Month: July 2023

July 14, 2023

Yes – at least to a degree. But not as much as cities seem to think.

A local unit of government, however, may not prohibit possession, transportation, or use of cannabis flower or products.

Fortunately, Minn. Stat. 342.13(b) prohibits a local unit of government from prohibiting the establishment of a licensed cannabis business, but there are some exceptions to the general rule. Significantly, it does not prohibit a city from establishing zoning restrictions that may make it difficult to find a location.

For example, local units of government may adopt reasonable restrictions on time, place, and manner of operation of a cannabis business, so long as the restrictions do not prohibit the establishment or operation of a cannabis business. A local unit of government can also enact zoning ordinances that could make it difficult to open a cannabis business, but even then, a local unit of government cannot establish zoning requirements that would effectively prohibit the establishment or operation of a cannabis business.

The prohibition on cities precluding operation of a cannabis business within their borders applies – at least statutorily – to licensed cannabis businesses. Because we are still a ways out from the establishment of a licensing regime, cities should not be relying on the portion of the law that allows them to establish moratoria on “cannabis businesses” through January 1, 2025, but it appears that some cities are doing just this. Minn. Stat. 342.13(e) states:

If a local unit of government is conducting studies or has authorized a study to be conducted or has held or has scheduled a hearing for the purpose of considering adoption or amendment of reasonable restrictions on the time, place, and manner of the operation of a cannabis business, the governing body of the local unit of government may adopt an interim ordinance applicable to all or part of its jurisdiction for the purpose of protecting the planning process and the health, safety, and welfare of its citizens. Before adopting the interim ordinance, the governing body must hold a public hearing. The interim ordinance may regulate, restrict, or prohibit the operation of a cannabis business within the jurisdiction or a portion thereof until January 1, 2025.

This language seems to give cities an ability to prohibit the operation of a cannabis business within its borders through January 1, 2025. The statute, however, defines “cannabis business” as any business licensed under Minn. Stat. 342.01, et seq. There are currently no such licensed businesses and cities should not be permitted to use this to prevent the establishment of hemp-derived edible businesses.

Cities also point to their zoning and licensing authority to justify moratoria on hemp-derived edible businesses, but if you were operating legally prior to the effective date of a moratorium, you may have recourse if the city tries to shut you down through zoning ordinances. The doctrine of legal nonconformance requires the grandfathering in of a business that was operated legally prior to enactment of a zoning restriction that would otherwise render the business’s existence in violation of that zoning ordinance.

While a city can try to establish licensing requirements, to the extent those requirements impact zoning (e.g., a hemp-derived edible business can get a city license but may not be within 5,000 feet of a school), it is at least arguable that such ordinances are still based in zoning authority and should be subject to the legal nonconforming use doctrine.

July 14, 2023

If you currently make and/or sell hemp-derived edibles containing THC pursuant to Minn. Stat. 151.72, you will not be able to operate under that law starting on March 1, 2025 (unless that date is changed). So the question becomes what do you need to continue to operate your business.

Fortunately, while a cannabis manufacturer cannot be a cannabis retailer and vice versa, the same is not true for lower-potency hemp edible retailers and manufacturers. Because you are dealing in lower-potency hemp edibles, the law has carved out the ability for you to obtain both a lower-potency hemp edible retailer and manufacturer license.

The change from Minn. Stat. 151.72 to Minn. Stat. 342.45 and 46, will not be seamless – there are certainly differences in how the law currently treats hemp-derived edibles and how the law will treat these types of products after March 1, 2025. Some of the differences, however, include additional rights for licensees. For example, under 151.72, the only retailer that can sell hemp-derived edibles for on-site consumption are retailers that hold an on-sale liquor license under Minn. Stat. 340A. Under 342.45, however, it appears that an on-sale liquor license may not be required (although it is still gray).

