Lawsuits lead judge to halt Minnesota cannabis business license lottery

ST. PAUL, Minn. — A Ramsey County judge on Monday halted a planned lottery to award the first cannabis licenses on Tuesday, a setback for state regulators as they ramp up towards legal sales next year. 
The drawing was for the license “preapproval,” which would give some business owners who meet the criteria as a social equity applicant a head start before a general licensing period next year. But the Office of Cannabis Management dismissed two-thirds of applications for failing to provide proper documentation as required by law and some, the agency said, were trying to “flood the zone” to game the system.
The denials prompted four lawsuits in which plaintiffs argued they were wrongfully rejected and sought a court order to stop the Tuesday lottery. On Monday, Ramsey County Judge Stephen Smith ultimately issued a stay so plaintiffs could have time to file a special petition with the Minnesota Court of Appeals, which deals with challenging decisions from state agencies.
“Given the extraordinary circumstances presented by the timing of OCM’s application decisions and filing of these cases, a fair and reasoned decision by the Court of Appeals is not possible without a stay of the lottery,” Smith wrote in his order.   
“Today’s ruling to pause the lottery is a victory for fairness, transparency, and accountability in Minnesota’s new cannabis industry,” said Cristina Aranguiz, a plaintiff in one of the lawsuits. “It also shows that the court recognizes the importance of ensuring every qualified social equity applicant has an equal chance to succeed.”
Cannabis regulators accused her of being part of a scheme to use hundreds of “straw applicants” to gain unfair advantage in the lottery. The cannabis office has maintained the review process was rigorous to guarantee fairness for social equity applicants as the law intended. 
“My application meets the criteria set by the state. I have colleagues who met the criteria and want to start a cannabis business, too, so I provided assistance to help them be successful. Helping others in this process is not improper,” Aranguiz said.
The Minnesota Office of Cannabis Management in a statement said regulators were disappointed by the judge’s decision but stand by their review process.
“Minnesota’s approach has always aimed to protect the integrity of a social equity license, and the rigorous review also allowed us to identify and prevent bad actors from entering the system,” an agency spokesman provided in a statement. “State statute sets high standards for applicants to successfully complete applications while also filtering out those with malicious intent. We remain committed to launching an equitable, sustainable, and responsible adult-use cannabis marketplace in Minnesota.”
Up for grabs in the lottery were 282 licenses ranging from cultivators to microbusinesses to retail dispensaries. Carol Moss, a cannabis attorney with Hellmuth and Johnson, had clients who were rejected and others who were approved.
She argued some of her applicants were denied entry on technicalities, like missing a signature on a single page or because a picture of a driver’s license didn’t upload.
If chosen, licensees would have assurances from the state that they are clear to operate as they proceed with building their business, like applying for local city approval. She noted getting into the industry comes with significant risks already.
“You can start talking to landlords, you can start talking to investors, and that’s why these preapprovals are so valuable—because it creates that certainty that allow businesses to move forward,” Moss said. 
These early licenses were part of changes to Minnesota’s recreational marijuana law that the state legislature greenlit earlier this year. Cannabis regulators wanted to ensure timely market launch. 
None of the businesses would be able to operate sooner than early next year when the rulemaking process is expected to be complete. But any preapproved cultivators were authorized to start planting in order to have adequate supply to meet demand when dispensaries open their doors.  
Moss, who doesn’t represent any of the plaintiffs in the lawsuits, wonders if the preapproval process will even happen at all. The judge on Monday did not rule on the merits of the case and issued the stay to allow time for plaintiffs to file administrative appeals. 
That process can take many months, she said.
“The judge stayed the lottery so that the plaintiffs could seek their remedies through a writ of certiorari. But logistically and practically, I’m not sure how that can be done,” she said. “If that is what’s going to be required of these applicants, it’s pretty much going to make the pre-approval process moot, because the regular process, the licensing process will be taking place next spring.”