Minnesota’s Proposed Cannabis Legislation Would Provide Early-Mover Licensing Opportunities for Social Equity Business Applicants

By Jason Tarasek, Yolanda Clarke

Mar 12, 2024

Through recently introduced legislation, Minnesota lawmakers are seeking to modify the state’s adult-use cannabis statute to incorporate suggestions from the Minnesota Office of Cannabis Management’s (OCM) 2024 Annual Report to the Legislature. The key changes focus on promoting social equity within the industry.

Importantly, the bill (S.F. No. 4782) seeks to allow cannabis businesses that qualify for social equity status to gain a first-mover advantage in the nascent market, as well as provide additional details on which applicants will meet the criteria for that social equity status. A limit on both the overall number of cannabis business licenses and a distinct class of specific social equity licenses is suggested.  

Temporary License Criteria for Social Equity Applicants

Under the bill, the OCM is allowed to issue “temporary licenses” to social-equity applicants. These temporary licenses will be valid for only 18 months and enable those licensees to take concrete steps toward becoming operational, such as securing property, capital, and local building approvals. Temporary licensees cannot partake in licensed cannabis activities or make any ownership change that would alter control, require a new business registration, or cause the applicant to no longer qualify as a social equity applicant. In theory, these temporary licensees would be able to convert to full licensure as soon as OCM finalizes its cannabis regulations, which are expected in early 2025 and ahead of general, non-social equity applicants.

While no specific dates are proposed, OCM will provide at least two weeks' notice prior to an application period. Application windows will remain open for at least 30 days. OCM may stagger the license applications in waves by license type.

The bill limits the number of temporary licenses as follows:

  • Microbusiness: 100
  • Mezzobusiness: 11
  • Cultivator: 13
  • Manufacturer: 6
  • Retailer: 50
  • Wholesaler: 20
  • Transporter: 20
  • Testing Labs: 25
  • Event Organizer: 10
  • Delivery service: 10

Applicants who submit complete applications and meet all qualifications would be eligible for temporary licensure. If the number of applicants exceeds the numerical limit for a particular license type, a lottery will be held to determine the licensees. Those not selected can opt to be entered into a subsequent lottery, though additional application fees or updates to the initial application may be required.

Additional Bill Highlights and New License Caps

In addition to temporary licensure, other highlights of the proposed legislation include:

  • Clarifying that 65% of an applicant’s “controlling ownership” must qualify as a social-equity applicant in order to apply as a social-equity applicant
  • Replacing the “emerging farmer” social equity criteria with someone who is “currently a farmer or aspiring cannabis farmer who faces barriers to education or employment” (though details on what those barriers may entail are not currently included)
  • Amending changes to ownership for social-equity applicants from only permitting transfers with other social-equity applicants to allowing transfers to non-social-equity applicants after three years of operations
  • Removing a locality’s ability to provide input on a state cannabis business application, though a retail endorsement still will not be issued by the state if the applicant does not satisfy local zoning and land use laws
  • Replacing medical cannabis standalone licenses with a medical cannabis combination business license and offering a medical-cannabis retailer endorsement to adult-use cannabis retailers
  • Consolidating the medical cannabis and adult-use cannabis supply chains.

To lower barriers to entry for all applicants, this bill also clarifies that property is not required at the time of application. Notably, with the exception of microbusinesses, the bill caps the number of permanent licenses as follows, which represents a significant divergence from the original adult-use cannabis bill:

Social Equity

  • Cultivator: 25
  • Manufacturer: 12
  • Retailer: 100
  • Mezzobusiness: 22

All applicants

  • Cultivator: 25
  • Manufacturer: 12
  • Retailer: 100
  • Mezzobusiness: 22

As with temporary licenses, applicants for permanent licenses who submit complete applications and meet all qualifications would be eligible for licensure, with a lottery held for those license types that receive eligible applications more than the numerical license limits.

Opportunities for Tribal Sales

Portions of this bill, coupled with separate legislation introduced earlier this month, also propose to allow Minnesota's medical cannabis companies to sell cannabis to Minnesota’s tribal nations. Suppose the bill becomes law and the State of Minnesota finalizes compacts with tribal nations authorizing them to sell off tribal land. In that case, it is possible that tribes could immediately begin selling adult-use cannabis to consumers throughout Minnesota. The current version of the Bill indicates, however, that the medical cannabis companies’ right to sell cannabis to tribes would terminate in March 2025.

Navigating the Market

Changes in emerging markets are common but can be confusing for those entrepreneurs hoping to enter the industry. It is important to note that this bill is still in its early stages, and while there is support to pass the measure, we may see numerous changes before it is signed into law.

Vicente’s Minnesota team is actively monitoring developments in Minnesota’s adult-use cannabis business, medical cannabis business, and hemp business program implementation.

It is never too early to start preparing for licensing by building your team, forming your business, applying for trademark protection, performing community outreach, finding real estate, and more! Please contact us for assistance in navigating this dynamic and evolving regulated cannabis system.

Sign up for Minnesota cannabis updates from Vicente LLP

The content and links provided on this page are for informational purposes only and not for the purpose of providing legal or tax advice. Viewing this page does not establish an attorney-client relationship. You should consult with a qualified legal professional for advice regarding any particular issue or problem. The contents of this page may be considered attorney advertising under certain rules of professional conduct.