Once full licensing kicks in, the law will allow lower-potency hemp edible retailers to obtain on-site consumption endorsements, but it seems that – while a license under 340A will result in granting an on-site consumption endorsement – a license under 340A is not necessarily a pre-condition to on-site consumption. The law, for example, states that the Office of Cannabis Management “shall issue an on-site consumption endorsement to any lower-potency hemp edible retailer that also holds an on-sale license issued under chapter 340A.” Minn. Stat. 342.46, Subd. 8(b). Notably, however, the law does not seem to make ownership of a license under 340A a prerequisite to obtain on-site consumption endorsements.

Moreover, currently, under 151.72, on-site consumption is restricted in the sense that the product has to be served to the customer in an enclosed package that complies with all labeling and packaging requirements. In the future, however, on-site consumption may be permitted even if served outside of its package (e.g., from a tap) so long as the information that must be on a label is posted or otherwise displayed by the retailer.

Long story short, if you currently operate a business making and/or selling edibles containing hemp-derived THC, in the future, you will likely want a lower-potency hemp edible manufacturer license and a lower-potency hemp edible retailer license. That said, there may be other licenses more appropriate for your needs, including a microbusiness or mezzobusiness license. Ultimately, you need to start planning for the future and determine what type of license or licenses you will want to obtain when licensing kicks in. This way, you can take steps to plan for compliance and develop standard operating procedures in advance of licensing. It will also help determine what you need to do in order to obtain a license and what may result in disqualification from owning a license.

To discuss future plans, you should contact a Minnesota cannabis law attorney. Reach out to us at 612-259-4806

Obviously, there is a lot of uncertainty about cannabis regulation in Minnesota. Almost immediately after passage, there were directly opposing interpretations of the law and confusing information put out across Minnesota news outlets.

For example, we are frequently asked these days whether smokable hemp flower can be sold. The Department of Health has issued guidance saying that no smokable products can be sold at all even if only hemp flower. The Department of Health relies on this portion of 151.72, Subd. 3(b)(1):

(b) A product containing nonintoxicating cannabinoids, other than an edible cannabinoid
product, may be sold for human or animal consumption only if it is intended for application
externally to a part of the body of a human or animal. Such a product must not be
manufactured, marketed, distributed, or intended to be consumed:
(1) by combustion or vaporization of the product and inhalation of smoke, aerosol, or
vapor from the product . . . .

If you read it carefully, it is talking about products containing “nonintoxicating cannabinoids.” Under 151.72, Subd. 1(k), “nonintoxicating cannabinoids” has a narrow definition:

“Nonintoxicating cannabinoid” means substances extracted from certified hemp
plants that do not produce intoxicating effects when consumed by any route of administration.”

A CLOSER LEGAL LOOK AT SMOKABLE HEMP FLOWER

Because ‘nonintoxicating cannabinoids’ is defined as “substances extracted from certified hemp,” some of us believe there is a good argument that smokable hemp flower is permitted under the law because the law prohibits smokable substances “extracted from certified hemp,” but not hemp flower itself.
Unfortunately, at this stage, the regulators believe smokable hemp flower is not permitted so even though we believe the reasonable interpretation of the statute is to allow smokable hemp flower, selling hemp flower puts you at risk for regulatory action.

Another gray area is in the logos and brand designs. Under Minn. Stat. 342.64, Subd. 1(5), a cannabis business cannot use any advertisement or label that “includes an image designed or likely to appeal to individuals under 21 years of age, including cartoons, toys, animals, or children, or any other likeness images, characters, or phrases that is designed to be appealing to individuals under 21 years of age . . . .” Some have taken this to mean cannabis businesses cannot incorporate any form of cartoon image. We, however, believe that it prohibits cartoons that may appeal to children but not all cartoons necessarily. We do not yet know how the Office of Cannabis Management is going to interpret this portion of the law, so there is a lot of uncertainty around it.

LEGAL EXPERTISE TO HELP YOUR BUSINESS

These are just two quick examples of the kind of uncertainty that you will have to work through as you plan for and open your business. This is why it is important to have Minnesota cannabis lawyers that you can speak with as questions arise. Contact Garner, Ginsburg & Johnsen, P.A. to get guidance on your specific legal issue.

