted applicants are in the mix,” she said.
Local implications
Unidentified pre-approved applicants from Tower and Ely will be hoping to secure one of 100 cannabis microbusiness licenses to be awarded. A third area applicant from Cook will compete for a smaller set of 23 cannabis mezzobusiness licenses. This type of license allows a holder to operate in multiple locations and have greater square footage than with a microbusiness license. It is unknown if any of the three area applicants were among the group that was rejected.
The lottery for the initial 282 social equity licenses was scheduled for Tuesday, barring any court intervention.
Licenses in nine different categories were to be determined in Tuesday’s lottery, which was scheduled to be livestreamed on OCM’s YouTube channel. A second lottery to determine more social equity licensees will be held early next year.
MinnPost contributed to this article.