What to expect on rescheduling and a new bipartisan hemp proposal

MN CANNABIS UPDATES

Director Eric Taubel said in public remarks on Monday 7/20 that:

• June adult-use sales were over $18 million, another record-breaking month

• As of mid-early July, there were more than 280 licensees.

• More than 80 licensees have a cultivation endorsement

• It has taken, on average, 66 days from submission of FPOR paperwork to licensure (vs. 90 days max that OCM has under state law)

• MN is seeing a substantial increase in registered medical cannabis patients per month

• OCM receives 100 Change of Ownership forms per week

• Don't expect new application windows to open for the capped licenses or micros until late 2027 at the earliest, stating that OCM wants to see how the thousands of pending licensees play out first.

OCM has not yet updated its Market Monitor to reflect June data, and Taubel said they will be taking a bit longer in the future to account for returns and late data. 

Director Taubel spoke at the Minnesota Cannabis Law Institute, an annual event held to educate Minnesota lawyers and policymakers about Minnesota cannabis law and policy. I attended (and presented) and here are some other nuggets I wanted to share with you: 

Hemp Ban Nov. 12

Lots of discussion about the upcoming federal hemp ban (and whether Mitch McConnell is alive). Leading Minnesota cannabis lawyer Carol Moss said that the U.S. Hemp Roundtable says 95% of current hemp products will become illegal on Nov. 12 without Congressional action. 

Does she think there will be such a fix? "I don't have a lot of hope, but I would love to be proved wrong," Moss said. 

Especially hard-hit: Breweries, who cannot touch Schedule I products because they need a federal TTB license for their business. All manufacturing (co-packing) by breweries will end when the ban goes into effect. 

Kyle Marinkovich, CEO of Northern Diversified Solutions, which creates the hemp distillate used in drinks and edibles, said their sales are half of what they had projected. They are conserving cash but also innovating in kava and other functional ingredients. Marinkovich also had the best joke of the day. When asked if he had spoken to Mitch McConnell, he said, “We’re not on speaking terms.”

License Sales: Possible and Profitable

I moderated a panel about True Party of Interest and license transfers with OCM General Counsel William Reynaga and transactional lawyer Will Denney from powerhouse cannabis law firm Vicente, who has done a number of license deals. The upshot? There is a path for folks who hold a license in preliminary approval or even back as a qualified applicant to sell that interest, in a 2-step transaction, for real money: 

• Micros $25,000

• Cultivation and Retail $100,00-150,000 

• Manufacturing $400,000-500,000   

Social Equity licenses are selling for much lower prices due to the restrictions on salability (must be held 65% by a social equity applicant for 3 years after licensed); they are seeing micro social equity going for $10K. 

Make sure to consider transaction costs; Vicente's services for an easy transaction will be $5,000-8,000, or more for a protracted negotiation. Still, there's a profit compared to the $500 initial application fee for a microlicense. 

OCM reviews all transactions for compliance with law, especially the true party in interest provisions (which intended to prohibit larger players from holding multiple licenses). 

Jen's take: The sale of licenses in the "secondary market" is especially important because the license window will not open until at least late 2027. So if folks want to open in MN, they must buy on the secondary market. Hemp THC companies who want to move into adult-use also need to buy licenses on the secondary market. 

Other Notes

Cat Franklin, a multi-state consultant and operator, compared working with OCM to the relationship a parent has with their kids' coach. You can't just tell them they don't know what they are doing, or your kid won't play, she warned. Instead, she advised, when you identify problems you should offer multiple solutions that have worked elsewhere. And don't let them find problems at your facility; give them a heads-up and that you are fixing the problem.

Social equity has not turned out to be a "golden ticket," said Will Blauvelt, lobbyist for Minnesota cannabis industry association SotaCANN. Many social equity licensees have dropped out after realizing they cannot raise the capital they need to open a business.

Don't bet your house and retirement in trying to fund your cannabis business, said Calandra Revering, an attorney who presented about raising capital. She sits on the loan review committee at Propagate, and shared what they look for when deciding to make the favorable, state-funded loans from the CanStartup grant. They value:

• Experience in the cannabis industry

• Ability to repay the loan

• Clear Use of Proceeds

• Familiar with what OCM requires

• Clean corporate documentation (have Operating Agreement)

• Compliance infrastructure, insurance, and documented SOPs

• Model the true cost of capital, including 280E taxes

She also had a great slide warning about recognizing predatory practices:

Many thanks to the organizers and to Minnesota CLE for this focus on MN's newest legal industry!

Congratulations to two Accelerator members on recent profiles:
Meet Bill Drexler, owner of The Grey Area, a Saint Paul cannabis dispensary built on education, local relationships, and plans for craft cultivation.

Natalie Campion of Cannaverse shares what she learned during her first tour of an indoor cannabis cultivation facility, Trailhead Farms.

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FEDERAL CANNABIS NEWS

Rescheduling Update:

The DEA hearings about rescheduling marijuana to Schedule III have ended, and I've read a lot of commentary. Points: 

• People close to the White House have said that this is a "done deal" and that Schedule III is bought and paid for by cannabis MSOs donating to Trump's PAC.

• Advocates criticize how DEA approached these hearings under the law, as well as DEA's limited participation in them. One said, their lack of care suggests that the outcome is already decided or that the DEA does not want it rescheduled. For example, the DEA ended them a day early. 