July 14, 2023

Franchising in the cannabis industry is fraught with risks. You should not buy a cannabis franchise unless you have done significant due diligence, consulted with both a franchise lawyer and a cannabis lawyer, and know exactly what you are getting into. People who buy franchises are often told in marketing materials that they get to “own your own business” and that “the franchisor will support you.” In the vast majority of cases, once you have opened the franchisor’s support obligations are minimal to non-existent.

There are going to be a number of cannabis franchises and dispensaries that pop up as legalization spreads. Cannabis law, however, varies dramatically from state to state, so a franchisor with experience franchising cannabis businesses in California is not necessarily going to know anything about Minnesota’s cannabis laws. But they might try to sell you a cannabis franchise in Minnesota anyway – nearly every franchise agreement I’ve ever seen (if not all of them) contains language stating that the franchisor is not responsible for compliance and the franchisee is solely and exclusively responsible for complying with state laws and regulations. While the cannabis market is confusing and ever-changing, you cannot count on your franchisor for any help when it comes to compliance. In some cases, we have even seen franchise agreements that require the franchisee to violate the law when it comes to cannabis.

So, how many cannabis businesses fail? The reality is that it’s hard to start any kind of small business — franchise or otherwise. According to the U.S. Bureau of Labor Statistics, nearly 70% of small businesses go under within their first decade. Approximately 20% will fail in the first year alone. With how regulated the cannabis industry is, it’s extra important to take all the necessary steps to avoid becoming a cautionary statistic.

HOW PROFITABLE ARE CANNABIS COMPANIES AS A FRANCHISE?

This varies and is not totally within your control since when you buy a cannabis franchise, it is not your own business. When you buy a franchise, you buy a license to operate a business for usually between 5 and 10 years. You may have renewal rights or you may not, but even if you do, that renewal will require you to sign the new form of a franchise agreement, which may contain more onerous restrictions, higher fees, and less flexibility for the franchisee. If you review a franchise agreement carefully, you will notice that you have very little actual control over the business. You can make hiring and firing decisions, but marketing, social media, recipes, sellable items, and even accounting methods are subject to strict controls by the franchisor. The franchisor wants to maintain uniformity for its brand, but what works in one place does not mean it will work everywhere. And that is particularly true in the cannabis industry.

ADDITIONAL CANNABIS FRANCHISING CONCERNS

Restrictions on suppliers are another reason to be cautious when thinking about a cannabis franchise. I do not know this to be true, but I expect that there will be consumers that want locally grown and sourced products. When you are a franchisee, the franchisor can restrict your sources of supply to one vendor (and in some cases, the franchisor can be the sole supplier of a product), and franchisors are able to obtain rebates/kickbacks from vendors. Smaller growers and producers may not have the resources to pay rebates/kickbacks to franchisors based on franchisee purchases, so you may be stuck with a supplier that you do not want to use or that produces inferior products (and sometimes at a higher cost).

There are many other reasons to be cautious when deciding whether or not to purchase a cannabis franchise, including:

• Some banks may not do business with you, making it hard to finance and simply manage funds
• Insurance is often expensive or tough to obtain for cannabis businesses
• POS systems may not be willing to do business with someone in the cannabis industry
• Cannabis is still illegal under federal law.

Cannabis franchise opportunities are popping up all over the place and there are likely to be more people seeking to sell franchises in this exciting new industry They may tell you that they will support you and they may, in fact, support you, but the business is largely controlled by the franchisor and ultimately, the burden to comply with the law is still on you (and the franchisor takes no responsibility for it).

Not to mention that you cannot sell the business without the franchisor’s approval, which it may withhold. Want to get a legal perspective from franchise lawyers who have expertise with emerging cannabis businesses? Contact Garner, Ginsburg & Johnsen, P.A. to book a consultation. We also offer this resource for potential franchisees looking to open a cannabis dispensary in Minnesota.

