Cannabis Takes a Big Step Forward

Whew! This week has been a marathon for Capitol watchers. We decided to send today’s update a bit later than usual to accommodate the Senate’s vote on legislation to legalize adult-use recreational cannabis. The bill passed the Senate this afternoon by a vote of 34-33. This follows passage in the House earlier this week. The bill will now head to conference committee to work out final details.

Tax Bills Finally Take Shape

While the House released its tax bill (H.F. 1938) last week, the Senate didn’t make its proposal public until earlier this week. Following several hours of debate and numerous amendments, the House passed its bill late Thursday. The Senate is expected to vote on Tuesday. Due to some differences in the bills, it will go to conference committee following Senate passage.

Budget Bills in Conference

All of the budget bills have now been passed by the House and Senate. Conferees have been appointed to most committees and many will have their first meetings on Monday. Senate Information has created a helpful website for finding information on the various omnibus bills.

Paid Family and Medical Leave Also Advances

In spite of continued concerns from the business community, both the House and Senate have completed committee hearings on the Paid Family and Medical Leave legislation. The House is expected to vote on the legislation on Tuesday, with the Senate to follow.

Mere Three Weeks (or so)

As we’ve stated before, the Legislature is required to finish its work by May 22, which is now just a little over three weeks away. While much work has happened, very little has actually been completed as compared to what needs to be done. Before the legislative session adjourns, the following is expected to be done:

• All budget bills passed;
• Tax bill passed;
• Bonding bill(s) passed;
• Various omnibus policy bills passed;
• Cannabis legalization passed; and
• Paid family and medical leave passed.

This is the first post of many to analyze Minnesota’s recreational adult use cannabis legislation.

Authors: David M. Aafedt, Gerald H. Fornwald, Peter G. Economou

We are within days of adult recreational cannabis officially becoming a law here in the North Star State.[1] Competing bills have woven their way through dozens of committees in both the Minnesota House and Senate, and over the last few months, the differences have begun to dissipate, much like the smoke from Spicoli’s van once the doors open to meet the fresh California air.

With an entirely new legalized industry comes the need for a strong agency, with broad authority to administer and enforce these new laws in the State of Minnesota. This new agency – the Office of Cannabis Management (“The Office”) – will be charged with overseeing this nascent industry and all of its moving parts, with the directive by the Minnesota Legislature to, among other things, promote the public health and welfare, protect public safety, eliminate the cannabis black market, and meet the market demand for cannabis.

To carry out its legislative mandate, The Office will be asked to issue various types of licenses (e.g., cultivator, manufacturer, retailers, etc.); establish standards for product testing, packaging, and labeling; authorize cannabis research and studies; establish cannabis potency limits; prevent unauthorized access to those under 21 years of age; and to carry out traditional regulatory and law enforcement functions, such as conducting investigations, carrying out seizures, collecting civil penalties, and taking other traditional regulatory enforcement actions. Wherever The Office’s authority or the substantive law appears a bit “thin,” fret not; the Legislature has granted The Office with broad rulemaking authority, including “expedited” rulemaking for the first two years of its existence to get the program started.

The good news is that when The Office opens its doors, it will have the benefit of almost ten years of regulatory experience from Minnesota’s Medical Cannabis program, and the talented individuals who have overseen this program since its inception. The Medical Cannabis team will be folded into The Office, and we are willing to place a (private social) bet that these seasoned regulators will take on significant responsibility within the new agency.

Last but not least, The Office will not be asked to stand alone. The Legislature has also created the Cannabis Advisory Council to assist in developing cannabis policy, including reviewing, examining, and making state cannabis policy recommendations, and generally reviewing cannabis industry developments. The Cannabis Advisory Council membership will represent a diverse set of backgrounds, including existing state agency personnel, law enforcement, agriculture, health care, labor, manufacturing, substance use treatment, patient advocates, and many other constituencies. It, too, is going to have a heavy workload for the foreseeable future.

As we can all appreciate, it will be no small task to undertake any of these numerous, new responsibilities, much less to flip the switch on an entire industry and regulate a market that was previously a criminal enterprise. We applaud the Legislature and the Governor for their resolve in moving this legislation forward, and to those individuals who will take on these awesome new responsibilities.

As the pieces of The Office’s regulatory puzzle get put into place, we will continue to provide you with updates. Of course, if you have any questions, please reach out to any member of our Cannabis Team.

[1] The road to legalization in Minnesota has been a long one. It has taken State leadership (including some of its strongest current supporters) a long time to get on board, since Colorado and other states kicked off the legalization discussion more than ten years ago. Without question, though, arriving at the precipice of adult-use legalization has been a Herculean effort led by House Commerce Chair Zack Stephenson, Rep. Heather Edelson, Sen. Lindsey Port, Sen. Erin Murphy, and Sen. Clare Oumou Verbeten, as well as those who championed this effort before their respective retirements, former Majority Leader Ryan Winkler and former Senate Minority Leader Melisa Lopez Franzen.

