Minnesota's goal of launching its retail marijuana market in early 2025 appeared to fizzle on Wednesday as state regulators announced they would abandon an early lottery for social equity applicants seeking cannabis business licenses.

The early lottery would have granted license preapproval to a select number of aspiring cannabis entrepreneurs, giving them the certainty needed to line up investment, commercial real estate and local zoning approval ahead of next year's market launch. Preapproved cultivators would have been allowed to start growing cannabis now, helping build a supply chain before retailers open.

The state Office of Cannabis Management (OCM) opted to abandon the license preapproval lottery after lawsuits were filed last month by applicants who claimed they were unfairly denied entrance to the vetted drawing. Those lawsuits prompted a Ramsey County judge to block the OCM from holding the lottery until the Court of Appeals could review the legal challenges.

"A protracted period of uncertainty is an unacceptable outcome that could diminish the opportunity for social equity applicants to succeed in this market, and it also jeopardizes the Office of Cannabis Management's stated goal of launching the market in 2025," interim OCM director Charlene Briner said Wednesday. "We remain committed to ensuring that qualified applicants have a clear path forward and are given consideration in the next licensing cycle."

Aspiring cannabis entrepreneurs now must wait until next year's licensing round to vie for business rights. The canceled preapproval lottery will delay cultivation for several months, possibly leading to less supply for retailers when the marijuana market eventually opens.

OCM spokesman Josh Collins said the early cultivation that would have been allowed under the canceled license preapproval process was "always unlikely to provide sufficient supply to meet market demand." He said tribal nations in Minnesota that have opened their own marijuana dispensaries could help meet early demand.

"We are also close to executing compacts with several Tribal nations that will likely have cultivation capacity to serve the commercial market," Collins said in an email.

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The OCM shared a new timeline Wednesday showing it hopes to open the license application process to the general public in mid-February. It's aiming to hold separate license lotteries for qualified social equity applicants and general applicants in May or June. By that time, it will have been two years since Minnesota legalized recreational marijuana for adults.

Social equity applicants include veterans, residents of high-poverty areas and people negatively affected by cannabis prohibition.

It could take weeks or even months after those mid-year lotteries for most businesses to become operational. Before they can open, licensed businesses must secure "labor peace agreements" with unions, undergo background studies and ensure they're in compliance with local zoning ordinances, Briner said. They also must pass a pre-opening inspection by the OCM.

"This was certainly not an outcome that we were hoping would materialize, and we know that today's path forward does not provide a perfect solution," Briner said of the canceled preapproval lottery.

It's unclear how the OCM's decision to cancel the early lottery will affect the lawsuits being considered by the Court of Appeals. A group of applicants who were accepted into the lottery filed a legal challenge Wednesday seeking to lift the judge's stay.

The 648 applicants who had been accepted into the canceled preapproval lottery will automatically move forward into the next licensing process next year, without incurring additional application fees, Briner said. Those who were denied entrance to the early lottery will be given an opportunity to correct errors in their applications before the next round.

Some of the attorneys representing applicants who sued the OCM said their clients were denied entry to the lottery for vague reasons or simple clerical errors they should have been allowed to fix.

Attorneys and business owners gathered at a St. Paul coffee shop Wednesday morning to watch the cannabis office's virtual news conference. Reactions to the OCM's announcement were mixed.

Jen Randolph Reise, a cannabis attorney with North Star Law Group in St. Paul, said she was happy that denied applicants would be allowed to fix errors in their applications before the next lotteries. But she was also disappointed that the OCM gave up on the license preapproval lottery because of legal challenges.

"I think OCM fumbled the ball on the review process, and I see them as doubling down by ending the preapproval round altogether after receiving some challenge to their process," Reise said. "I guess at this point, it is what it is."

Leah Kollross, an applicant who made it into the canceled lottery, said she was happy that everyone would have a path forward, even if the process is delayed.

"I'm happy to know that we're still in the running. We're still in that waiting game, but I don't feel it was bad news," Kollross said. "I feel great that those who were denied also have a path forward. I'm just looking forward to getting the industry up and running."