July 14, 2023

We do not like giving the lawyerly answer but we have to in this case – it depends on a variety of factors, including the size of

the business, the rights you want to be able to exercise (e.g., wholesale, retail, manufacture, cultivation, etc.), and what you can qualify for.

At some point within the next year or two, we expect that the Office of Cannabis Management will issue rules and regulations that will clarify matters. For now, however, we only have what is written into the statute itself. The statute lists 16 different license types and each of those licenses comes with requirements and restrictions on what rights a business can exercise under each particular license. Sound confusing? It is.

A Minnesota cannabis microbusiness, for example, obtains “endorsements” for its license that may allow it to:

1. Grow cannabis plants
2. Make cannabis concentrate
3. Make hemp concentrate (with a delta-9 THC concentration of more than .3%)
4. Manufacture artificially derived cannabinoids
5. Manufacture adult-use cannabis products and hemp products
6. Purchase cannabis and hemp concentrate
7. Package and label cannabis flower
8. Sell cannabis products
9. Operate a business that permits on-site consumption of edible cannabis products and lower-potency hemp edibles

This is not an exhaustive list of the rights available to a Minnesota microbusiness license holder – just some of the highlights. A microbusiness licensee can also hold a cannabis event organizer license, but no other cannabis licenses.

On the other hand, a cannabis manufacturing licensee can:

1. Purchase cannabis from another licensed business
2. Purchase hemp concentrate
3. Accept cannabis flowers from unlicensed persons (up to two ounces on a single occasion)
4. Make cannabis concentrate
5. Sell cannabis products to other licensed businesses

Again, this list is not exhaustive. When it comes to other licenses that a manufacturing licensee can hold, there are four in Minnesota – a cannabis cultivation license, a medical cannabis cultivator license, a medical cannabis processor license, and a cannabis event organizer license.

A CLOSER LOOK AT LICENSES A LICENSEE CAN HOLD

A cannabis retailer has the right to purchase cannabis and hemp (along with products derived from either) and to sell cannabis and hemp products. As far as additional licenses that a cannabis retailer can hold, the law permits them to hold a cannabis delivery license, a medical cannabis retailer license, and a cannabis event organizer license.

As you can see, your business plan needs to account for what license you want to obtain and what you are permitted to do under that license, as well as what other licenses you are allowed to own. If, for example, I wanted to be a cannabis manufacturer and a cannabis retailer, I could not do so with Minnesota’s current license guidelines — other than as a microbusiness or mezzobusiness. This means you cannot just dive in and play it by ear — you need to know what your business is legally allowed to do.

We have put together a working chart (below), showing what rights you can have with specific licenses. It is a working chart because every situation will be different, the law will likely change before there are licenses issued, and we have no rules/regulations in place yet. We hope it gives you a sense of what sort of license you may be interested in obtaining.

Some of the x’s are in brackets because they’re not clear yet. A lower-potency hemp edible manufacturer licensee, for example, has the right to manufacture products and the right to “sell” hemp products to other hemp businesses. There is no express authorization for wholesale of products by a hemp edible manufacturer, but with the right to “sell” to other cannabis and hemp businesses does it imply that the right to wholesale is built into the hemp edible manufacturing license? These issues will likely be sorted out in revisions to the law and by rules/regulations.

HOW DO I KNOW WHICH LICENSE I SHOULD PURSUE?

If you’re not sure whether a Minnesota cannabis cultivation license, medical cannabis cultivator license, a medical cannabis processor license, or a cannabis event organizer license is the best choice for your ultimate goals — that’s okay. We’ll take an even closer look at each before outlining next steps for opening a cannabis business or dispensary in Minnesota.

