Episode 51

Minnesota: Emerging Market Opportunities & Challenges

In the cannabis industry, it’s important to take advantage of opportunities as quickly as they arise and solidify your foothold in emerging markets. Minnesota is one such emerging market that you want to be aware of. Tune in to this episode where we speak with HYC’s startup and applications expert, Shannon O’Mara, and Dutchie’s Director of Market & Sales Intelligence, Matt Cox about what you need to know to have the highest chances of success in Minnesota!

Adam Kulbach 0:07
Hello and welcome to the higher enlightenment podcast brought to you by higher yields cannabis consulting your seed to sale Business Solutions team. My name is Adam, part of the creative team here at higher yields. And today’s episode deals with the rapidly changing cannabis landscape and Minnesota. Today’s special guests include Shannon o Mara, from higher yields consulting, and Matt Cox from duchy. So let’s get on with the show. usually start off by having you guys introduce yourselves, and give us a little background on yourself. So we start with you, Shannon.

Shannon O’Mara 0:45
Sure, absolutely. Hey, everyone. My name is Shannon O’Mara. I’m the director of compliance and startup services here at higher yield. Been in the cannabis space for a little over five years now primarily focused around compliance and licensing. So pursuing licenses in new and emerging markets, and then assisting with the development of operational documents, like SOPs, ensuring inspection checklist requirements are met, and things along those lines. So really excited to be here and to chat about Minnesota.

Adam Kulbach 1:15
Thanks a lot for being here. How about you, Matt, could give us a little introduction to yourself?

Matt Cox 1:21
Yeah, sure. Thanks. My name is Matt Cox. And I am the director of marketing and sales intelligence at Dutchies. been with the team almost five years, so I was the eighth employee about five years ago, it’s been quite an incredible ride. Prior to that, I spent about two and a half years at green bits point of sale. So been in industry for about seven and a half years or so, based here in Bend, Oregon. And within my role at duchy, what I’m really laser focused on is our emerging market strategy, and really building an authentic and powerful ecosystem of partners when we enter each emerging market with a goal in mind to be able to serve the prospective operators in that market through education and programming, and just the proper preparation, depending on where they’re at in their process. And doing that in a partnership ecosystem. Seems to be the play. So yeah, that’s what I spend my time doing and really excited to be here with you both

Adam Kulbach 2:12
agree. Um, for those who don’t know, what does duchy do?

Matt Cox 2:18
Sure, yeah. So as duchy we are the largest cannabis tech company out there in the US. What we focus on is point of sale, ecommerce, and payment processing, and also partnering with vertical operators as well. So we’re a software company. Last year, we processed around 14 or 15 billion in sales through our platforms. And so there’s a lot of transactions going through our platforms at any given moment. We serve about 6500 dispensaries and vertical operators between the US and Canada. In addition to that tech stack ecosystem, I mentioned, we also have a financial services arm, we have an insurance product, and I would imagine that space will be continued to build out our financial services arm over the next year or two as well.

Adam Kulbach 3:01
Okay, great. Um, so what has been going on in Minnesota leading up to 2023?

Shannon O’Mara 3:10
Yeah, so I’m happy to kind of kick things off here. So leading up to 2023 in Minnesota, so medical medical cannabis became legal in this state in May of 2014, which made them the 22nd state to allow for medical cannabis in the United States. Sorry, if you hear my dog barking in the background, the program was rolled out in a really unique way. So allowing for two cannabis manufacturer licenses in the state. So that allowed for two operators to cultivate harvest process, manufacture, package and distribute cannabis and cannabis derived products for sale at a limited number of locations across the state. So at this time, the MediCal program is operated by leaf line labs, who operates under the DDA rise, I’m sure you guys are familiar with them, as well as green goods.

Matt Cox 4:02
Yeah, that’s a good that’s a good summary, Shannon, thank you. Yeah. And grooving into this year, of course, I think Minnesota was the 23rd to become approved for recreational, which is super exciting. And I believe that crossed the finish line, also in May of this year. And legislation officially goes into effect just here in a few days on August 1. So as far as just being able to possess a certain amount of cannabis, as a citizen, and you know, expungements, etc. A lot of that’s going to go in motion at the top of this coming month. So yeah, super excited about that. You have been gearing up for all those changes. Yeah,

Shannon O’Mara 4:41
Minnesota has definitely been on the watch for a little while. Yeah, like you said, Man, I think Governor waltz signed it signed chapter 64 In May of this year, so not that long ago, and there was a lot of back and forth to get the statute in its final form. I think there was close to 12 revisions of this document And before it actually was signed into law, so it’s been a lot of people have been keeping an eye on it for a while.

