Minnesota Lawsuit Alleges Marijuana Regulators Wrongly Denied Applications For Social Equity Licenses

“This attempt to flood the zone and place their thumb on the scale at the expense of legitimate social equity applicants is disturbing.”

By Michelle Griffith, Minnesota Reformer

The nascent Office of Cannabis Management (OCM) unlawfully denied two women from participating in the lottery for social equity licenses to operate cannabis businesses in Minnesota, a new lawsuit alleges.

Plaintiffs Cristina Aranguiz and Jodi Connolly in a lawsuit filed Thursday allege that the state, in an “arbitrary and capricious decision,” denied their applications to participate in the lottery for social equity licenses without explanation and granted other applicants “secret reconsideration” and the opportunity to fix their applications. They are asking the court to halt social equity lottery proceedings, expected to take place on Tuesday, and reverse the OCM’s decision denying Aranguiz and Connolly a chance to participate in the lottery.

Social equity licenses are intended to prioritize business applications from people who have been harmed by marijuana prohibition in the past, as well as veterans and people living in high-poverty areas.

The OCM earlier this week announced that it sent rejection notices to 1,169 of the 1,817 social equity applicants, according to the Star Tribune. Of the 648 remaining, 182 pre-approvals will be awarded on Tuesday. A lottery for additional pre-approvals will be held in the future, but OCM hasn’t set a date yet.

In a statement late Friday afternoon, the OCM alleged that “the individual filing the suit is the face of a scheme to use hundreds of straw applicants to gain unfair advantage in the lottery.”

People who win pre-approval in the lottery will be able to line up investors to start their businesses earlier than those who receive traditional cannabis licenses.

In their lawsuit, Aranguiz and Connolly state that they both complied with all of OCM’s social equity application requirements, but they were denied earlier this week. OCM didn’t tell the two why they were denied, according to the lawsuit, and Connolly didn’t receive notification that she was denied at all—she had to access the application submission portal.

State law doesn’t allow applicants to appeal the OCM’s denials of access to the preapproval lottery, but Aranguiz and Connolly allege in their lawsuit that OCM has “offered a right to appeal to some applicants.”

The plaintiffs say they know of at least one person who reached out directly to OCM Interim Director Charlene Briner. Briner forwarded that applicant to OCM Chief Regulatory Officer Max Zappia, who then called the applicant and told them their denial would be reversed, the lawsuit alleges.

“Therefore, contrary to the email sent to all applicants, an appeals process does exist for erroneous denials—the process just exists only for applicants willing to ignore OCM’s statement in the emails, locate the contact information for the Interim Director, and pursue their request,” the lawsuit states.

The OCM told MinnPost earlier this week that it denied about two-thirds of applications because some applicants made multiple applications, i.e., “flooding the zone,” in an attempt to up their chances in the lottery, or were disguising their true investors.

Aranguiz’s social equity application was denied because of failed “disclosure of ownership and control,” the lawsuit states. Aranguiz, who has seven cannabis retail dispensaries across three states, says in the lawsuit that she and Connolly have a “purchase option agreement” that she didn’t initially disclose to OCM, but that’s because it was contingent on state approval, a disclosure that’s not required under state cannabis law, she argues.

Other cannabis lawyers told the Star Tribune that they are also considering filing lawsuits on behalf of clients whose applications the OCM rejected.

This story was first published by Minnesota Reformer.

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