Some of the first applications for social equity businesses include permission to grow cannabis plants as soon as this fall, though retail sales aren’t expected until spring.
by Peter Callaghan 07/25/2024 07/26/2024
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The real-life manifestation of the most significant change to Minnesota cannabis law began with the flip of a switch Wednesday.
That’s when the Office of Cannabis Management opened its application window for a precious batch of preapproval licenses for would-be cannabis businesses that have been verified as involving social equity applicants. This application window runs until 11:59 p.m. on Monday, August 12.
There will be other windows. But this first one was created to give social equity applicants what OCM dubbed an “early mover advantage.” That is, they can begin to get their businesses ready to go with financing, leases and construction with licenses in hand. Others who must wait until next year when final rules are approved won’t be able to move forward with the assurance that comes with a license in hand.
Applicants ranging from the small “microbusiness” to growers and manufacturers must complete the preapproval application process to be entered into a lottery sometime in September for the licenses set aside for preapproval.
How precious are these early licenses? For now, only 100 microbusiness licenses will be issued: 23 so-called mezzobusinesses, 38 retailers, 13 cultivators. All together, there are 280 licenses of various types included in this preapproval process.
“The opening of the application preapproval window is another important milestone in building Minnesota’s cannabis industry,” said interim OCM director Charlene Briner. “We continue to encourage potential applicants to carefully review and use the resources we’ve provided on our website to submit their application.”
The point of the law changes is to give social equity applicants — people who have suffered from cannabis prohibition, veterans, people who have lived in high-poverty areas — a head start so they can be better prepared when legal sales begin sometime in the spring.
But pre-approved licensees that involve growing cannabis plants — micro, mezzo and cultivator licensees — get an additional advantage. They can start growing plants once they are licensed, likely sometime in the fall, as a way for the state to have cannabis products ready for sale when the entire system gets running.
Jen Reise is a cannabis attorney who has been working with potential licensees to first get verified as social equity applicants and then apply for licenses and be entered in the lottery. Her clients include those seeking many different licenses from around the state and her work involves both giving advice and managing the application processes.
Some have received their verification certificates and others are still waiting. No license application can be completed without that certificate, something OCM promises no later than Aug. 5.
“I think OCM set up a good process,” Reise said. “At the same time this is a very compressed timeline and that’s just what we’re working with.” How complicated is it? Reise said the process, including paperwork and worksheet completion, could be done by applicants themselves over a couple of weekends. But some are either hiring attorneys like herself or at least seeking advice when they get stuck.
She said the process by the Legislature and OCM does give social equity applicants a chance to get into the new industry without needing the backing of out-of-state partners and investors.
The three license types that can begin growing have generated excitement among her clients.
“I have clients who are very excited that if they get picked in the lottery they will be able to move quickly to begin cultivating and start building that supply for when dispensaries begin next year,” she said. While the odds are relatively long, she described her clients as “hopeful but realistic” and happy to have the chance to be first-to-market cultivators.
The latest news on marijuana policy and legalization coming out of the Minnesota Capitol | Read more
And if they don’t win the lottery, they can enter later lotteries. And since microbusinesses will not be limited by caps or other restrictions, people preparing applications now know they may eventually be able to get a micro license. While there are no numerical caps on micro businesses, OCM does have authority to limit the numbers of licenses if it believes the market demand is being met by the supply
“That is the saving grace for many of my small, entrepreneur clients,” Reise said. “They are going to put in an application now and hope they’ll get that early provisional license, but if they don’t, it’s not wasted work and that makes it worthwhile.”
How chancy is the lottery? OCM reports that during the June 24 to July 10 window during which applicants could submit documents proving their status as social equity applicants, 3,144 applicants completed the process.
So 3,144 potential applicants for 280 licenses? While better odds than the Minnesota Lottery, there will be disappointed applicants come this fall. All can enter into another lottery later in the year that will include all potential applicants for another batch of licenses.
Many of those 3,144 applicants might be in business together seeking a single license. OCM says it won’t know how many of those applicants received their social equity certificate until the process is completed Aug. 5.
Under another law change made in May, 65% of the ownership of a social equity enterprise must have been verified. Before the law change, however, 100% of the ownership seeking social equity status and the benefits that flow from that would have had to qualify as a social equity applicant.
Once the system is fully operational next spring, there will be no caps on a certain batch of licenses. That includes the microbusiness license which allows a single licensee to grow, process and sell cannabis products. These are the entry-level businesses that might include many of the people currently selling hemp-derived products under the 2022 legalization of low-potency hemp.
Other licenses that will be capped in the first two lotteries but ultimately be uncapped are licenses for cannabis wholesaler, cannabis transporter, cannabis testing facility and cannabis delivery services.
Early cultivation was a significant change in the state’s recreational law and was one not initially requested by OCM. But the fear that cannabis retail operations would have open doors to empty stores, led the agency and the legislators who wrote the law to come up with a way to allow some cultivation before final rules are adopted. When the Office of Medical Cannabis was merged into the OCM this month, it brought along its decade-old rules governing the cultivation of medical cannabis. It is those rules that will regulate the grow operations of micro, mezzo and cultivator licensees.
Microbusiness licensees can begin to grow up to 5,000 square feet of plant canopy indoors or up to a half acre outdoors. Mezzobusiness licensees can grow up to 15,000 square feet of plant canopy indoors and one acre outdoors. And cultivator licensees can grow up to 30,000 square feet indoors and two acres outdoors. For comparison, 30,000 square feet is about one half of a football field, including the end zone.
Micro and mezzo businesses will eventually be allowed to make concentrates and other products from their cannabis and hemp plants, package and sell flower and sell immature plants to customers. Micro businesses can allow consumption of edibles on premises. But none of these permissions will be allowed until final rules are adopted next year. For now, they can grow cannabis and hemp only in anticipation of the full opening of the new cannabis industry in the spring.
Clarification: This story has been updated to make clear that while there is no statutory cap on the number of microbusiness licenses, state regulators can limit numbers based on market demand.
Peter Callaghan covers state government for MinnPost. Follow him on Twitter @CallaghanPeter or email him at pcallaghan@minnpost.com.