• Cannabis Cultivation Licenses. The details regarding this license can be found by looking up Minnesota Statute 342.30. This license entitles the holder to grow cannabis plants within an approved amount of space. It also allows for plants to be grown from seed or immature plant to mature plant, harvesting of cannabis flower from a mature plant, the packaging and labeling of plants (seed to mature), the sale to other cannabis businesses, transportation of flower to a manufacturer located on the same premises, and additional actions requiring approval from the office.
• Medical Cannabis Cultivator and Processor Licenses. The details regarding these licenses can be found by looking up Minnesota Statute 342.47. It’s important to note that the Division of Medical Cannabis may oversee the licensing and regulation of medical cannabis businesses. Statute 342.47 covers the issuing of medical cannabis cultivator, processor, retailer, and combination business licenses — all involved with the use of cannabis for defined medical purposes. The office may limit the number of medical cannabis business licenses that a person or business may hold and there are rules, mentioned above, about which licenses can be held at the same time — make sure to review the statute before applying for these licenses to make sure your plan aligns with what is allowed.
• Cannabis Event Organizer License. The details regarding this license can be found by looking up Minnesota Statute 342.39. This type of license entitles the holder to organize a temporary cannabis event lasting no more than four days. In order to receive this license, individuals will be required to submit information required under Section 342.14, Subdivision 1 and any rules adopted pursuant to that section. Additionally, they’ll need to be able to provide information about any other cannabis business license held by the applicant, the address and location where the event will take place, the event’s name and information about the grounds including entrances, exits, consumption areas and sales areas. There are additional requirements that can be found — and absolutely should be reviewed — when reviewing the full statute.

HOW TO OPEN A CANNABIS BUSINESS IN MINNESOTA

Generally, opening a dispensary or cannabis business in Minnesota involves many of the same steps it takes to open any other business, but because of the state of the law on cannabis right now, there are additional things you have to consider before diving in to the industry:

1. Research laws and regulations

At this point, the laws regarding cannabis in Minnesota are in their infancy and we are likely to see revisions to the law over the next few years. You have to pay attention to those changes because they may directly impact what you want to do. And we do not yet have regulations but at least some Minnesota cannabis lawyers have been in the industry for years and can discuss rules that are common in other states that we expect to see and rules from other states that we do not expect to see.

2. Develop a business plan

You must create a comprehensive business plan. While it is a good idea for your own purposes, it is also required under the law. In fact, you will have to submit it as part of the application process if you want to obtain a license. Minn. Stat. 342.14, Subd. 1(8). Among other things, the business plan should include: (a) the expected size of the business; (b) anticipated growth; (c) methods for keeping records; (d) knowledge and experience of an applicant and any officers, directors, managers, or general partners of the business; (e) an environmental plan; and (f) “other relevant financial and operational components.” Id.

3. Plan Financing

You will need capital to start your business. This means you will have to obtain financing (whether from your own funds, a bank loan, investors, etc.). If you are going to seek out investors to generate funding, make sure that you pay attention not only to cannabis laws, but also to securities laws and regulations. This is especially true if not all of your investors are or will be accredited investors. Federal and state securities laws often require substantial disclosure be made to investors before the investor agrees to write a check. If you are going to develop a private placement memorandum, spend a lot of time thinking about risk factors because cannabis businesses face risks that no other businesses face.

4. Apply for Licenses

Each license type is going to come with its own rights and restrictions so make sure that you know what license you want to apply for and how that will limit your ability to grow. There is likely going to be a laundry list of details that you have to include in your application but we won’t know that until the rules are promulgated. The application may include questions about security, supply chain, sources of funds, etc.

5. Find a Location

You will – of course – have to find some location for your business (even if it is a non-brick-and-mortar business). What you have to be careful of are zoning restrictions that the city imposes. There are several cities in Minnesota, for example, that have prevented businesses from obtaining the right to sell even hemp-derived products, by establishing strict zoning requirements. For example, some cities have included zoning requirements that state a business cannot sell any product containing cannabinoids within 1,000 feet of a school or daycare. Cities with zoning restrictions are not going to care if you build out a space for your cannabis business not realizing that selling cannabis products would violate a zoning restriction – you will have to find a new use for the space or find someone willing to take over the lease. This is not a position you want to be in.

