Minnesota is the latest state to develop a secondary market for cannabis license sales. I’d call the Minnesota market “robust”, except that the Office of Cannabis Management (OCM) hasn’t issued all that many licenses in the first place. Still, one source recently estimated “at least 80” licenses recently posted for sale. It’s a real thing.
What is driving the Minnesota cannabis license re-sale market?
The primary driver of this secondary market is likely the lottery-based system adopted by OCM. Minnesota started with a social equity license lottery, but pivoted last December to a general lottery, which combined both social equity and general applicants. If you’re interested in why that pivot happened, the short answer is “litigation.” I gave a longer answer here. (And, if you’re interested in why cannabis license lotteries are a bad idea generally, see my post here).
A secondary driver for the Minnesota cannabis resale market would be delays in primary license issuances. The Minnesota program is roughly a year behind schedule at this point, and stories abound of product shortages for retailers, caused by supply chain issues. Here again, scarcity is driving up prices and creating a resale market. Some of this will even out eventually, particularly in uncapped license categories. Right now, though, it’s a real seller’s market, with licenses in some of the capped categories going for hundreds of thousands of dollars.
How are Minnesota cannabis licenses bought and sold?
Minnesota law only allows licenses, and not applications, to be transferred. General guidance can be found here. In short, a licensee is allowed to sell (“transfer”) their license, pursuant to section 342.12, with prior written approval of OCM.
Here are the relevant requirements, lifted directly from OCM’s page:
- Licenses classified as social equity require review and approval by the Division of Social Equity.
- Licenses with a social equity classification may only be transferred to another verified social equity individual or ownership group (at least 65% owned by verified social equity individuals) during the first three years of operations. After three years, a social equity license can be transferred to any entity, including a non-social equity ownership group, subject to review and approval by the Division of Social Equity.
- You cannot make any change of ownership or control that cause the license holder’s legal business structure to convert or change to a different type of legal business structure.
- You cannot add or transfer to any owners that are ineligible to hold a cannabis license based on the background check disqualification process.
- Transfers of licenses must comply with Minnesota’s true party of interest requirements per Minnesota Statutes, section 342.185.
A license purchaser cannot conduct any business related to the license until OCM has provided written approval for the transfer. That won’t happen until after submission of the “Disclosure of Ownership and Control” form, as well as an updated capitalization table. Submission of a few other documents may also be needed in certain cases.
Finally, don’t sleep on relevant city and county regulations.
Social equity licenses
Anyone looking to buy or sell a social equity license will be subject to additional restrictions.
First, ownership changes cannot reduce the license at issue below the 65% “social equity applicant” threshold. Information about this requirement and the social equity verification process can be found here.
Second, the controlling ownership of a social equity applicant license cannot change within the first three years of business operations. This effectively means that social equity licenses can’t be sold outright; instead, only sales of minority positions in these licenses will be viable.
Third, “true part of interest” rules still apply. This is consistent with Minnesota’s goal to prevent the use of straw applicants from subverting the ownership and control requirements of social equity licenses.
The Minnesota cannabis resale market is here to stay
We’ve seen persistent secondary markets for cannabis licenses all around the country, particularly where states have placed artificial limits on licenses, or developed a social equity pool. In the past couple of days alone, we’ve had inquiries at the firm related to sales of Arizona, California, New Mexico and Oregon cannabis licenses. Each of those programs has been online for years.
For as long as Minnesota caps certain categories of cannabis licenses, we will also have a secondary market for license sales in Minnesota. You can expect that market to contract to the four “capped” license types – mezzobusiness, retailer, cultivator and manufacturer – as the program matures. Those licenses command top dollar today, and likely will through at least 2027.