Matt Cox 5:06
Absolutely. And yet, with all the revisions and everything, it still feels like it’s moving a lot faster than a lot of other emerging markets, which is super cool to see with like government, Governor wall to support and the previous governor, Jesse Ventura, you know, really interesting character, hearing his testimony in February, to be able to pass legislation was really cool to hear about how, you know, Canada’s saved his wife’s life, you know, through her chronic seizures that she was having. And so I think that’s the unique thing about Minnesota is just the political support and the momentum that the cannabis industry already has in that market. So I’m pretty bullish on it. Yeah, absolutely.

Adam Kulbach 5:43
Hey, so what opportunities are you both seen in Minnesota that people in the industry need to be aware of?

Shannon O’Mara 5:53
Well, man, I don’t know. Do you want to get started? Or do you want me to jump in? Yeah, go for it. Okay, cool. Well, to start, I know that there are 10 different license types in the adult use market that up kids can apply for. So obviously, seeing the standard cultivation, manufacturing, retail wholesale things along those lines, as well as micro business and meadow businesses licenses. So both of those types of licenses do allow for cultivation, processing, manufacturing and sale, the primary difference between those being the amount of canopy space that that applicant is allowed to own essentially, so the micro business is allowed to cultivate up to 5000 square feet of plant canopy, Mezo businesses 15,000 square feet, as compared against the standard cultivation license, which is 30,000 square feet. Another cool thing that I did see in here is that it does seem like consumption lounges are going to be a part of this program through the event organized, organizer license. So that’s pending approval by the local government, you can actually pair these licenses with retail licenses. So it’s kind of similar to what we’re seeing in Colorado, with the hospitality and sales licenses, which could be a pretty unique opportunity for folks that are interested in pursuing that path.

Matt Cox 7:09
Awesome. Shannon, I’m so glad you showed up with like the fine details. Thank you.

Shannon O’Mara 7:15
I can keep going. I’m like I’ve been elbow deep Minnesota for a long time. Yeah, another really cool piece is the social equity program. So HF 100 outlines the eligibility criteria for the social equity applicants that are similar to what we’re seeing in Missouri’s micro business program right now. So it’s things like the applicant or the applicant’s family or a applicants family member of being convicted of a cannabis offense, residency in areas with high incarceration rates, high poverty rates, specific household incomes and things along those lines. But one of the interesting things that I did see in the statute is that each individual applicant, or in the case of an applying entity, each director or manager, essentially everybody in ownership group needs to meet those qualifications in order to meet the social equity criteria. So in some states, we see the social equity program as having separate licenses. But Minnesota has actually integrated their social equity qualification into the scoring criteria, which is going to be hugely beneficial to startups. So although it doesn’t restrict MSOs, or multi state operators from apply MSOs will now be faced with a challenge to gain boink points in that area of the scoring rubric, because of this position that the state’s taking. So we may learn more once the full regulations are released. But at at most, what we could be seeing is MSOs, being able to obtain partial points and that scoring section, if they partner with one or more individuals who meet the qualifying social equity criteria. So definitely a really unique position in Minnesota for social equity.

Matt Cox 8:54
That’s awesome. Shannon, do you know when the regulations will be released?

Shannon O’Mara 8:59
I don’t at this time, I would imagine, I think we saw something along the lines of fourth quarter. So they’re the only thing that I’ve seen is that they’re hoping for the first retail stores to open up in q1 of 2025, which is really, really soon. So I’d have to go back to the statute to check what the scoring timeline is, I believe it was 60 or 90 days from when an applicant applies that they would be awarded their license or denied. But you know, allowing for about five months to build out a facility and get cultivation up and running. You know, I think that q1 is a little bit eager, but definitely by the end of the year, I would say early q4, for sure.

Matt Cox 9:43
Awesome. Thanks. I believe applications are going to drop sometime in the summer of 24. Which does seem like a like a long ways away but I think the like one of the unique things about Minnesota but I’m really excited about I kind of alluded to it earlier, is that there’s already like a lot of momentum in the cannabis space the hemp derived THC market in Minnesota is already pretty darn mature. And so a lot of the players that we’re going to see make that transition to adult use, I think, you know, have shown themselves to some degree. There’s also like, you know, some, you know, friction with with the current hemp derived THC market of folks who’ve had opposed salt use, but from what I can see so far, I think majority of that community’s in support, and we’ll be, you know, making that trician transition, and the evolving with the adult use market, which is really neat. So, like seeing all that momentum already, as far as like the importance of, you know, going in early and building community, with these previous operators, you know, shaking hands with the legislators and other strategic partners at this point is I think is so important. I think that’s one piece that really excites me about Minnesota, again, is that like, there’s that cannabis is not alien to the market, I mean, you can go into some of these bars and get like hemp derived THC drinks, which is pretty darn rare, you know, in the US. So I think it’s been, you know, really familiarized within the culture already, and there’s already like, a ton of excitement. So that’s, I think that’s one thing that’s pretty, again, pretty unique about Minnesota, and something that gets me excited is just like, there’s already a fire and a lot of people’s, you know, bellies and, and folks were really, really excited to get going with adult use.

