'Potential fraud': 240 cannabis license applicants, one connection

ST. PAUL, Minn. (FOX 9) - Licensed and legal marijuana sales got pushed back by months Wednesday, leaving a lot of people looking for someone to blame.

Bad actors?

The Office of Cannabis Management is pointing fingers at bad actors from out-of-state who tried to flood the zone and scoop up licenses.

They called it "potential fraud."

Slow roll

Recreational marijuana was legalized in Minnesota by a law passed in May 2023.

By the time the first legal sales happen — probably in mid-2025 — the state will be the third slowest to spark a market.

"Ohio passed a ballot measure for legalization November of ‘23," said Rep. Nolan West, (R-Blaine). "And they have an over $2 billion market today. And we still haven't issued a single license."

'Can't be done'

Rep. West is one of just a few Republicans to vote in favor of legalizing cannabis.

But he’s a harsh critic of the way the Office of Cannabis Management has rolled it out.

"What they're trying to do cannot be done," he said. "And they're just trying anyway, and that is why it's failing."

Something old, something new

Minnesota followed 21 other states to legalization, but tried something new at the same time.

"In Minnesota we decided to prioritize a small business, local cannabis economy," said cannabis consultant Leili Fatehi, a partner at Blunt Strategies. "That means we took a fundamentally different approach."

To that end, the OCM has tried to weed out big money, out-of-state interests.

240 businesses, one connection

Leaders mentioned straw man businesses when they denied applicants from entering the now-canceled lottery last month.

And when two women sued, the state revealed why they believed there was someone else behind those applications.

A tipster said the plaintiffs worked with an out-of-state cannabis operator named Tate Kapple to submit 240 applications to increase his chances of success.

Kapple’s credit card was used to pay for at least one of those applications.

And the applicants eventually revealed they signed a contract where Kapple could buy their business for $100,000.

100% of $100 million

The women claim they’re still 100% owners of their businesses and can’t sell to Kapple until OCM gives approval.

Meanwhile, they anticipated taking in sales of $100 million a year if they won the license lottery.

But businesses related to Kapple only accounted for about one-fifth of the 1200 denials from OCM.

"Our six plaintiffs were not in that category," said Jen Randolph Reise, a cannabis and business attorney at North Star Law Group. "They were, as I've said before, the babies thrown out with the bathwater."

Reise believes the straw man businesses won’t be allowed into the first lottery in May or June, but her clients will after they address application mistakes — by them or by OCM.

Path forward

"I'm pleased that we have a path forward," Reise said. "I'm also pleased that OCM is signaling that that path forward is not going to include people who want to come to Minnesota and set up businesses that are owned by big out-of-state interests."

It’s still possible an appellate court will lift the stay on the preapproval lottery and another lawsuit could force it to happen first, but it’s not clear if that will speed up the process or slow it down even further.

So June appears to be the soonest scenario for legal sales.