Minnesota Cannabis regulators won’t offer legislation to allow early cultivation to jumpstart retail sales
But the Office of Cannabis Management is open to a legislative proposal to allow planting this fall before retail sales start next spring.
Minnesota cannabis regulators will not be asking for law changes to allow some cannabis cultivators to plant early as a way to have some cannabis products ready to sell when retail stores open sometime in early spring of 2025.
That doesn’t mean that the hope to get cannabis seeds in the ground this fall, rather than next spring, are dashed. There is a move by the Senate sponsor of modifications to last year’s House File 100 to greenlight earlier growing of cannabis in the state.
The decision by interim Office of Cannabis Manager Director Charlene Briner not to offer new bill language on early production came after the agency heard concerns that waiting until 2025 to issue all licenses — both for growers and retailers — would further delay legal sales in Minnesota. Only early cultivation would prevent the rollout from featuring open doors to empty stores, backers of that change argue.
Briner said she met with various groups involved in the fledgling industry but said there was no consensus on how to solve the problem. OCM told stakeholders and legislators that it couldn’t devise a way to allow some early planting and harvesting that treated all potential growers equally.
The dominant proposal was to use current medical cannabis rules to regulate early cultivation for recreational cannabis. That, Briner said Monday, has flaws because those rules did not envision outdoor farms, and no regulations exist for that type of growing operation. In addition, those existing rules did not make accommodation for social equity applicants — one of the pillars of the new legal cannabis law.
Social equity applicants are those who either personally suffered from the illegal cannabis regime or come from neighborhoods where enforcement was disproportionate. House File 100 last year emphasized giving those who suffered the most under prohibition a chance to profit from the legal industry.
“OCM has always been aware of the need to stage cultivation prior to retail sales,” Briner said. “There is no doubt we understand the supply chain and the need for retailers to actually have product available as part of a successful market launch.”
The concern around the need to “get plants in the ground asap” has heightened in the last several weeks, she said. OCM looked for bill language from lobbyists and industry participants to accomplish that in a series of meetings through last week.
“What became clear was that there was no consensus on approach,” Briner said. “One of the concerns is making sure we don’t sacrifice the need for speed with the equity that is so essential in the bill.”
But Briner said current law and some changes she has already proposed could give OCM the authority to move toward early cultivation.
“We thought it was better not to introduce specific language and continue to work on the goal of staging the market,” Briner said. “If the bill moves forward, we would have the flexibility, if needed, to authorize cultivation under the medical rules without additional legislative change.”
Maintaining social equity goals
While Briner and OCM are influential in any rule changes — she works for the governor who must sign any bills on the subject — early growing bill language isn’t dead in the 2024 session. Sen. Lindsey Port, the Burnsville DFLer who is the Senate leader on legalization, is preparing amendments to allow some social equity growers to plant by the last quarter of this year. The early authority could be granted to large bulk growers as well as smaller operations — so-called micro and mezzo businesses.
Port said her amendment does not set out a separate licensing level for cultivators to plant and harvest early. Instead, she said, the amendment uses a combination of some rules and laws already in place and other changes in the bill now before the Legislature.
That is, the amendment takes advantage of existing medical cannabis rules and the proposal to move medical cannabis from the Department of Health to the Office of Cannabis Management in July rather than next spring. Once the medical cannabis agency is within Briner’s control, control of existing rules come over as well. And once they do, they could be applied to some early licenses.
That’s where another OCM proposal comes into play. Briner has requested — and the Legislature has so far been agreeable to — giving social equity applicants the ability to apply for and receive what are called pre-approved licenses. Initially the intent was to give them certainty of being licensed so as to make it easier to get financing, sign leases, get city OKs — all steps that must come before operations can begin.
But Port’s amendment combines the medical cannabis rules with the proposed social equity pre-approved licenses and adds the means to grant such applicants permission to plant and harvest sooner than next spring.
“It’s the staging process that we’ve been focused on building-in the entire time,” Port said via text message. “We need cultivation to happen before retail opens. I am working on language to spell this out so that applicants will know this is a possibility and be able to take it into consideration as they are preparing themselves and their applications.”
Port’s amendment could come Tuesday when the Senate Commerce Committee takes up the OCM request bill.
The law signed last spring legalized cannabis possession, use and home growing of up to eight plants. But growing for sale and the retail sale of cannabis had to await a lengthy rule-drafting process. Even though the OCM was granted what is called expedited rule-making authority, it was always expected to take around 18 months.
Some tribal dispensaries are selling products grown in tribal grow operations on reservation grounds, but while those operations are allowed under Minnesota’s recreational cannabis law, they aren’t regulated by the Office of Cannabis Management.
