Minnesota is gearing up to launch a massive new marijuana market largely from the ground up. Before the first recreational dispensaries open their doors, though, a long, intensive bureaucratic shuffle is underway, and the state’s 2023 legislation is subject to change in the months ahead.

With the next legislative session set to begin Feb. 12, the Office of Cannabis Management (OCM) in mid-January sent its first recommendations to the legislature. The office aims to help ease a few challenges in launching a robust cannabis market.  It’s also looking to help ensure supply of marijuana can match demand when retail opens by mitigating bottlenecking in the supply chain. There are other recommendations intended to remove barriers for “social equity applicants,” folks who have faced cannabis-related offenses in the past, or their families.

To those eagerly waiting for dispensaries to open up shop, these recommendations would not necessarily speed up the launch of retail.

Building a state-regulated legal cannabis market from the ground up takes time and deliberation, Office of Cannabis Management interim director Charlene Briner said in an interview with TCB.

“I want to be clear: We want to offer applications for licenses by early 2025, but we also know that by the time you have a license in your hand, there are still steps to go before you open your doors,” Briner said.

Here are some of the major recommendations to the legislature by the OCM and why they are relevant to the current state of the Minnesota cannabis market:

Combining the medical and recreational supply chain 

The OCM is suggesting the legislature combine medical cultivation with recreational cultivation. This impacts what cultivators manufacturers can source from and where cannabis sellers can source what’s stocked on the shelves.

This suggestion is meant to help streamline and mitigate cost, Briner said. It also recognizes that there is no biological difference between marijuana grown for medical use and marijuana grown for recreational use. “Cannabis is cannabis until the point of manufacture,” she said.

There are currently 16 licenses under the state law, so the OCM’s recommendation would reduce that number, helping eliminate some enforcement responsibility. This suggestion also reflects what’s been seen to work as a best practice, Briner said. Ultimately, many states that start with two distinct supply chains end up merging, which adds cost to businesses having to adjust their facilities and standard operating procedures.

“Creating that single supply chain is going to lower costs because it’s expensive for a cultivator on the front end to create two different spaces for cultivating plants,” Briner said. “It’s going to grow in the same way. It’s going to react the same way until a manufacturer decides what to do with it.”

Notably, the state’s medical program is highly restrictive. It is limited to only two operators, RISE and Green Goods, which operate only 15 total dispensaries across the state. The program is also very small, with only about 40,000 patients registered. Even under the recommendation, the state’s current medical companies would still be largely restricted, especially in retail. Only one license allows recreational sale in medical stores selling marijuana, and that license costs $70,000 to renew, many times more expensive than renewing a mezzobusiness license, for instance.

Other states with less restrictive programs often have hundreds of thousands of medical patients, Briner said. Those states have “understandably turned to medical programs as the ramp up for supply” when launching a recreational market. “We don’t really have that option here in Minnesota, not only because we don’t have a lot of medical providers, but also because of the limitations to really promote this Minnesota-grown, Minnesota craft market.”

The bill emphasizes creating a “Minnesota-grown, Minnesota craft industry rather than just opening up to a limited number of multi-state operators that corner the market at the expense of smaller operators,” Briner said. The homegrown goal within the bill also helps create space in the market for social equity applicants, she noted.

But as the state approaches the launch of its full cannabis market, its homegrown goal poses a particular challenge: Very few groups in the state can grow at all right now. Unlike some states that have launched with a robust medical supply, Minnesota only has two operators. Sovereign nations are the only other group able to grow and sell marijuana within the state’s border depending on if and how each individual tribe chooses to implement legalization within their own government.

Minnesota is largely building its cannabis supply chain from the ground up. To have enough supply to meet demand when its full licensure launches, the state must first bolster local cultivators, manufacturers, distributors, and other support businesses around its homegrown marijuana market to ensure there is enough product to go on shelves by the time dispensaries are set to open.

Provisional license, then property

The OCM is also proposing a change to the order of operations a cannabis license applicant goes through before opening their business.

Under the current law, a license applicant must first secure a property, either through lease or ownership, then bring their business proposal to their local government before going to the OCM to apply for a license. This means a large capital investment must be made before there are any assurances that the applicant will get the cannabis license they apply for. “This is extremely expensive in an industry in which it’s incredibly hard to secure capital,” Briner said.

