Minnesotans who want to open a cannabis business when the state's recreational marijuana market launches next year might need luck on their side.
State legislators are advancing a bill to change how cannabis business licenses will be awarded. Instead of using a points system to score applications, Minnesota would enter qualified applicants into a random lottery to decide who gets business licenses.
The change is backed by the state's Office of Cannabis Management, which will oversee the licensing process. Regulators from the office are worried the existing points-based system in Minnesota's law could invite lawsuits and accusations of subjective scoring.
"Subjective merit points-based systems have encountered some challenges and have not been particularly successful in yielding … equitable outcomes," said Charlene Briner, interim director of the Office of Cannabis Management. "In order to do this in a way that we're going to be able to launch in a timely manner and not encounter the kind of injunctive delays that have plagued other states, this is where we landed."
The points system currently in statute would have applicants scored based on several factors, from their business plan and labor practices to knowledge and experience. Military veterans and those who are considered social equity applicants — people harmed by previous criminal enforcement of marijuana laws — would get extra points toward winning a license.
Under the lottery proposal, there would be separate lotteries for social equity applicants and everyone else, Briner said. Applicants would still be vetted, having to show detailed plans for their business before being entered into the lottery.
The lottery idea has gotten an icy reception from some Minnesotans who've been preparing for a merit-based application process. At a recent House committee hearing, several testifiers pushed back on the proposal and asked lawmakers to stick with the points system.
"I'm here to speak against the lottery because it does a major disservice to our community. There's no social equity component to it. It is more of an invisible hand picking winners and losers," said Tomme Beevas, founder of Pimento Jamaican Kitchen, who plans to seek a retail cannabis license.
Regulators at the Office of Cannabis Management counter that the scoring system could end up favoring large companies that can hire attorneys and consultants to help them develop a competitive application.
Scoring systems in other states have been subject to litigation, delaying the licensing process. In Illinois, unsuccessful applicants claimed unfairness after identical applications were scored differently. A consultant scoring the applications in Illinois gave more perfect scores to wealthy white men than to Black and Latino applicants who were supposed to be given a social equity advantage. State officials ordered the applications to be rescored and instituted lotteries.
But lottery systems have also been litigated and prone to gamesmanship. In Arizona, some applicants for cannabis business licenses sued the state alleging it hadn't fully vetted 1,500 applicants in its lottery. Connecticut found that some winning applicants had spent hundreds of thousands of dollars to flood the state's lottery with entries.
"Lottery systems are uniquely vulnerable to this kind of gamesmanship because you're leaving it up to random chance instead of expert opinion," said Nathan Young, cannabis policy lead for the Minnesota Black Chamber of Commerce. "When you leave it to a lottery, none of that kind of discretion is there. They're not even really looking at the business plan. They're looking at, basically, do they meet this standard or not?"
Young said that many aspiring cannabis entrepreneurs in Minnesota, who've been preparing business plans and raising capital, were shocked by the proposed pivot to a lottery — including himself. He quit his full-time marketing job in December to dedicate his time to preparing a strong retail cannabis license application.
"That is not a unique thing. There are dozens of entrepreneurs that I know personally who [did this]," Young said. "They did that on the promise that it would be a merit-based system."
Briner said critics of the proposed lottery have raised fair points. But she noted the bill at the Legislature includes some safeguards against sudden ownership changes and fraudulent application practices. The Office of Cannabis Management is willing to work with legislators to add more protections, she said.
State Rep. Zack Stephenson, DFL-Coon Rapids, is sponsoring the cannabis office's bill in the House. He doesn't believe the change to a lottery would be as big as some people think, since there is language in the existing law that would trigger a lottery if there aren't enough licenses for applicants who've received identical scores.
Stephenson said he isn't opposed to the lottery system but also is "not in love with it." He said he doesn't think there is a "litigation-proof system." And he questioned if the proposed lottery could use stricter entry criteria: "I would say there are fewer boxes to check than there are things in the points [system]."
He encouraged the cannabis office to work with community members on a compromise.
"I'm hopeful that in doing so, we can find some middle ground that there's broad consensus among stakeholders on," Stephenson said.
