Minnesota became the 23rd American state to legalize cannabis use for people 21 and older with the passage of HF100 by Governor Walz in 2023. The state is on the verge of a significant milestone in its cannabis industry, with the pre-approval licensing period for social equity applicants commencing in July. This phase marks a pivotal step in the state’s efforts to ensure a fair and inclusive cannabis market.
In this article, we will delve into the pre-approval licensing period, the social equity verification process currently underway, and the subsequent steps towards obtaining a cannabis business license in Minnesota.
What is the Pre-Approval Licensing Period?
This year, the Minnesota Legislature approved a “pre-approval” licensing process for the Office of Cannabis Management. This allows regulators to authorize certain businesses earlier, enabling them to plan ahead while the rulemaking process continues, anticipating a market launch in 2025.
The pre-approval licensing period is a preparatory phase designed to streamline the application process for prospective cannabis business owners. During this period, applicants can submit their credentials and business plans for preliminary assessment. This step aims to identify and assist applicants who meet the necessary criteria, particularly those from communities historically affected by cannabis prohibition, who will qualify for social equity status.
On July 24, 2024, those applicants that were verified as social equity applicants, will be able to submit an application for cannabis license preapproval. Those license applications will then go through review and a vetting process and will be entered into a lottery to be held later this fall. This preapproval process window will close on August 12, 2024.
Obtaining a pre-approved license does not permit retail stores to sell marijuana flowers and products before the rulemaking process is finalized and the market officially opens next year. However, cultivators and businesses that receive early approval can start growing commercial crops as early as this fall.
Who Can Apply for Pre-Approval?
Initially, the pre-approval licensing period is open exclusively to social equity applicants. These are individuals who meet specific criteria set by the Minnesota Office of Cannabis Management (OCM).
Social equity applicants are typically those who have been disproportionately impacted by previous cannabis laws, including people from communities with high rates of cannabis-related arrests and convictions, as well as those who have faced economic disadvantages due to these laws. This move aims to rectify past injustices and provide a pathway for affected individuals to participate in the lucrative cannabis market.
To qualify as a social equity applicant, one must meet any one of the following criteria:
- Was convicted for cannabis-related offenses (sale or possession) before May 1, 2023.
- Had an immediate family member or dependent convicted of cannabis-related offenses (sale or possession) before May 1, 2023.
- Was a dependent of someone convicted of cannabis-related offenses (sale or possession) before May 1, 2023.
- Military veterans, and current or former members of the national guard, including those who lost honorable status due to cannabis-related offenses (sale or possession).
- Has been a resident for the last five years in areas with disproportionate cannabis enforcement.
- Is an emerging farmer, as defined by Minnesota statutes.
- Has been a resident for the last five years in census tracts with 20% or higher poverty rate or low median family income (less than 80% of statewide median family income).
Applicants from outside Minnesota who meet these criteria are also eligible to apply.
Social Equity Verification Process
The Office of Cannabis Management (OCM) started the social equity verification process on June 24, 2024, allowing participants to ensure they meet the requirements for social equity status. This process will end on July 10, 2024.
Recognizing the disproportionate impact of previous cannabis prohibition on marginalized communities, the state has prioritized these groups in the initial phase of the licensing process. The social equity verification process is, thus, a critical step for applicants aiming to benefit from the state’s social equity provisions, ensuring that only eligible individuals gain access to the pre-approval licensing phase.
Benefits of being a social equity applicant include:
- Prioritization in the licensing process with the preapproval licenses
- Designated licenses per license type for social equity applicants
- Access to resources
The social equity verification process will be covered in the following steps.
Step 1 – Verify social equity applicant eligibility:
The first and foremost step starts with the confirmation of an applicant’s social equity eligibility by the OCM. First, you must register an account on this online system linked on OCM’s website. When your account is created, you can log in and submit the necessary documents required as proof.
Social equity licenses must be owned at least 65% by social equity applicants, which can include one or multiple individuals. Every person who makes up the 65% ownership must be verified to proceed to applying for license preapproval.
Step 2 – Apply for license preapproval:
Once you have been granted eligibility for social equity, you can apply for license preapproval. The portal to apply for a license preapproval will open July 24 and close on August 12.
This process includes submitting an application on OCM’s online application system, along with all the required documentation. Also, payment of the application fee for the type of license sought must be done in this step.
The list of documents to be included with the submitted application should consist of:
- Business plan
- Security plan
- Business Capitalization Table, and
- Standard Operating Procedures for:
- Quality Assurance
- Inventory Control, storage, and diversion prevention, and
- Accounting and tax compliance.
Applicants can convert their preapproval into a full cannabis license once the regulations are implemented and all necessary steps are completed. However, preapproval does not guarantee a license if the applicant does not meet the requirements for full licensure.
Step 3 – OCM conducts lottery process:
The OCM will conduct a lottery for social equity applicants seeking license preapproval. Once the lottery process is complete, the OCM will notify each applicant if they were selected. The date for the first lottery will be announced soon.
Social Equity License Ownership Restrictions:
- A minimum of 65% social equity ownership must be maintained for at least 3 years post-award of a business operating license. After that time, the 65% ownership can be sold to non-social equity persons.
- The 65% ownership can be transferred only between verified social equity persons within the first three years.
Municipal Control and Real Estate:
- Real estate is not required at the time of application but must be acquired during the 18-month conditional license phase.
- Local governments can establish buffer zones prohibiting cannabis businesses within specific distances from the following:
- Schools: 1000 feet
- Daycares: 500 feet
- Residential treatment facilities: 500 feet
- Attraction within a public park that is regularly used by minors, including a playground or athletic field: 500 feet
- Local governments cannot opt out of allowing cannabis businesses but may limit the number of licenses based on population.