With the Minnesota House passing its version of an adult-use cannabis bill this week, and the Minnesota Senate scheduled to debate—and potentially vote on—its own bill, here are 5 things to keep your eye on.

1. Differences are Narrowing.  In their original forms, the House and Senate bills were dramatically different, with some describing the Senate bill as being more business-friendly, and the House bill as being more keenly focused on social equity issues.  Over the past few weeks, those differences have narrowed dramatically, leaving only a few open issues to reconcile (for example, differences regarding the amount of flower an individual may possess, and the tax issue mentioned below). Will the House and Senate be able to reconcile their remaining differences before session ends on May 22 in order to get a unified piece of legislation in front of Gov. Tim Walz for signature?

2. One Size Does Not Fit All.  Both bills contain significant restrictions on vertical integration—meaning a single company controlling the entire process, from seed to store. However, each bill creates the possibility of a fully integrated operation, as long as the licensee satisfies specific size restrictions.

3. If You Can’t Have It All, How Do You Choose?  Regardless of which bill you consider, there will be no shortage of licenses to choose from.  Each version proposes fifteen different classes of licenses, including licenses for cultivation, manufacturing, transporting, wholesale, retail, and even cannabis events — in addition to the size-restricted vertically integrated “microbusinesses” and “mezzobusinesses” mentioned above. So, what are you jonesing to do?

4. What About the Tax Man?  One of the differences between current House and Senate versions involves how cannabis sales will be taxed.  The House version proposes an 8% tax on all sales and purchases through June 30, 2027, and a variable rate after that, based on the projected expense of regulation.  The Senate version proposes a flat 10% rate.

5. Yes, In Your Back Yard (Literally).  Both the Senate and the House versions are clear: the Minnesota legislature does not want individual cities or counties interfering with state-wide adult-use legalization.  Therefore, while municipalities may place certain restrictions on cannabis businesses, they will not have the authority to deny registration altogether.  Oh, and about that back yard thing? Under both versions, every Minnesotan would have the right to grow up to eight cannabis plants (with no more than four being mature at any given time)—and that includes growing in your back yard!

“The State of our State is Strong”

Governor Tim Walz delivered his annual State of the State address to legislators from the House chamber this week. He highlighted common themes from DFL leadership this session, including a focus on early childhood support programs, education, free school lunches, and a renewed push for gun legislation, while calling out key differences between Minnesota and other states like Florida.

Omnibus Bills from Floor to Conference

Most omnibus finance and policy bills have passed off of the floor in at least one chamber. The few remaining—with the exception of the expansive tax bill—will be passed by both chambers by early next week. Conference committees have begun to be appointed for a few bills, and should start to convene next week. Leadership has put forth a non-binding goal of conference committee agreement by Friday, May 5. After that point, leadership may step in to resolve any remaining points of contention for each bill in negotiations. This could last about two additional weeks, allowing for a few days toward the end of May for bills to be re-passed by each chamber.

Cannabis

The bill to legalize adult-use recreational cannabis will come up for a vote in the House on Monday, followed by a vote in the Senate on Friday. A great many aspects of the bill, including the tax and licensure structure, have changed throughout the committee process. A high-profile conference committee is expected to convene as soon as possible to make significant changes to the final language.

Paid Family and Medical Leave

Legislation to create a state-administered paid family and medical leave program has progressed through the legislative process, with just one final committee stop in House Ways & Means and Senate Finance before it comes for a vote. The business community continues to express concerns about the current language, suggesting that many employees who already enjoy generous paid leave policies may lose out on those benefits when their employers are unable to opt out of the state-run program, and raising questions about the expense and solvency of the program. If passed as written, Minnesota’s paid family and medical leave program would be the most expansive of its kind in the country.

Gun Safety Legislation?

While recent tragedies have put the spotlight on state legislatures to take action on gun safety, bills have appeared to take a backseat to other issues this session. Various proposals, including one that would institute a “red flag” system for gun owners and another that would close a background check requirement loophole, were included in the House omnibus Public Safety bill but not in the Senate’s version. It remains to be seen whether the Legislature will bring any such provisions up for a vote this session, or wait until next year.

Omnibus Bills March toward Passage

Prior to the legislative break, omnibus budget bills concluded their committee paths. A handful have already been voted on by their chambers of origin. Most bills have substantial differences between House and Senate versions that will need to be resolved either by additional floor votes or conference committees.

