The Minnesota Office of Cannabis Management’s plan to award 217 social equity adult-use cannabis licenses through a lottery is stuck in state appellate court that must weigh the merits of lawsuits filed by applicants that were deemed ineligible just days before the scheduled lottery.
The state announced Nov. 22 that only 648 of the original 1,807 applicants were eligible for the lottery. That same announcement included a set date for the anticipated lottery as four days later on Nov. 26.
The day before that announcement, rejected applicants Cristina Aranguiz and Jodi Connolly sued OCM in state court, alleging they were not given an explanation about why they failed to qualify.
Cristina Aranguiz and Jodi Connolly are two applicant plaintiffs who filed suit together. Connolly said she was not given a reason for her denial.
“OCM’s denial decisions failed to adequately disclose the basis for the agency’s decision,” said the 16-page complaint filed in Ramsey County Superior Court. “Indeed, Plaintiff Connolly did not receive a denial email from OCM at all. Upon hearing about denials for other applicants, Plaintiff Connolly checked the application submission portal. There, she found that her application had been denied. But OCM provided her no explanation document or any additional instructions.”
Meanwhile, Aranguiz received a denial letter that claimed she failed to disclose partnership agreements or promissory notes. Aranguiz claims that she is the sole owner of the applying business, so she does not have any partnership agreements or promissory notes to disclose.
Alleged straw applicant scheme
In court filings, the state alleged that Aranguiz and Connolly had entered into agreements with NXMN Partnership LLC, which is controlled by an individual who is not eligible for the lottery. As part of those agreements, the state says the plaintiffs planned to sell their businesses to NXMN for $100,000 if they were awarded licenses.
The state claimed that this was part of a larger effort from NXMN to flood the lottery process. NXMN, a Delaware-registered company, is associated with Tate Kapple. Kapple and Aranguiz are owners of the Iowa Cannabis Company. He is also associated with multiple licenses in Washington, Oregon and Iowa. Kapple applied for a retail and a delivery license in Minnesota using an MNcanna.org email address, the state said.
OCM general counsel Eric Taubel said the agency was able to identify 120 retail applications and 120 delivery applications from Iowa that are linked to Kapple’s business and had the same $100,000 sale arrangement, according to a 60-page affidavit Taubel filed with the court.
“Put another way, he tried to buy his way into the lottery using the Plaintiffs’ status (and the status of others),” OCM said in a six-page memorandum in support of the motion to dismiss. “OCM properly denied the Plaintiffs’ applications for entry into the lottery on that basis.”
Judge Stephen Smith ordered a temporary halt to the lottery after an emergency hearing on Nov. 25 and sent the case to the state appellate court.
In total, the judge ruled on four similar lawsuits from would-be applicants that were merged into a single case. Other plaintiffs included the limited liability companies Green Leaf MN, Wild Domain, Hendo Industries, Northern Illusion, Milstagrams, Better Bud Co. and Thrifties.
“Given the extraordinary circumstances presented by the timing of OCM’s application decisions and the filing of these cases, a fair and reasoned decision by the Court of Appeals is not possible without a stay of the lottery,” wrote Smith in his Nov. 25 ruling.
For now, both the state and the plaintiffs are in the pre-briefing stage, where both sides must submit additional support for their respective cases before presenting them in front of the court. No date has been announced for the next step in the case.
OCM stands by the process used to review applications.
“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. State statute sets high standards for applicants to successfully complete applications while also filtering out those with malicious intent,” wrote OCM Public Information Officer Jim Walker in a statement released after the judge’s ruling. “We remain committed to launching an equitable, sustainable, and responsible adult-use cannabis marketplace in Minnesota.”
Legal possession of adult-use cannabis in Minnesota began on Aug. 1 following legislative action in May 2023. Since then, the state has been working on its commercial regulations and licensing, which was supposed to culminate in new licenses through a social equity lottery.
Currently, the only adult-use shops are four dispensaries open in tribal territories.
The state is home to 15 medical dispensaries that are split between two operators, LeafLine Labs, which operates as RISE, and Green Goods. They are owned by multi-state operators Green Thumb Industries and Vireo Growth, respectively.
Those operators will have the chance to apply for dual-use licenses to access the adult-use market, but the state is allowing social equity applicants to get the first crack at new licenses.
Until then, the state will have to wait for the appellate court’s ruling.
