Legislative leaders: Lottery for Minnesota cannabis licenses and head start for growers still being considered

The Minnesota House approved changes to the recreational cannabis law this week on a near party line vote.

That does not, however, mean the issues surrounding the law’s update have been resolved. Backers, as well as state regulators, have said they are still considering how to respond to two significant issues: how licenses will be distributed if demand exceeds the number of licenses allotted, and whether to let growers get a head start on providing marijuana before retail stores open sometime in early spring of 2025.

Before the final House vote on Thursday, Rep. Zack Stephenson, the lead sponsor of the new law, said he was open to further changes.

“I look forward to the conference committee discussion and continued good work on this bill,” the Coon Rapids DFLer said. “Particularly on the provisions surrounding the proposed changes to the lottery, which I know a lot of people are working on and thinking about.”

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Friday, Charlene Briner, the interim director of the new Office of Cannabis Management, said she has offered since proposing the changes to hear other ideas. Specifically, she said she is willing to consider ways to improve the “vetted lottery” to distribute licenses and whether to stagger license distribution to let growers get ahead of retail stores opening.

Briner said there could be ways to stiffen the criteria for qualifying for the lottery, perhaps to assure that those applicants most prepared to launch businesses don’t have equal standing with others that are less prepared. There could also be additional ways to prevent what is sometimes called “flooding the zone,” that is, dumping multiple license applications into the process to increase odds of being selected.

One change to the bill Thursday related to that worry would dictate that a license winner would have to open a business within 18 months or lose their licenses and would not be able to extend that grace period for another 18 months.

The current law, however, does not give OCM the authority to issue licenses before all rules go through the administrative process. Getting some cultivators the licenses to start planting before next spring would require a separate rulemaking process for those licenses.

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Here’s where things stand with House File 4757 with four weeks left in the 2024 session:

What it does:

• Sets up a system to give so-called social equity applicants an early decision on whether they will get licenses. This aid to people who live in high-poverty areas, areas where marijuana enforcement has been more prevalent, and people who suffered prosecution under prohibition could allow them to get businesses set up while non-social equity applicants are still awaiting licensing.
• Reduces the requirement that social equity applicants provide 100% of their financing to needing only 65%. This permits applicants without family wealth or access to capital the chance to bring in investors.
• Allows the sale of social equity licenses to non-social equity applicants after three years.
• Exchanges the current law plan of grading applicants on a series of standards and awarding licenses to those with the most points to the “vetted lottery” that first measures whether applicants meet basic standards and then choosing winners by lot.
• Provides for two different lotteries — the first for social equity applicants and a second for all applicants that could include social equity applicants not chosen in the first round.
• Moves the current regulators of medical cannabis and hemp-derived edibles and beverages to the Office of Cannabis Management this summer rather than next spring.
• Allows caregivers to medical cannabis patients the legal ability to grow that patient’s allotment of eight plants for them if the patient either lacks space or is physically incapable of growing plants.
• Allows physicians to decide if a patient would benefit from medical cannabis rather than requiring the state to decide which conditions merit entry into the medical cannabis program.
• Lets cities that want to run recreational dispensaries licenses without entering lotteries. But unlike municipal liquor stores that can have monopolies on sales within city limits, municipal cannabis stores would have to compete with other dispensaries.
• Includes numerical caps on each type of license, replacing current law that directed the OCM to decide how many were needed to meet market demands.
• Allows all current hemp-derived registrants to gain hemp licenses under the new system.

 What it doesn’t do (but might before the end of session);

• Figure out a way to stage licenses so that cultivators can get seed in the ground sometime this year so as to have cannabis ready to sell in stores by next March
• Respond to concerns about the proposed lottery for license distribution.

Rep. Nolan West, R-Blaine, has emerged as something of a friendly critic — he is one of the few Republicans who voted for the bill last session, but he thinks significant changes need to be made. Most of his concerns surround getting the legal retail market started as soon as possible to begin interrupting the illicit market.

West offered a handful of amendments with only a few minor successes. He was rebuffed by the DFL handlers of the bill on major amendments to return to the points-based system for distributing licenses, rather than a “vetted lottery,” and a move to let some cultivators get started sooner so there is cannabis in stores when they open.

On the lottery, West said it amounts to a change in rules mid-game. That is, since the bill passed with a points system, potential licensees have been trying to build businesses that will score highly, including gaining the extra points for social equity applicants. He said he doubts OCM will be able to “vet” applicants in a way that weeds out the unprepared and fraudulent applicants.

Stephenson has never been totally sold on the lottery plan, something proposed by OCM to mitigate the chances of successful legal challenges that have delayed rollout in other states. Briner has said the points-based systems require some subjectivity by regulators, and that has helped legal challengers in other states claim the plans are arbitrary and capricious.

She has testified that the OCM proposal uses the points system at some level to make sure those who get into the lottery will be able to act on a license if awarded. But critics disagree.

“The simplicity of the lottery system allows for exploitation through application flooding, submission of spurious applications, and the manipulation of social equity measures by predatory entities,” wrote a group of potential licensees and organizations representing the industry, including minority cannabis associations. “Such practices undermine genuine competition and social justice efforts.

“We urge you to reject the well vetted lottery proposal, as presented, until OCM meaningfully negotiates with stakeholders and lawmakers on a solution that works for all of us …”

But Rep. Jessica Hanson, DFL-Burnsville, said the vetted lottery actually helps social equity applicants because it is the well-funded and established businesses that will have the wherewithal to maximize their points. And she urged people not to use the experience with other states with lotteries to predict Minnesota’s experience.

“We are learning from other states around the country to see what they messed up and what we can do better,” Hanson, the cosponsor of HF 4757 said. “Well vetted lotteries have fewer opportunities for subjectivity, and that is where bias lives and thrives.”

On early supply, West suggested a quicker set of OCM rules for cultivators and an early awarding to let them get started. The state estimates it will need around 1.5 million square feet of plant canopy to feed the adult market. Current law allows cultivators to grow 30,000 square feet each and such operations cost between $20 million and $30 million and up to a year to get permits and to construct a facility. Cannabis plants take eight to 10 weeks to grow to harvest.

For comparison, the state’s two medical providers have 100,000 square feet of plant canopy. The size of a football field, including end zones, is about 60,000 square feet.

Again, West: “In order to have a safe and regulated market, we need that market to start as soon as possible. Because you can’t have a retail store without something to sell. We should allow people to cultivate as soon as possible because, right now, the black market is running amok.”

Stephenson opposed the amendment for practical reasons, saying it could actually delay the opening of the legal market.

“Having multiple sets of rules — the current medical rules, these temporary rules, the official rules — will sow confusion and will distract the office away from getting the actual rules out the door as soon as possible, which I agree with Rep. West is an imperative.”

West ultimately voted for the bill, perhaps to remain eligible for appointment to the eventual House-Senate conference committee. Still, he said it wasn’t good enough to fix the current law. He even compared that law to … the Titanic?

“You sent it offshore thinking your blueprints and plans were fine,” West said. “And now you can see this giant iceberg of undersupply and a thriving black market. And you’re just ever-so-slightly altering course when what’s needed is a hard turn.” (The House floor debate video is here.)

Editor’s note: Peter Callaghan wrote this story for MinnPost.com. Callaghan covers state government for MinnPost.

This article first appeared on MinnPost and is republished here under a Creative Commons license.

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