The Minnesota Office of Cannabis Management (“OCM”) has begun issuing final denials to the overwhelming majority of previously qualified social equity applicants (“SEA”s) ahead of its first statewide cannabis lottery on December 2 for 280 available “preapproval” cannabis licenses.

Per reporting from MJ Biz Daily, “The applicants who are barred from the lottery failed to complete the application process or acted improperly by submitting multiple applications or disguising the true investors in their companies, according to [OCM].” Obviously applying for more licenses than is allowed and/or concealing owners or financial interests are clear grounds for SEA application rejection. Other alleged “deficiencies” though may not be so cut and dry.

While state law does not permit appeals from denied applicants (which is not uncommon for states with cannabis licensing programs), impacted SEAs can still secure a review of their records submitted to the OCM within seven days of the rejection decision (by logging into their Accela Citizen Portal and pulling the internal record there).

The main issue emerging as a result of these rejections is the fact that the OCM did not consistently issue deficiency notices to rejected applicants if there was a material problem with their submitted applications (although as of October 16, the OCM had sent out deficiency notices to over 300 SEAs). In turn, there are instances here where SEAs were rejected for minor, seemingly non-material deficiencies in their applications (things like submitting incorrect corporate documentation that still contained the same information the OCM sought, or re-submitting documents upon request by the OCM only to be rejected for lack of the same document after-the-fact, or even blank denials altogether with no stated reason for rejection).

In an interview with the Brainerd Dispatch, Charlene Briner, the interim director of the OCM, cast these denied SEA applications into four categories:

• Failure to meet the basic qualifying standards under state law (i.e., social equity applicant owning at least 65% of the business among others)
• Failure to provide the requisite verification documents (i.e., legitimate business plans, source of funds, ID, etc.)
• Hidden or inconsistent ownership or true parties of interest
• Fraudsters (i.e., those trying to game the system by flooding it with multiple applications via proxy or otherwise by using the same address or phone number tied to the same person on multiple applications)

The first and second bullet points above are going to be the ripest ground for rejected SEAs to try to stop the OCM prior to the December 2 lottery, but that’s only if those rejected SEAs can very quickly obtain copies of their submitted documents (within 7 days of the rejection) and start the administrative litigation process and/or seek injunctive relief at the same time against the OCM.

What was once more than 1800 qualified social equity applicants for the lottery has been winnowed down to around 640. The OCM rejected applicants for a multitude of reasons, some of which are clearly legitimate and some of which appear to be questionably enforceable from the perspective of complying with Minnesota’s state constitution and its administrative procedure act.

If you’ve been impacted by an OCM rejection, you do not have much time to act ahead of the December 2 lottery. If you have questions about your potential civil or administrative claims against OCM due to a questionable SEA rejection, contact Jeffrey O’Brien, Hilary Bricken, or Nick Morgan.

Minnesota Office of Cannabis Management Issues Rejections to Majority of Social Equity Applicants

Even the most responsible hemp operator should understand that it operates in a world full of risk. But I doubt many of them believe they might be accused of racketeering. Last week, the U.S. Supreme Court heard arguments about whether to sanction a commercial trucker’s attempt to bring a racketeering claim against CBD companies, whose allegedly mislabeled products the trucker claims led to his firing.

As always, Sam Reisman at Law360 distills the issue nicely:

The case concerns an allegation that companies sold CBD products with detectable amounts of THC, purportedly costing plaintiff Douglas J. Horn his job as a commercial trucker after he tested positive on a drug test. Oral arguments on Tuesday hinged largely on whether Horn’s claims stemmed from a personal injury — which would be excluded from the Racketeer Influenced and Corrupt Organizations Act, or RICO — or whether his firing was an economic injury and therefore redressable under RICO.

In taking the case, the U.S. Supreme Court could resolve a 3-2 circuit split over whether the civil prongs of the RICO statute allow a plaintiff to seek damages for economic harms stemming from injuries to their person.

Again, from Reisman:

During oral arguments on Tuesday, the liberal wing of the high court expressed skepticism with the CBD companies’ rendering of the case, which they said foregrounded Horn’s ingestion of the product as the source of the injury, as opposed to his firing for a positive drug test.

…

Lisa Blatt, an attorney for the CBD companies, told the justices that agreeing with Horn’s interpretation of the statute would open the door for virtually limitless personal injury cases under civil RICO, as long as plaintiffs could allege some connection between their ingestion of a product and a loss to their business or property: “Respondent’s rule also leaves the personal exclusion [in civil RICO] toothless, since virtually all personal injuries result in monetary loss,” Blatt said. “It is utterly implausible that Congress federalized every slip-and-fall involving RICO predicates. Personal injuries are serious and may support state tort claims, but they are not the stuff of RICO.”

On the other side, conservative justices attempted to discern how to draw a line between bona fide economic claims and personal injury claims pleaded as economic claims.

Easha Anand, arguing on behalf of Horn, said the vast majority of personal injury claims, such as those alleging pain and suffering or emotional distress, would still be excluded even if Horn was permitted to pursue his RICO claim against the CBD companies: “In your average slip-and-fall case, you’re not going to be able to prove a predicate act, let alone a pattern of predicate acts, let alone a pattern carried on through a racketeering enterprise,” Anand said.

…

Justice Neil Gorsuch observed, “There’s a failure to warn that this product contains ingredients that your client didn’t know about and should have known about and had a right to know about. I would have thought that that would have been kind of a classic personal injury.”

The Takeaway

This is pretty scary stuff for CBD and other hemp operators. RICO is no joke and carries very serious penalties (both civil and criminal depending on who is bringing the suit).

From the perspective of a CBD manufacturer, it seems unfair to hold the manufacturer responsible to control how its products are used and, as in this case, the implications of that use (here, an alleged economic injury).

If the Court rules that CBD and other hemp manufacturers are subject to RICO charges simply by selling their products to people who do things outside of the manufacturers’ control, it could pose an existential crisis to the industry with potentially unlimited civil (and maybe even criminal) liability. We have warned about this before.

That said, while it’s always difficult to predict how the Supreme Court will vote on any issue, I do not believe the Court will push the hemp industry to the brink. I suspect the Court will either rule that the claims in the present case are personal injury claims excluded from RICO and/or provide guidance for how lower courts should examine such “mixed” claims.

We’ll of course provide additional information once we hear from the Court. Stay tuned.