Minnesota Governor Supports Changing Marijuana Law To Strengthen Social Equity But Wants To Avoid Legal Challenges

“Everyone agrees that the sooner we can get licensed dispensaries open, the better.”

By Peter Callaghan, MinnPost

Minnesota Gov. Tim Walz (D) said Tuesday he supports proposals by the state’s cannabis management office to increase advantages to what are termed “social equity applicants” in the fledgling legal marijuana marketplace.

The Office of Cannabis Management (OCM) said last week it would ask the Legislature to amend the 2023 recreational marijuana law to make it easier for people and neighborhoods who suffered most from prohibition to get into the business. For example, such applicants for licenses to grow and sell marijuana could get temporary licenses ahead of others seeking permission to build grow operations or sell cannabis. And the state could allow social-equity applicants to have investors who do not qualify as disadvantaged suitors as long as at least 65 percent of the capital comes from qualified people (the current law says 100 percent).

But contrary to some readings of the proposal, OCM is not proposing that social equity retail license holders be allowed to open dispensaries sooner than other applicants, perhaps as early as this fall.

“Philosophically our goal is to make sure the equity piece was a big part of this,” Walz said in an interview Tuesday. “We certainly want to stay in the parameters of the law of who we can give help to. But I think the idea was, too often marginalized communities are left to the side. They’re left back.”

But Walz said he wants OCM to craft the proposals to protect the state from lawsuits that might challenge such advantages to one group of applicants over others. That is what is happening in federal court where a white farmer is challenging grants aimed at “emerging farmers” to help them buy their first farms. Those grants help groups including women and people of color who have faced discrimination in the past when attempting to begin farming.

The lawsuit claims that the white farmer would have been eligible for down-payment assistance except for his race.

“We have the agriculture grant program that is in court now over the ability to do that,” Walz said. “I think it’s legal. We think it’ll stand up, but if it doesn’t, trying to clarify [the cannabis law].”

The 2023 cannabis law had as a primary pillar a desire to remedy the harms caused by historic prosecution of marijuana sales and use by giving those harmed access to the financial benefits of a legal industry. “It’s actually pretty foundational to how these dispensaries will roll out and how they’ll be funded,” Walz said.

It does not, however, use race as a factor. Social equity applicants are defined as people who were convicted of marijuana-related crimes, who come from families where someone was convicted, live in neighborhoods with a high percentage of marijuana enforcement or live in neighborhoods with high levels of poverty, are “emerging farmers” or are veterans who were less-than-honorably discharged due to marijuana offenses.

Those applicants would get extra points to help them qualify for licenses. But the interim director of the Office of Cannabis Management, Charlene Briner, said last month she doesn’t think the current law does enough. Yet Briner said Tuesday her office is not proposing an early start to cannabis sales by social equity retail license holders.

“We anticipate OCM’s proposal could launch a conversation at the Legislature about options to use temporary licenses as a way to accelerate cultivation, manufacturing or other entry points in the supply chain, however that is not part of OCM’s current proposal,” Briner said in a statement Tuesday.

Instead, the proposal is to ask lawmakers to “create a mechanism to accept applications for temporary licenses for social equity applicants,” she wrote. “If enacted, the application process would open this summer and approved social equity applicants would be issued temporary licenses. This proposal would give social equity applicants early mover advantage by allowing temporary license holders to establish a site of business, gain zoning or planning approval from a local government, and raise capital.”

But it would not allow them to purchase, possess, cultivate, manufacture or sell cannabis or cannabis products “until rules are promulgated and in force,” she wrote. The proposed change to the law would allow applicants to complete the licensing process prior to completion of the rulemaking process, which is not currently allowed by HF 100.

“Additionally, under OCM’s proposal, temporary licensees would be eligible for conversion to a standard license upon adoption of final rules, as long as they are in good standing and there are no outstanding compliance issues,” Briner wrote.

Current law says all applicants need to have their money lined up and their buildings purchased or leased before they apply for licenses. That, Briner said, places a burden on small businesses who would have trouble getting investors, mortgages or leases before they have licenses.

OCM proposes reversing that sequence by allowing provisional licenses to be granted that could then be taken to investors, landlords and local governments that are charged with inspecting retailers for compliance with state law and local zoning.

By allowing social equity applicants to have some investment from people and businesses that lack social-equity standing in the law, Briner said it would make it easier to raise money. But she said OCM is also aware that in other states that have non-social equity investment shares as high as 49 percent, what she termed “predators” have set up straw applicants to gain social-equity licenses.

