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Marijuana lottery postponed due to cases sent to the Court of Appeal

Marijuana lottery postponed due to cases sent to the Court of Appeal

A Ramsey County judge ordered Minnesota marijuana regulators to postpone the first marijuana license lottery set for Tuesday morning.

After an hour-long hearing on four lawsuits filed against the Bureau of Marijuana Management, Judge Stephen Smith decided to postpone the lottery to give the four parties time to appeal to the state Court of Appeals. All four had filed a lawsuit to stop the lottery over claims they were unfairly denied entry.

OCM notified two-thirds of its 1,800 certified social equity applicants last Monday that they could not participate in the lottery. Then on Friday, the first lottery for 280 licenses was set for Tuesday of this week. Social equity applicants are individuals in groups that the Legislature has stated have suffered disproportionately from marijuana prohibitions.

Describing the case as both interesting and urgent, Smith issued the order in response to both the plaintiffs’ fears that their clients would be harmed if they missed the lottery and the state’s argument that the district court lacked jurisdiction. He said he would delay the cases to allow the four plaintiffs (and perhaps others) to ask the Court of Appeals to rule on whether OCM complies with the law.

Judge Stephen Smith
Judge Stephen Smith

“It requires the court to make a decision on very short notice with limited information,” Smith said. “At this point, I will leave the matter at that and have the appeals court review the decisions made.

“That being said, there will be no lottery tomorrow and the matter will go to the appellate court and the appellate court may exercise its authority to decide how this matter should proceed,” Smith said.

The four plaintiffs represented various applicants who received notices of denial. Many stated that OCM did not provide necessary explanations for rejections or did not previously require applicants to correct problems in their applications.

One of these, the case of Aranguiz, Connolly v. Office of Cannabis Management, involved an applicant who entered into an agreement with a third party to sell the business. State attorneys argued it was similar to 200 other applicants and violated state law requiring applicants to be the owner and controller of any license. OCM said it blocked many apps it suspected of using social equity certified applicants to win licenses that would then be checked by others (so-called straw buyers).

“The basis for denial is that ultimately you have to explain who is actually in control of the organization,” said deputy attorney general Oliver Larson. “If you are forced to sell your assets to someone else, you are not in control. If someone else is funding your application, you are not in control.

Calling it “part of an illegal scheme,” Larson said, “The fundamental failure here was that these two plaintiffs attempted to conceal the fact that they were not actual parties in interest.”

David Asp, attorney for Cristina Aranguiz and Jodi Connolly, said their agreement with another entity allows the sale only if state law and regulations allow it and is approved by OCM. He argued that this would make it permissible and did not constitute a legal requirement to sell licenses if won in the lottery.

Other plaintiffs were applicants who said they were not given adequate explanations for their rejection.

Everyone asked them to stop the lottery because they would suffer irreparable harm if they missed the special lottery for social equity applicants and had to try again next year for the general lottery, which was expected to have many more applicants.

Courtney Ernston, an attorney for many rejected applicants, described someone who paid $5,000 to enter the lottery and will have to pay an additional $5,000 next year. He said another person seeking a license to carry marijuana would have been able to win a license had he not been rejected last week because there were fewer applicants than there were available.

“The best-case scenario is that this court should issue this (temporary restraining order) and stop this lottery from happening tomorrow,” Ernston said. This will allow time for attorneys to file additional briefings and another hearing.

“We found out there’s going to be a lottery tomorrow, and there’s no way that’s going to happen,” Ernston said.

State attorneys argued that the Legislature deliberately established an expedited process to give social equity applicants a head start in preparing for employment when the final OCM rules are adopted next spring. The law also allows growers to put seeds in the ground as soon as they receive their pre-approval license; This was intended to make cannabis products available for sale when stores opened.

Larson, the assistant attorney general, argued that the law does not allow for appeals like the cases heard in court Monday.

“The Legislature understood that to process hundreds of applications, make decisions, hold the lottery and start that process within a few months meant there would be a short-term review,” Larson said. He specifically stated that rejections would not be appealed for the same reason.

If the social equity lottery is postponed, Larson said, OCM may have to cancel it and put all applicants (social equity and general applicants) into the same lottery next year.

“This is a real disservice to the 600 or so people who applied, did what they had to do, and were prepared to go through this lottery process,” Larson said.

Additionally, assistant attorney general Ryan Petty told Smith that the district court did not have jurisdiction and that the cases should be filed in the Court of Appeals. He called filing the lawsuits in district court a “fatal flaw” and asked Smith to dismiss the four cases.

But Asp and others argued that OCM did not comply with the law by failing to send deficiency letters to all applicants with gaps in their applications and then rejecting two-thirds of the applicants with limited or no explanation.

“The law says that if they are rejected, they must notify the applicant of the rejection and the reason for the rejection,” Asp said.

Smith appeared sympathetic to the argument that plaintiffs would suffer without a postponement, as well as to the argument that district court judges like himself lack the authority to make decisions. He said this could be determined by the Court of Appeals, but such a course would not be possible if the court did not stop the lottery. But state attorneys argued that the state didn’t even have the authority to do that much.

David Standa, an attorney for the other plaintiffs, noted Tuesday that a different set of problems would be created if the lottery were allowed to continue and the Court of Appeals found the OCM in violation of the law.

“What if the Court of Appeals comes back and says, ‘Yes, all these people need to enter the lottery,'” Standa said. he said. “Is OCM going to take the pre-approvals away from everyone they gave them and reorganize the lottery with the people who are supposed to participate in the lottery?”