Shannon O’Mara 11:15
Yeah, for sure. Another thing I didn’t know, in terms of kind of one of the unique opportunities in Minnesota, and it’s a little backwards here. But you know, outside of that social equity program, I think it’s interesting to note that the statute actually indicates that vertical integration is not allowed outside of the micro and mezza licenses. So this will obviously help to avoid monopolization of the program by the large multi state operators, who have the resources and the funds to apply for multiple licenses. And that would allow them to in turn own multiple licenses throughout the entire supply chain. So for example, the restrictions for allowed licenses outside of the micro mezzo would permit an applicant to apply for cultivation and manufacturing, but not retail. So I think that kind of speaks to the locality of the program as well, you know, in addition to the social equity program, trying to keep those large, multi state operators out and keeping it a little bit more local to residents of Minnesota.

Adam Kulbach 12:12
Okay, you sort of touched on this, but did the opportunities differ for new startups compared to established cannabis businesses?

Shannon O’Mara 12:23
Yeah, so I guess, there’s, there are some differences here primarily around I know, I keep talking about the social equity program, it is such a big part of of this application process. And I think, you know, there’s ways for startups to leverage this over multistage operators. You know, for example, you know, getting started early in the process will be huge for these for these players. Things like raising capital. So one of the pitfalls that we usually see in these programs nationwide, is, although there appears to be a heavy lean towards favoring social equity applicants, the actual contents of the applications being scored, can be really difficult to provide those smaller startup businesses for those smaller startup businesses to provide. So being able to demonstrate control of property that can be an extremely cost costly endeavor, as well as being able to show proof of capital to fund the project. So this is where we start to see some fluctuation in the application scoring, where a social equity applicant may be able to earn points in this section for social equity qualification, MSOs, may have the opportunity to earn more points in an area such as demonstration of capital. So you know, it does appear that the state has a number of grant programs that they’re opening up, which, you know, applicants if they’re looking to apply or looking to get started early, could start digging into that a little bit, as well as crowdfunding searching for Capital Partners things along those lines. And again, maybe location requirements. So the the statute prohibits municipalities from restriction from restricting cannabis operations at a local level. But they do have the ability to create their own ordinances to essentially determine the time place and manner of operations, which is something that, you know, applicants, smaller startups should start to look at early on. So conducting Green Zone assessments to ensure certain properties are compliant with local zoning requirements, as well as being able to weigh the costs of certain available properties on the market, which will help the applicants better prepare themselves once the application period does open up to position themselves, similar to MSOs.

Matt Cox 14:29
Yeah, I think those are really, really good call out Shannon. And in a lot of these other emerging markets that we’ve worked in, you know, most more often than not that the largest bottleneck is going to be acquiring real estate and acquiring funding. So the bigger Headstart you can get on that like, the better. And again, in Minnesota, the communities already, you know, has such good movement already. And so there’s a lot of interesting opportunities to meet folks that you know, might be there might be investors or real estate experts that you can connect with and so, you know, the folks listening to this discussion that are planning to apply, definitely encourage folks to show up to community events like, you know, Canada connect to Minneapolis, Minnesota is ready coalition, I could see them potentially starting to create events, we’ll see. I’m not sure who’s going to step in to be like the de facto Industry Association. We’re not clear on that yet. But again, through Canna connects, and whoever does like step up into that association role, I think we’re gonna start to see a lot more activity as far as these community events where you can meet partners, like investors and real estate professionals, and really figure out like, you know, who your allies, your group of allies are going to be? And that that really does start today, if you want to, you know, put yourself ahead of the pack and be prepared.

Shannon O’Mara 15:40
Yeah, absolutely. And, you know, as we, as we see the regulations rollout, either end of 2023, really early 2024. You know, we might see more details in that application process around, you know, local support. So starting to build those connections, maybe being able to get letters of support from community leaders will really help to bolster applications for those smaller startup businesses as well. Okay, well,

Adam Kulbach 16:03
I think you’re answered my, my next question, so I’ll skip that one. What are some of the potential risks or pitfalls people need to be aware of, for Minnesota specifically, before taking action?