OCM has said that it must complete the complex process of writing the rules for cannabis growing and sales—rules that lay out how the different licenses would be shaped and even the forms and applications for the program. Creating the agency from scratch, writing the rules, examining applications and other behind-the-scenes functions are expected to take until early 2025 with the first retail stores open sometime in early spring.

Advancing that timetable is something that advocates would like, however.

Rep. Zack Stephenson, the Coon Rapids DFLer who was prime House sponsor of House File 100, said last week anything that opens stores sooner would be a good thing.

“Everyone agrees that the sooner we can get licensed dispensaries open, the better,” he said. “The point of the law is to replace the illicit market with a legal market.” But he said he is skeptical that OCM could act in a way that would move retail sales up more than a few months from the spring 2025 target.

Opening stores earlier than next spring would require other law changes to provide an interim supply of cannabis, since cultivator licensees would need many months to build grow operators and bring plants to flower.

State and federal law does not allow the importation of cannabis across state lines, so all marijuana sold in Minnesota would have to be grown in Minnesota. The only suppliers who could meet the needs of a legal market prior to new cultivation licensees are the two medical marijuana providers—LeafLine Labs and Vireo Health/Green Goods.

Current law allows them to grow enough for their medical businesses and also to have some recreational retail stores once recreational sales kick off. But the law does not allow them to sell cannabis products wholesale to other retailers or to tribal nations who want to sell marijuana. OCM will propose merging the supply chains envisioned in HF 100, replacing current law that has a medical cultivator license with certain restrictions and a recreational cultivator license with different restrictions. Under the proposal, any cannabis grower could sell into both the recreational and medical markets.

“I do think it makes sense because it was overly complex,” Walz said. “The two parallel supply chains didn’t make sense in this.”

Off-reservation cannabis sales

Walz also confirmed that some tribal nations have approached the state about negotiating tribal/state compacts that would allow them to sell marijuana outside of reservation boundaries, perhaps on land held in trust for the tribe. The new law envisioned tribes producing and selling cannabis on reservation, and some have opened up retail stores.

“We did make the case on this, that we want this to be Minnesota grown, we want this homegrown, we want the tribes to be a key player in this to help diversify their economic environment,” Walz said. “These are not giveaways to tribes. These are a recognition of the land we’re on, trying to make things right. And so we made it clear that we wanted these to be as strong as possible. We wanted the tribes to be at the forefront of a lot of this.”

“There have been some tribes that have brought that up,” Walz said, referring to off-reservation sales. One of those is the Red Lake Nation that has a retail sales operation on reservation and had a mobile store that it has located near a tribal casino. The National Indian Gaming Association objected, Walz said.

“So that still is a gray area,” he said. Because of its geographic isolation, the tribe has asked about being able to sell on trust land off reservation. Trust land is off reservation property owned and controlled by tribal nations under federal law.

“So they’re gonna press the limit as far as they can. And they’re one who brought that up,” he said. “‘We have Red Lake citizens in Minneapolis. Why can’t we set up there?’ So they have raised the issue. There have been discussions happening, but no decisions.”

Walz said he gets a weekly briefing on how his agencies are implementing all of the laws passed in the 2023 session, including the cannabis law. He also gets a briefing every other week or so from Briner specific to cannabis. That level of detail came after two issues arose. One was his appointment of Erin DuPree to the top spot in the new agency only to accept her resignation days later. A special Office of Legislative Auditor report blamed a flawed process for background checks of senior appointees. Walz was also unhappy when he was surprised by a Department of Iron Range Resources and Rehabilitation decision to give taxpayer assistance to a single, out-of-state cannabis company to build a grow operation in Grand Rapids.

Walz said his concern about implementation is the damage that missteps do to public confidence in legalization.

“I still believe philosophically from an equity standpoint, from a health standpoint, from a safety standpoint, from a freedom standpoint, it’s the right thing to do,” he said. “But I think if you don’t get it right, you lose trust of the public in it. And, and I think folks need to know that these products are being regulated, the folks selling them are being regulated.

“It’s like selling bad alcohol, bad food,” he said. “We don’t get another bite at this thing that we need to implement it correctly, that we get the effect we want. We get a reduced black market, we get a safer product. We see folks able to generate revenue off this. And we have a regulatory system that makes sure people aren’t driving under the influence and all that.”

This story was first published by MinnPost.

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Photo courtesy of Chris Wallis // Side Pocket Images.