Committees Wrapping…with Notable Exceptions

With omnibus bill packages heading off to the floor for votes by the full chamber, most committees have concluded their work for the session. Both chambers’ Taxes committees continue to meet as they prepare to release their omnibus bills next week. The overarching finance committees—House Ways & Means and Senate Finance—had a busy few weeks examining the budgetary components of omnibus bills and will hold additional meetings throughout the next month. Informational hearings, during which no formal action is taken by the committee, may still be held between now and the start of next year’s session.

Paperwork Slows as Tensions Grow

As committees have largely concluded their work, bill introductions have slowed to a trickle, but to date there have been more than 3,200 introductions in each chamber this session. Bills that are introduced now will not be acted upon until the next session begins. The legislative session now moves into the phase of frequent, lengthy floor sessions with spirited debate.

Proposed Ban on Non-Compete Agreements

This session, both chambers have considered legislation that would render non-compete agreements unenforceable. The provisions are included in a standalone bill in the House (H.F. 1237) and also appear in the Senate Labor committee’s omnibus bill (S.F. 2782). Both sets of language include independent contractors in their definition of an employee, and define a non-compete agreement as any provision that applies after conclusion of employment to restrict (1) work for another employer for a specified period of time; (2) work in a specified geographical area; or (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.

Broadband Funding

On Thursday, the Senate passed its Agriculture, Broadband, and Rural Development omnibus bill (S.F. 1955), which includes a $60 million increase over base spending on the border-to-border broadband program as well as $40 million for the low-density program. In the House, the Agriculture omnibus bill (H.F. 2278) includes a $100 million increase in border-to-border broadband program spending and makes no change to the low-density program.

Budget Bills Roll Out

Many House and Senate omnibus budget bills rolled out this week with a flurry of committee hearings, during which legislators walked through each bill, took testimony from the public, and made amendments. The full text of each omnibus bill, as well as spreadsheets outlining the expenditures on each provision, are posted for House and Senate committees, although bills may be amended through next week.

Multiple Sales Tax Increase Proposals

Omnibus budget bills in several committees included proposals to raise the metro-area sales tax in order to provide ongoing funding sources for initiatives. The House’s Housing bill includes a proposal to institute a 0.25% sales tax to fund various housing programs; both House and Senate Transportation committees have floated a 0.75% sales tax to fund transit. Meanwhile, municipal governments across the state are weighing their own sales tax hikes. Local increases must receive sign-off from the legislature before going to voters as a ballot initiative.

Renewed Push for Gun Safety

In the wake of another tragic school shooting, DFL members renewed their push for gun safety measures with several press conferences and hearings on the public safety omnibus bills. Former U.S. Representative Gabby Giffords joined leaders on Thursday to encourage action this legislative session. The provisions’ passage is nearly assured in the House, but faces a less-certain path in the Senate.

Standalone Bills Continue Path

While most of the week’s focus was around omnibus finance bills, legislators in the House passed a handful of standalone policy bills off of the floor for passage by the Senate. These proposals include one to criminalize producing “deep fake” images, and another to ban state agencies from asking about job applicants’ criminal histories. Finally, the bill to legalize recreational cannabis renewed its path with a hearing in the House Taxes committee, where members significantly amended the bill’s provisions on taxing low-dose hemp products.

Legislature Prepares for Break

The legislature will conclude its business by 5 pm on Tuesday, April 4. Legislators will be on break through the following week. Business will resume on Tuesday, April 11. After break, omnibus finance bills will begin to be heard in the House Ways & Means committee and Senate Finance committee as they make their way to the chamber floors.

Leadership Releases Global Budget Targets

On Tuesday, the Governor, House Speaker, and Senate Majority Leader announced they had reached an agreement on global budget targets, adding up to $71.9 million in spending for the biennium. Chairs of each finance committee now have specific dollar amounts that their finance bills must add up to, and they will work over the weekend to craft omnibus bills.

What Happens Next?

In most sessions in recent memory, leadership would not agree to such targets until late in session, resulting in omnibus budget bills of varying sizes in either body. This historic, early agreement could allow House and Senate Chairs to craft omnibus bills that more closely match one another, potentially cutting down the time that must be spent in conference committee and leadership negotiations toward the end of session. Omnibus bills must be finished by the end of the day on April 4, when the Legislature recesses for about a week for spring break.

House Commerce Hears Bill to Increase Consumer Protections

The House Commerce committee this week heard a bill (H.F. 2823) backed by state Attorney General Keith Ellison’s office and authored by Rep. Liz Lee (DFL-Saint Paul) that would broaden the definition of consumer fraud to include practices deemed “unfair” or “unconscionable”, among others. While Minnesota is one of just six states that do not have such provisions in place, the bill’s detractors noted the language is not specific enough to allow businesses to ensure they are complying with the law.

Paid Family & Medical Leave Resumes its March

The Senate Jobs & Economic Development Committee heard Sen. Alice Mann’s (DFL-Burnsville) bill (S.F. 2) to require employers of a certain size to provide 24 weeks of paid family and medical leave to all employees. Several minor amendments were adopted. The bill must be heard in several more committees between both chambers before it will have a floor vote.