Shannon O’Mara 16:20
I think the biggest mistakes or I guess, risks that people come up against, especially small startups, when it comes to entering into a market like Minnesota, is really like I had mentioned before waiting too long to start that application process. So like I said, despite the fact that the program’s regulations haven’t been established yet. The statute indicates requirements for long lead items, or what I would typically call on an application, it’s like long poles in the tent, like real estate, detailed narratives, such as Business Plan security plans that demonstrate duration of funding, like I had mentioned. So the state hasn’t disclosed how many licenses are going to be available, they just simply just stated that they’re going to award enough to ensure sufficient supply of product to meet demand, ensure market stability, and cure a competitive market. But what we do know is that this is going to be an extremely competitive merit based application process. So starting pre application planning and beginning to address those long poles in the tent early on, will allow applicants to prepare for an extremely competitive application, again, going up against those MSOs.

Matt Cox 17:26
Yeah, yeah, that totally resonates with me. And it kind of in a similar vein, as well, like, you know, working with somebody like higher yields consulting on like the business planning, application, writing, et cetera, financial modeling, like y’all have done such a good job of building an ecosystem of other service providers and partnership types, which I think’s really important to get ahead of, as well. So in addition to that piece of the pie, you know, writing application, getting your modeling down at cetera, it’s also important to think about getting ahead of the relationships with other partners, you know, such as tech providers, insurance, IT firms, your CPA, like all these allies. And really taking your time to do proper due diligence, for the folks that wait to the last minute, sometimes you’ll just go with the first conversation, if there’s like, oh, shoot, I forgot to do this, or I gotta get going. It’s amazing how much time moves, when you’ve got all this, all these things to do in the checklist is not get ticked off nearly as quickly as we think. And so giving yourself the luxury of proper due diligence, and having, you know, multiple different partners to vet out and really seeing, like, who you resonate with is so, so important, and like, let people compete for your business. And really, just like, you know, for a lot of folks that are, you know, entering the market, this may be could be your first rodeo in the cannabis space. So there’s a large learning curve as well, as far as, you know, even just different vocabulary in the market and how different companies operate. So the more spacious spaciousness, you can give yourself to do due diligence for all these different partnership verticals, I just highly encourage that, because again, Time goes fast. And it’s just nice to kind of relieve some pressure valves, once it gets close to that application being due. And depending on what’s required on the application, you know, oftentimes, you know, writing in who you intend to work with, for your POS, or E commerce or who you intend to work with insurance, or you know, how you’re going to report your financials or etc. Like, sometimes that’s required in the application. So when you have those partnerships already in place, by the time you’re applying, then they can help you add to add fodder to those aspects in your application and shows that you’ve done your homework. So that’s another pitfall. When folks haven’t crossed that finish line by the time the app is due, then it just it’s not going to look as robust if you haven’t gone through some of those steps.

Shannon O’Mara 19:38
Yeah, absolutely. I totally agree. And it’s also interesting, you know, for example, your POS e commerce systems, you know, as you’re applying, say, as a retailer, you know, it’s incredible to see that what those connections, those resources that you have, how that can carry over and overlay throughout the application. So being able to speak to inventory control and record keeping all the way through to your security plan when you speak to dive version prevention. Like if you’re able to plug those names in and show that you’re able to have somebody to back you throughout that process, it’s really going to elevate your your application for sure. We’re almost

Adam Kulbach 20:08
towards the end. Do you guys have any additional comments, things to plug or final statement?

Shannon O’Mara 20:15
So

Matt Cox 20:18
I think maybe just like the one thing I would double tap on is, is community is everything. And especially in a market like Minnesota, you know, I’m always bullish on Midwest markets. I’m from Ohio originally. But just being able to break bread with people to meet folks, that’s really where the magic happens. So, you know, whether you’re looking to do business there as an ancillary business, or as a prospective operator, like I mentioned earlier, just see what see what’s going out there. As far as these different community events, educational events, conferences, go to as many things as possible. And again, that’s really where the magic happens. Once you start meeting real people that you resonate with, things will happen that you couldn’t even have imagined. So yeah, just keep a pulse on what’s going on on the local level. And, you know, have fun and really take your time again, building those partnerships. But that’s thing. That’s the last thing I want to reiterate.

Shannon O’Mara 21:05
Yeah, that’s great, Matt. Yeah.

Adam Kulbach 21:08
Hey, well, thank you so much for being on today. Really appreciate it. Very informative. Thanks for having us. Thanks, Adam. Thanks, Shannon. Thank you. That’s pretty easy to do.