EXCLUSIVE: Can Minnesota Keep Its Cannabis Industry Local Amid Out-Of-State Pressure? Legal Expert Weighs In

As Minnesota prepares to roll out its cannabis licensing in 2025, the influx of out-of-state applicants to the social equity business licenses has raised a few eyebrows and sparked debate over who will participate in and profit from the state’s burgeoning legal weed industry.

Mitchel Chargo, an attorney with deep roots in Minnesota’s cannabis landscape and a partner at Hinshaw & Culbertson LLP, explains the backdrop of the tension. “From the outset, I understood the Minnesota legislature's goal was to create a Minnesota-centric craft cannabis industry,” he said. However, with no residency requirement for applicants, Chargo notes that “approximately half of the license pre-approval applications came from out-of-state social equity applicants,” potentially diluting the local focus.

This policy stems from legal precedents in other states. Attempts to exclude out-of-state parties from cannabis markets have been deemed unconstitutional, according to Carol Moss, an industry attorney and member of the state's Cannabis Advisory Council consulted by The Minnesota Star Tribune. As a result, Minnesota’s legislation deliberately avoids such restrictions, allowing a significant influx of non-resident applicants. 

Intense Competition For Social Equity Cannabis Licenses

The Office of Cannabis Management (OCM) received over 1,800 pre-applications this summer, but only 44% reportly had Minnesota residency. “The influx of non-residents increases the number of lottery participants, thereby reducing the odds of Minnesota residents winning a pre-approval in the initial lottery,” Chargo told Benzinga, noting that it complicates the post-lottery competition for essential commercial real estate, possibly sidelining local entrepreneurs.

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Data published by MPR News further illuminates the competitive landscape, noting that only 282 of the original 3,144 individuals who sought verification will secure a social equity license in this first cycle. The diversity of applicants is broad and includes veterans, those harmed by prior drug laws and residents from high-poverty areas all vying for a chance to enter the market.

Navigating Challenges For Social Equity Applicants

Chargo points out the challenges for social equity applicants, including “access to capital, access to commercial real estate and actual experience in the cannabis industry.” These barriers are exacerbated by legislative measures intended to protect these applicants from predatory practices, such as maintaining a 65% ownership by social equity members. While well-intentioned, these restrictions may inadvertently complicate fundraising efforts. "Investors will likely seek greater financial rights and a greater impact on governance than a strict 65%/35% split allows," he said.

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For those preparing to navigate the licensing process, Chargo advises a proactive approach: “Invest in developing business plans, operational plans, security plans, environmental plans, employee training and education plans.” This preparation is crucial, even for those without a facility, as it lays the groundwork for rapid mobilization once licenses are granted.

Chargo cautions out-of-state entities looking to enter Minnesota’s market to pay close attention to legislation surrounding ‘true parties in interest,’ which could preclude certain partnerships and necessitate full disclosure of ownership interests to the OCM.

Unique Features Of Minnesota’s Cannabis Market

Chargo also highlights the unique positioning of tibal-owned businesses that also play a critical role in the local cannabis market. “Native-American cannabis enterprises benefit from sovereign immunity and are uniquely positioned to operate on tribally regulated land without state government oversight,” Chargo said, emphasizing the potential for these groups to bolster Minnesota’s cannabis supply early on.

Read Also: Cannabis Sales Launch On Tribal Land In Minnesota As Rest Of State Works Out Red Tape For Legal Program

Chargo also points out the distinctiveness of Minnesota's industry, shaped by a ban of vertical integration, which limits the influence of multi-state operators (MSOs) and fosters a more localized industry. Goodness Growth Holdings Inc. GDNSF and Green Thumb Industries Inc. GTBIF are the largest MSOs operating in the state. Interestingly, Minnesota allows municipalities to own and operate cannabis retail stores, a rare opportunity that could influence local supply dynamics.

As Minnesota fine-tunes its approach to cannabis licensing, Chargo’s insights illuminate ongoing debates. The trade-off between protecting local interests and welcoming outside investment continues to shape the landscape of Minnesota’s cannabis industry.

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