First-Round License Ownership Restrictions:
- Holders of Mezzo-business or Micro-business licenses can only have an interest in one such business and can hold no interest in any other license type.
- Cultivation license holders may also hold interest in one manufacturing license, aside from their one cultivation license, and vice versa. Vertical integration is prohibited in the first round of licenses.
Pre-Approval Licensing Phase
Once verified as social equity applicants, individuals can move forward to the pre-approval licensing phase. During this stage, applicants are required to submit comprehensive business plans, which include:
- Business Structure: Detailed descriptions of the proposed business, including organizational structure, management team, and operational plans.
- Compliance Plans: Strategies for ensuring compliance with state regulations, including security measures, record-keeping, and inventory management.
- Financial Projections: Detailed financial plans, including startup costs, funding sources, revenue projections, and a break-even analysis.
- Community Impact: Plans for community engagement and efforts to ensure the business benefits the local community, particularly those areas disproportionately affected by past cannabis laws.
Along with their proposed business plan, applicants must also submit well-rounded plans covering important aspects like security and standard operating procedures for quality assurance, inventory control, storage and diversion prevention, as well as accounting and tax compliance.
The pre-approval process allows the OCM to evaluate the feasibility and preparedness of applicants before they proceed to the final licensing stage. Successful applicants will receive a pre-approval notice, which acts as a precursor to the full license application.
The different types of licenses that will be available for application during the preapproval phase, along with their details are given below:
- Cannabis Cultivator: Cannabis cultivators can grow cannabis plants from seed to maturity. They can grow up to 30,000 square feet of cannabis plants indoors and two acres outdoors. Cultivators are allowed to harvest, package, label, and transport fully grown cannabis plants to manufacturers. They can also package, label, and transport seedlings.
- Application fee: $10,000
- Initial license fee: $20,000
- Renewal fee: $30,000
- Number of available licenses in the first round: 13
- Cannabis Manufacturer: Cannabis manufacturers process raw cannabis plants into various products, such as edibles, concentrates, wax, oils, and tinctures. Manufacturers can buy cannabis flowers, cannabis products, and lower-potency hemp products from other cannabis businesses. They turn these materials into cannabis products, then package and sell them to other cannabis businesses.
- Application fee: $10,000
- Initial license fee: $10,000
- Renewal fee: $20,000
- Number of available licenses in the first round: 6
- Cannabis Microbusiness: Cannabis microbusinesses can grow, make, sell, and buy cannabis (including plants and seedlings) and lower-potency hemp products. They can also have on-site lounges where customers can use cannabis. These businesses can grow up to 5,000 square feet of cannabis plants indoors and up to one-half acre outdoors. This license may hold a cannabis event organizer license.
- Application fee: $500
- No initial license fee
- Renewal fee: $2,000
- Number of available licenses in the first round: 100
- Cannabis Mezzobusiness: Cannabis mezzobusinesses can grow, make, sell, and buy cannabis (including plants and seedlings) and lower-potency hemp products. Mezzobusinesses can grow up to 15,000 square feet of cannabis plants indoors and up to one acre outdoors.
- Application fee: $5,000
- Initial license fee: $5,000
- Renewal fee: $10,000
- Number of available licenses in the first round: 25
- Cannabis Retailer: Cannabis retailers sell packaged cannabis products to the general public and medical patients. They can buy cannabis (including plants and seedlings) and lower-potency hemp products from other cannabis businesses and sell them to customers.
- Application fee: $2,500
- Initial license fee: $2,500
- Renewal fee: $5,000
- Number of available licenses in the first round: 38
- Cannabis Wholesaler: Cannabis wholesalers buy cannabis, cannabis products, and lower-potency hemp products from cannabis businesses and then sell them to other cannabis business.
- Application fee: $5,000
- Initial license fee: $5,000
- Renewal fee: $10,000
- Number of available licenses in the first round: 20
- Cannabis Transporter: Cannabis transporters are businesses that move cannabis, cannabis products, and lower-potency hemp products between businesses.
- Application fee: $250
- Initial license fee: $500
- Renewal fee: $1000
- Number of available licenses in the first round: 20
- Cannabis Testing Facility: Cannabis testing facilities receive cannabis, cannabis products, and lower-potency hemp products from manufacturers and cultivators to test. They ensure these products meet safety standards.
- Application fee: $5,000
- Initial license fee: $5,000
- Renewal fee: $10,000
- Number of available licenses in the first round: 50
- Cannabis Delivery Service: Cannabis delivery services purchase cannabis and lower-potency hemp products from specific cannabis businesses and sell and deliver those products directly to consumers.
- Application fee: $250
- Initial license fee: $500
- Renewal fee: $1,000
- Number of available licenses in the first round: 10
General Licensing Process
License applications for the general public who don’t meet social equity criteria will open next year. The process for obtaining general licenses and their dates will be announced shortly.
In the meantime, the OCM advises preparing your application covering a proposed business plan, security plan, and business capitalization table, along with standard operating procedures for quality assurance, inventory control, storage and diversion prevention, and accounting and tax compliance.
This preparation will ensure you are ready when the application period for general licenses begins.
Wrap Up
The launch of the cannabis business licensing process in Minnesota marks a significant milestone in the state’s efforts to build an inclusive and equitable cannabis industry. By prioritizing social equity applicants, Minnesota is taking a bold step towards rectifying past injustices and ensuring that the benefits of cannabis legalization are broadly shared.
Prospective applicants would benefit from reviewing the OCM website regularly for latest updates, as they plan to publish additional materials in the coming weeks to assist social equity applicants through the process of obtaining a cannabis license.