An amendment to provide some early cultivation was proposed when the bill passed the House two weeks ago. Sponsors of the bill opposed it, and it failed. But Rep. Jessica Hanson, DFL-Burnsville, said she remains open to such a plan. But she said she is certain OCM will not create a situation where stores are licensed but no product is available to sell. That could mean that stores open later that next March.
“Remember, the dispensaries open when the OCM says they can open,” she said. “It would be peremptive for us to open those before we have supply in place.”
Hanson said she isn’t as concerned about having cannabis ready to sell when stores are licensed next year as others are. Medical cannabis has its own supply from the two medical providers. Other users have been able to find cannabis on the illicit market for years and will continue to until legal stores open. She said she is more worried that an early cultivation plan could leave social equity applicants out and benefit larger operators with the finances and experience to get a grow operation running more quickly.
“We don’t have to sacrifice equity for expediency,” Hanson said before adding that the plan like that being considered in the Senate that gives early growing permission to social equity applicants is positive.
Hanson also said she wants to make sure the current law and any changes drive the new industry toward what is termed a craft industry — smaller and local businesses versus large multi-state operators (MSOs). Think local craft breweries vs. Budweiser.
“We do have to make sure we’re prioritizing the craft industry because if we’re not, what are we actually doing?” Hanson said. “We’re not here to build a bigger market for MSOs only, we’re here to build a big market for everybody, that everyone has an equal footing in.”
Leili Fatehi, a cannabis lobbyist who ran the pro-legalization effort under the name MN is Ready, said getting early cultivation is vital to a successful launch of legal sales in the 23rd legalization state. With possession and use already legal, launching a legal market as soon as possible is needed to begin thwarting the illicit market, she said.
Also, small businesses that already have difficulty raising money because of the illegality of cannabis at the federal level are less able to suffer delays than MSOs, she said.
“Authorizing businesses that are operationally ready to start cultivation — whether it is the micro level, the mezzo level or the bulk level — is the single most important thing for standing up the industry on a timeline that supports having a small-business and social-equity oriented marketplace,” Fatehi said.
“The people who can most withstand delays and uncertainties in the timeline are the large MSOs,” she said. “And the people who are most susceptible to challenges with getting investment, staying liquid, getting property are the small businesses.”
Some of those are in the hemp-derived side of the industry who want to transition to cannabis sales or micro businesses. Others are what are termed “the legacy” cannabis business, meaning those who have been growing or selling illegally but who want to enter the legal market.
Current law makes no distinction between cultivating licenses, combination licenses and retail licenses. All must wait until final rules are adopted by OCM, expected around March of 2025. While retail licenses could be granted next year, the store owners would be dependent on cannabis being available. And because cannabis that exceeds certain potency content is illegal under federal law, only cannabis grown in Minnesota can be legally sold in Minnesota.
The license lottery
OCM has proposed changes to allow social equity applicants to enter a lottery that would give them preapproval licenses. While such licenses would allow those applicants to begin building their operations and arranging finances and zoning approval, they would not allow planting of seeds, harvesting of cannabis or sale of products.
There have been complaints about the lottery because it disrupts a points-based system in last year’s law, but OCM and the DFL sponsors appear to be moving ahead with it. Concerns are that the current points system assures that applicants have completed tasks that earn points — business plans, financing, security plans, social equity ownership. A lottery, opponents say, could allow lucky but unprepared applicants to win licenses.
Briner, however, has said that a lottery would remove subjectivity from selection that could affect the awarding of points. That, as has happened in other states that have used such a system, could lead to lawsuits that slow down rollout of legal sales.
Changes have been made to require winners to act on their licenses within 18 months or lose them. A new OCM proposal would stiffen requirements that social equity lottery entrants are the actual owners of a business and not fronts for large out-of-state companies, a practice called straw applicants. The new proposal would require disclosure of the “true party of interest” in a license application to make it harder to use fronts to secure licenses.
“We feel like we’ve come a pretty fair distance in addressing some of the concerns that we shared,” Briner said. “While people might not be universally in love with it, they acknowledge that we worked hard to add some criteria to give people a better sense of comfort with the vetted lottery.”
There are three types of licenses for growing cannabis. Bulk cultivators would be allowed to grow up to 30,000 square feet of plant canopy — about the size of one-half of a football field, including the end zone. Mezzo licenses can grow 15,000 square feet of plant canopy, and micro licenses can grow up to 5,000 square feet of plant canopy. Unlike bulk cultivators, mezzo and micro businesses can both grow cannabis and sell it to customers.
The OCM estimates the state will need around 1.5 million square feet of plant canopy to meet the expected market for medical and recreational cannabis.
Lower-potency hemp cultivation and sale, both legal under federal law, are not included in these canopy caps. All currently registered sellers of hemp-derived products will be allowed to get licenses under the new law without entering a lottery and without caps.
