Minnesota regulator to hold lottery for first cannabis businesses after rejecting two-thirds of applicants

[MUSIC PLAYING] NINA MOINI: Our top story this hour, Minnesota cannabis regulators say they plan to hold a lottery sometime in the next two weeks to determine who'll get to open up the state's first legal marijuana businesses. But the Office of Cannabis Management is facing some pushback this week after it rejected more than 1,100 applicants it deemed ineligible. That's around 2/3 of them. Reporter Matt Sepic has been following this and joins us now. Thanks for being here, Matt.

MATT SEPIC: Hi there, Nina.

NINA MOINI: Hi. So Minnesota legalized recreational marijuana for adults more than a year ago, for anyone who doesn't know. Why aren't we seeing dispensaries in strip malls yet?

MATT SEPIC: Well, that's by design. The law took effect on August 1 of 2023, with much fanfare. It allows people over 21 to possess, use, and grow marijuana, with some limitations. People are-- and that all took effect right away, and there are some retail outlets in Minnesota, we should point out. They are operated by the Red Lake and White Earth tribal nations, which are sovereign and independent, so they were able to get up and running right away.

Now, state lawmakers anticipated that it would take much longer to get the legal businesses going across the rest of Minnesota, so it's certainly not fair to call this any sort of a delay. This is a heavily regulated industry, and legislators wanted to make sure that people who have been historically harmed by the war on drugs would have a chance to compete meaningfully in the business.

That means the first prospective pot proprietors to apply for these licenses are those the law considers social equity applicants, and who are they? They include people who live in high-poverty areas, places with historically high cannabis enforcement rates, people who themselves have been convicted of a marijuana-related crime before the law changed, or those who had a close relative who was found guilty of one prior to legalization.

This is a lot of people, and the Office of Cannabis Management says more than 1,800 applied for just 282 licenses for businesses of all sorts. These include micro-operations, cultivators and manufacturers, retailers, and what are called mezzobusinesses, these medium-sized, vertically-integrated marijuana operations where people grow and sell and the whole bit. With so many of these applicants, the state, as you mentioned, is holding a lottery to figure out who gets to move forward in the licensing process.

NINA MOINI: Yeah. Tell me more about what's happening with the lottery, and then why regulators are facing this criticism.

MATT SEPIC: Well, as I said, around 1,800-plus people applied. And then this week, on Monday, the OCM, the Office of Cannabis Management, notified around 1,150 of these applicants that their names would not be going into the hat for the lottery. That's around 2/3 of them. I spoke yesterday on the phone with OCM interim director Charlene Briner. She told me the reasons for the rejections varied from documentation problems to violations of ownership requirements. The state is really trying to avoid having big out-of-state companies swooping in and using qualified social equity applicants as a front for much larger multi-state operations. Briner says in some cases, other people tried to game the lottery, or they submitted information that looked a bit fishy or fraudulent.

CHARLENE BRINER: So multiple applications that were identical in nature. We saw that some of them didn't have IP addresses or websites that were valid. We saw some of them tying back to phone numbers that were not in service, or phone numbers that went back to one particular individual.

MATT SEPIC: Now, Briner told me that making it through the license application process is really the first step toward proving that prospective business owners can operate in what is expected to be a really strict regulatory environment.

CHARLENE BRINER: This is an objective review of specific criteria called for in statute. So it is very clear what is required, and we gave very clear instructions. There was no subjectivity. There was no comparing one applicant to another.

NINA MOINI: OK. So Matt, did regulators give any of the applicants an opportunity to correct the errors on their paperwork?

MATT SEPIC: Yeah, to a limited extent. Last month, OCM sent deficiency notices to around 300 of the applicants, and did allow them to correct problems. These particularly were with electronic check payments. That's what Charlene Briner told me. But she says allowing everybody to fix every single error that came up would take months and drag out the licensing process, and that would mean in the end that it would delay legal marijuana businesses from opening.

NINA MOINI: Matt, are you hearing from people who are trying to get licenses, or maybe were denied?

MATT SEPIC: Well, yeah, I'm hearing from their attorneys and other consultants in the industry, and they say this wholesale rejection of applicants is unfair and could violate the new law. Carol Moss is an attorney here in the Twin Cities who represents more than a dozen clients who are trying to enter the recreational cannabis market. She says around half of the folks she represents were rejected. And she told me that she's having a tough time explaining to her clients the reasons for those rejections.

CAROL MOSS: A lot of these rejections are based on what I would describe as very flimsy reasons. For example, somebody uploaded a picture of their ID, and it was wavy, and that got rejected.

MATT SEPIC: Now, Moss tells me that in many cases, these rejection letters from OCM don't give an explanation. She says the office has been inconsistent in the way it handles the applications, and she rejects the idea that applicants are engaging in shenanigans to boost their chances in this license lottery.

CAROL MOSS: These are not people that are gaming the system. And so when I see those types of comments, it makes me concerned that the reviewers are looking at factors outside of the application.

MATT SEPIC: And Nina, Moss says that could open the Office of Cannabis Management up to litigation, something that she is discussing with her clients, and others in the industry are talking about as well.

NINA MOINI: And so what happens next?

MATT SEPIC: Well, barring any action in the courts that might result in an injunction from a judge, the state's expected to move forward with its license lottery sometime in the next two weeks. And I just did check the court online computer system and have not seen any lawsuits against the Office of Cannabis Management as of right now.

NINA MOINI: And Matt, last question here. A lot of people are just wondering, with all of these ins and outs that are going on, when could we see the first legal marijuana businesses, other than the tribal shops you mentioned?

MATT SEPIC: Well, it could be a few months. Besides the license lottery, Briner at the OCM tells me the state is still finalizing all those complex rules for cannabis operations, and that is a process all its own. Those are right now going back and forth with the state reviser's office, which is the official publisher of state rules and laws. So once those are finalized and the licenses are granted, we could start to see businesses in strip malls and on corners legally selling marijuana.

NINA MOINI: Matt, thanks so much.

MATT SEPIC: You're welcome.

NINA MOINI: That was our Matt Sepic.