REGIONAL— When Minnesota legislators passed sweeping cannabis reform legislation in 2023, a cornerstone of the proposal was providing “social equity” in the licensing process for groups that had been harmed by past enforcement of marijuana prohibition.
Revised in a 2024 update to the law, the social equity program aims to give a fair chance to those most affected by the war on drugs, including veterans, people with prior marijuana convictions, those from high-poverty areas, and small farmers. The goal is to ensure these groups can participate in the legal cannabis market.
The Minnesota Office of Cannabis Management conducted a pre-approval process for social equity applicants that ended on Aug. 12. Those who qualified will compete in a lottery for a limited number of licenses reserved specifically for social equity recipients and will have the opportunity to get a head start on their businesses prior to the issuance of a formal license.
Among 1,817 pre-approvals are applicants from Cook, Tower, and Ely, who like other Minnesotans are competing against a field that is heavily inundated with out-of-state applicants for a piece of the action in what is expected to be a $1.5 billion market by 2030.
Only 802 of the pre-approved applications —about 44 percent—came from Minnesota residents. The remainder came from across the country, with many applicants from California and Arizona. Legislators chose not to include a residency requirement in the cannabis legislation because court actions in other states have struck down residency provisions, including in Maine, where a federal judge deemed a residency requirement to be unconstitutional.
This out-of-state interest has created tension between those wanting to build a local industry and those seeking to capitalize on Minnesota’s emerging market, including well-funded, out-of-state entrepreneurs.
“We knew out-of-state parties were going to come in, so it didn’t take some of us by surprise,” said Carol Moss, a cannabis industry attorney and member of the state Cannabis Advisory Council. “We knew we couldn’t keep out-of-state parties out because that has been deemed unconstitutional in other states.”
Lottery chances
The Office of Cannabis Management will award just 280 pre-approved licenses across nine different business license categories. The two most sought-after licenses in the lottery are for cannabis microbusinesses and cannabis mezzobusinesses.
Cannabis microbusinesses “can grow, make, sell, and buy cannabis (including plants and seedlings) and lower-potency hemp products. They can also have on-site lounges where customers can use cannabis,” according to the office’s website.
Pre-approved applicants in Tower and Ely are in this category. With 586 applicants for 100 licenses to be awarded in the lottery, applicants have roughly a one-in-six chance of success.
The competition is even stiffer in the cannabis mezzobusiness category, which includes the applicant from Cook. A mezzobusiness license allows an entrepreneur to operate up to three locations and allows for triple the square footage of cultivation space compared to a microbusiness. The Office of Cannabis Management received 372 requests for this type of license, but will award only 23 in the lottery, a one-in-16 chance.
Lottery winners will still have hurdles to clear before moving ahead with their business development. They will have to demonstrate to state regulators that they have a viable business location, local approvals, adequate funding, and that the primary investors meet social equity criteria.
A key revision in the law this year allows early cultivation for micro- and mezzobusinesses. This provision aims to ensure that there is product available for sale when dispensaries open in the spring of 2025.
Meanwhile, those who don’t win one of the pre-approved social equity licenses in the lottery will still be eligible for the regular cannabis licensing process. A second lottery for all applicants has yet to be scheduled, and the state has placed temporary caps on certain licenses, such as microbusinesses, testing facilities, and delivery services, to manage the market’s rollout. These caps will be lifted once the industry is fully operational.
However, the social equity applicant mix may hold clues that the rollout of the industry could face some challenges. For example, cannabis products must be tested by independent labs before they can be sold, yet there were only five applicants for the 50 licenses available in the lottery. Cannabis transporters and wholesalers had only half of the applicants necessary to fill the lottery awards in those categories.
Maintaining fairness
The Office of Cannabis Management is taking steps to prevent large corporations and multi-state operators from exploiting the social equity system by partnering with applicants to secure licenses. This has been an issue in other states, such as Missouri, where regulators have had to revoke permits due to such practices.
“That helps us make sure that there aren’t any large corporations or multi-state operators that might be trying to sort of get in and game the system through an ownership with a social equity applicant, sort of on the front end,” said Josh Collins, communications director for the office.
Demographics
A breakdown of the verified social equity applicant pool reveals that most are military veterans, making up 39 percent of the total. Originally, social equity provisions included only veterans with disabilities, members of the National Guard and veterans who were demoted because of cannabis-related offenses, but the Legislature changed that this year to make all veterans eligible.
Other groups that made up a significant percentage of the applicants include those with marijuana-related convictions (29 percent), individuals from high-poverty or high-enforcement areas (25 percent), individuals with dependents who have marijuana-related convictions (six percent), and small farmers (one percent).