The OCM is proposing that this order of operation change so the applicant does not have to secure a property before applying for a cannabis business licensure. Instead, the applicant would first go to the OCM with their business plan and all information required to receive licensure. If the business passed vetting by OCM, the office would grant them a provisional license. The applicant would then take that provisional license to the municipality they wish to operate in.

Briner said this change does two things: It proves the state has already done its due diligence in vetting the licensee by giving a municipality clear information through the already completed license application process, and it allows that licensee to obtain a license before securing a property.

At the local level, the business would still need to comply with local business ordinances when securing a property. If the business is found in compliance by the municipality, it would go back to OCM for a full operational license.

“I do want to make really clear we don’t propose at all removing the authority of local governments to make the decisions under the authority given to them in the bill,” Briner added.

Notably, under the law as it stands, Minnesota does not allow municipalities to opt out of allowing cannabis businesses, including dispensaries. Chapter 63 of the bill requires local governments to make available no less than one retail registration for every 12,500 residents. In a survey of the state, the OCM determined this means–at a minimum–there will be 381 dispensaries in the state. This is essentially the state’s statutory minimum if all municipalities opt to have no more dispensaries than the minimum outlined in the law. These municipalities can create zoning regulations around cannabis businesses under the law’s parameters, but cannot ban them outright.

As the 23rd state to legalize, Minnesota looked at what has and hasn’t worked in other states, the OCM report to the legislature noted. When looking at the securing of property in other states before licensure, OCM found other states faced legal implications that were costly both to governments and prospective business owners.

In Minnesota, a local government’s discretionary and subjective input on cannabis applications is limited. In other states where local municipalities have this power, this input has increased the risk of litigation, the OCM report to the legislature stated. For example, in Michigan, the ability of local governments to set localized application scoring procedures resulted in multiple lawsuits and delays in market launch. Under the current law, these scoring procedures for licensure would be exclusively under the purview of the OCM.

Temporary licensure 

The OCM is recommending the use of temporary licensure for social equity applicants to help give these applicants a “head start” on the application process.

This strategy looks to help ensure adequate supply for the initial market launch and mitigate some of the risk associated with the time between legalization and final rule adoption to support the 2025 market launch goal, according to the recommendation to the legislature.

The rule-making process underway by the OCM is “a lengthy process,” Briner said. What a temporary licensure would look like and how it could be employed would be up to the legislature.

“The idea is to create an approach that offers first-mover advantage, but the legislature may have conversations about whether that first-mover advantage will actually allow some cultivators to put seeds in the ground,” Briner said.

Strengthened social equity 

The OCM is looking to strengthen provisions in the bill that prioritize social equity applicants. The law currently defines social equity applicants as people who have been convicted or have a family member who has been convicted of a cannabis-related offense. The group also includes veterans or members of the National Guard who lost honorable status due to a cannabis-related offense, along with “socially disadvantaged” farmers or ranchers and applicants who have lived for five or more years in a low-income area or an area that has experienced disproportionately large cannabis enforcement. 

There are two suggestions made on this front. First, the creation of a separate social equity classification. And second, a change to the percentage of social equity candidate ownership is required for a business to qualify as a social equity candidate.

Under the current law, there is no distinction between general and social equity licensees after a license has been granted. This could reduce the value and opportunities available to social equity licensees, according to the OCM report to the legislature. The OCM recommends the legislature create a separate social equity license classification. This separate category would replace the 20% point system reserved for social equity applicants outlined in the current law.

It is also currently required that a business be 100% owned by a social equity applicant. This means that the applicant would need a large amount of up-front capital, Briner said. In many other states, the ownership criteria for social equity applicants is 51%. This has been subject to scrutiny as well because non-social equity investors can apply predatory practices when they have a high percentage of ownership. But generally, states range between 51% to 60%.

“It was very clear to us that the legislature wanted a high threshold for ownership requirements, so we propose 65% which is more in line with the national percentage,” Briner said. “… Capital acquisition is really tough. It’s finding the sweet spot that both prevents those predatory practices and also eases opportunities for this craft market and entrepreneurial operators to actually secure the capital they need to get started.”