6. Establish Compliance Protocols

You will want to have steps in place so that any potentially non-compliant product or sale is flagged before the transaction is completed. For some, this may mean ensuring that deliveries are done in a methodical way and properly recorded to avoid confusion or it may mean not shipping products to certain states. There are a lot more issues to consider when it comes to compliance and you have to stay on top of it.

7. Stay Informed

As discussed above, the law legalizing adult-use cannabis in Minnesota is likely to be revised over at least the next few legislative sessions (if not more), and rules/regulations are often revised or even given different interpretations. It is important that you stay on top of these changes and that you have a Minnesota cannabis lawyer to help guide you through the labyrinth that is compliance in the cannabis industry.

If you have any legal questions about how to start your cannabis business, please contact our team of small business experts.

July 14, 2023

You probably already know that cannabis was legalized in Minnesota in 2023. Opening a cannabis business is not as simple as putting up a sign and stocking inventory. There are a number of things you should know if you plan to get into a cannabis business and we’re going to address some of those in this post.

First, let’s be clear about the language we use because it can get confusing and statutory definitions are very important in this law. We are often asked what the difference is between hemp and marijuana. And where does “cannabis” fit in this discussion?

Scientifically speaking, hemp and marijuana are the same plant – cannabis. Various federal and state laws allowing for production of hemp, however, have created a distinction between marijuana and hemp – a hemp plant has less than .3% THC. Any cannabis plant that has a concentration of more than .3% THC for most legal purposes is marijuana. Yet both hemp and marijuana are the same cannabis plant.

The word “marijuana,” however, is rooted in racism (if you are interested in learning more, read Smoke Signals by Martin A. Lee). In fact, the prohibition on cannabis (which is the term we will use from here on out) is also rooted in racism. Harry Anslinger, the first commissioner of the U.S. Treasury Department’s Federal Bureau of Narcotics pushed hard for complete prohibition of cannabis. He is credited with making racist statements in his effort to ban cannabis by stirring up fear among white voters, including: “There are 100,000 total marijuana smokers in the US, and most are Negroes, Hispanics, Filipinos and entertainers. Their Satanic music, jazz and swing result from marijuana use. This marijuana causes white women to seek sexual relations with Negroes, entertainers and any others.” He also began to refer to cannabis as ‘marijuana,’ adopting the Spanish-sounding word (and pronouncing it mari-huana) to further instill a sense that cannabis was for “them” and not “us.”

HEMP VS. CANNABIS WHAT’S LEGAL IN MINNESOTA

Minnesota chose to use the word “cannabis” for cannabis plants with over .3% THC and “hemp” for cannabis plants with a concentration of .3% THC or less to avoid giving further credence to prohibition’s racist past. So forget marijuana for purposes of opening a cannabis business. (We are not saying that using the word “marijuana” is necessarily racist in and of itself, but it certainly can be depending on context.)

Currently, in Minnesota, you cannot open a ‘cannabis’ business but you can open a hemp business that produces and/or sells edible products containing THC so long as the THC is derived from hemp plants. Fortunately, at this point, it is fairly easy to open a hemp edible business. There are, however, a number of restrictions and requirements you have to be aware of (e.g., packaging requirements, labeling requirements, total THC restrictions, age verification, etc.), if you want to open any sort of cannabis business in Minnesota any time soon, it has to be a hemp business. You would operate under Minn. Stat. 151.72, which allows for the sale of products containing hemp-derived THC of up to 5mg per serving.

LAWYERS WHO UNDERSTAND YOUR BUSINESS NEEDS

As you have read, Minnesota cannabis legalization is complicated. Before getting into the business, it is important you review that statute and discuss questions with a lawyer that has been working in the cannabis industry for more than just a few months. And keep in mind that sellers of THC products must register with the Department of Health by October 1, 2023 (and pay a 10% sales tax on hemp-derived edible products). If you have any questions about opening a hemp business, please reach out to us at 612-259-4806.