• The decision on the hearings is now in the hands of Administrative Law Judge (ALJ) Derek Julius, who will issue a decision at, at the very earliest, mid-September. The ALJ could recommend Schedule I, II, or III. After the ALJ decision, the DEA can ignore or accept the ALJ's recommendation. 

• Litigation is likely from Smart Approaches to Marijuana (SAM) and others in any case. The question is whether it drags on and blocks rescheduling effectiveness.   

• If cannabis is rescheduled by the end of 2026, it is likely that 280E tax relief would be retroactively applied from January 1, 2026, and is possible that it could be earlier. (MSOs have accrued millions in back taxes they are hoping to avoid!) 

The court challenges by SAM and others to the rescheduling of state-legal medical cannabis are working through the courts and experts are watching whether anyone will have "standing" supporting a stay. That decision is expected within weeks. 

A bill to remove cannabis from the Controlled Substances Act completely has been reintroduced by Democratic Senators; it is not expected to go anywhere at this time. 

Hemp Ban Update

A new bill has been introduced in Congress on Wednesday, July 22, by Rep. Andy Barr (R-KY) and Angie Craig (D-MN), to put in place a regulatory regime for hemp and avoid the ban. It would include a three-tier distribution system (like alcohol), labeling, and new taxes on hemp at the federal level. Learn more, including the link to the full bill.

YOU ASKED: How do I raise money for my business? Do I need to hire a lawyer to help?

I’ve led tons of people in and outside the cannabis industry through this process. There are two main ways that entrepreneurs raise money for their business: selling equity, and taking on debt.

Equity:
Equity means that the investor is buying part of the business. They don’t get repaid in the short term; instead, they own a portion of the business and if it is sold or there is another exit event, they share in the payday. For example, Bob owns 100% of Best Buds, LLC. He agreed with his friend Jim that Jim would own 35% of the business in return for a $250,000 investment.

Paperwork they should have, at a minimum: An Operating Agreement. That should have a table of members (technically, owners of an LLC are called “members”) in Exhibit A showing that Bob owns 65% and Jim owns 35% of Best Buds, LLC. The Operating Agreement will also set out how this entity makes decisions (is it manager-managed? Do both members have to agree to all decisions, or just a list of especially important ones?) and what happens if someone dies or wants to leave (these are called Buy-Sell provisions).

OCM Compliance: Go through OCM’s Change of Ownership process and update your Capitalization Table to match your Operating Agreement.

Debt:
Debt means that the investor is making a loan to the business. That loan will be paid back over time on the terms that the parties agree on. For example, Best Buds, LLC borrows $50,000 each from five of Bob’s family and friends to raise the $250,000 it needs. They agree that the LLC will start paying them back after a year, at 15% interest and payments spread out over five years.

Paperwork they should have, at a minimum: A Loan Agreement for each loan. That agreement will set out the repayment terms: the interest rate, when repayment begins, and what happens if it is not paid back on time.

OCM Compliance: As long as it’s a straightforward loan, it is easy: either no compliance needed, or you might need to report the loans (and maybe supply your Loan Agreements) to OCM. More compliance questions arise if the loan gives the lender any portion of the profits, control, or is convertible into equity.

Mistakes I see entrepreneurs make:

• Not entering into even the basic documentation paperwork above. If you’ve ever watched Judge Judy, you know that people argue all the time, after the fact, about what their deal was – and a judge is going to heavily rely on any actual documentation that either party can produce about what their deal was.

• On that note – make sure that all parties sign the agreement and get a fully-signed copy. And save that somewhere it can be found in the future!

• Disputes between members of an LLC about who owns what are very common and can waste a lot of money and time and sink the business.

• It’s key to be clear about whether an investment is for equity or is a loan. I see confused and/or predatory investors arguing that they should get equity and get paid back and that is not how equity works. (To make it more confusing, there is also “convertible debt” – I recommend getting an attorney or qualified advisor like me involved to review a deal with convertible debt.)

• If you’re doing anything more interesting with equity than bringing in a partner or two, you need to talk to a lawyer and think about compliance with securities laws.

The good news:

• You can do this paperwork now, even if you didn’t do it when the investment was originally made. In fact, I recommend it: go back and “paper” the deal while all the parties still agree on what it is.

• A little bit of paperwork is a lot better than none. While hiring a lawyer will get you personalized paperwork for your deal, if you can’t afford it, it’s worth doing something. Entrepreneurs often look to ChatGPT or forms on LegalZoom for DIY solutions. These vary vastly in quality and whether they cover the key points.

• I’ve created a simple Form of Loan Agreement, and it’s now available for purchase by the general public on my website. Here’s the link. I call it a “simple” form because it’s intentionally short, easy to understand, and more entrepreneur-friendly than most forms of loan agreement.

Good luck out there! My goal is to help entrepreneurs keep control of their company while raising the capital they need.

If you want to consult with me about your options on how to structure your deal, or review an offer you’ve received from an investor, you can request a Paid Meeting with me here.

Confidential Industry Classifieds

• Do you have a pending license you applied for but don't plan to use? I can help you get some money for it from hemp operators looking to transition into this market, and other potential buyers, as well.

• Is anyone else setting up harvest / trim crews for hire?

• Do you have something to advertise here?

Contact Jen @ [email protected] 

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