Gun Safety Legislation Clears Committee Hurdle

This week, a lengthy hearing of the Senate Judiciary committee saw three bills relating to gun safety approved and referred to the Finance committee. The bills would close a background check requirement loophole for certain gun purchases; institute a “red flag” system to keep guns out of the hands of those who have been identified as a danger to themselves or others; and increase penalties for possession of machine guns. So far, the House has approved the first two bills and is not expected to act on the machine gun legislation.

Bonus: Key Dates

• Friday, March 24: second legislative deadline, by which bills that met the 3/10 deadline in one body must be acted upon by the other body
• Tuesday, April 4, 5 pm: third legislative deadline, by which major finance bills must be passed out of committee
• Tuesday, April 4, 5 pm: legislative break begins
• Tuesday, April 11: legislature returns from break

The Minnesota Legislature has been very busy this session, with an especially heightened amount of activity relating to housing; numerous bills have been introduced that would have a major impact on both market-rate and affordable housing in Minnesota if enacted. Our team is constantly monitoring the progress of these pieces of legislation as they make their way through the Legislature; please click below to learn more about the current bills.

Contact your Winthrop attorney to find out about how these bills may affect your business if enacted.

Landlord-Tenant Omnibus Bills
Limiting Rent Increase in Low-Income Rental Projects
Housing Funding Proposals

Landlord-Tenant Omnibus Bills

Bills related to landlord-tenant law are currently being heard by the respective Housing Committees in the House (HF 917) and Senate (SF 1298).  The bills contain numerous requirements and restrictions affecting tenant-landlord relations. Among the provisions in the bills are those regarding restricting lease terminations and evictions, including, among others:

• making it unlawful to refuse to rent a unit to individuals participating in a public assistance program;
• increasing the scenarios in which evictions will be expunged from tenants’ records, including after three years;
• requiring landlords to provide minimum heat at a level of 68 degrees from October 1 through April 30;
• restricting Crime Free lease provisions;
• giving tenants the right to court-appointed counsel to defend against evictions;
• requiring the disclosure of fees;
• restricting landlord entry into residential units without 24-hour notice; and
• imposing requirements related to the treatment of pets.

The chairs of the House and Senate Committee have been working together to ensure as much similarity as possible in the bills that emerge from their respective committees.

These bills have moved out of the respective Housing Committees of each body and are both currently in their respective Judiciary committees; they will likely be heard in these committees in the next ten days.  At that point, they will move to the floor of each body for a vote.  Any discrepancies between the two bills will be worked out in a conference committee. The timing of when each bill will ultimately be taken up on the floor is uncertain at this point.  However, it is unlikely that it will occur before Passover and/or Easter.

Limiting Rent Increase in Low-Income Rental Projects

Last week, bills were introduced in the Minnesota Senate  (SF 2590) and House of Representatives (HF 2676) that would impose a limit to increases in rent for low-income rental projects that use residential rental bonds. Under both the Senate and the House bills, annual rent increases in Minnesota would be capped at 5% for any property that received 4(d) property tax treatment or uses Tax-Exempt Bonds for funding.

These bills have been referred to the Tax Committees in each body. Whether they receive a hearing or not, or are brought up as amendments, is currently to be determined.

Housing Funding Proposals

Through nine different agencies in his Administration, Governor Walz has proposed spending over $1.6 billion on a housing stability agenda.  This agenda seeks to prevent and end homelessness, to create a healthy rental market for low-income renters, and to close the disparities in homeownership. The details of the Governor’s proposals can be found here: One Minnesota Housing Stability Budget Summary.  In the next few weeks, the House and Senate will unveil the framework of a 2024-2025 biennial budget which will include many of the Governor’s proposals and some additions of their own.  A housing finance bill will likely pass the House and Senate before the end of April and become law by the third week of May.

On March 14, 2023, the Environmental Protection Agency proposed imposing national drinking-water standards for six per- and polyfluoroalkyl substances, commonly referred to as PFAS or sometimes as “forever chemicals.”  Federal and state regulation of PFAS has been on the  radar of businesses that may be impacted, including those in the water treatment, waste management, recycling and manufacturing sectors.  The EPA’s recent action proposes regulating two of the most common PFAS substances (PFOA and PFOS) as individual contaminants with Maximum Contaminant Levels (MCLs) of four parts per trillion (ppt), and regulating four others (PFNA, PFHxS, PFBS, and GenX Chemicals) as a mixture using a Hazard Index calculation.

Proposed Federal PFAS Regulation

The EPA’s proposal would require public water systems to:

• monitor for PFAS,
• notify the public of the levels of the six regulated PFAS, and
• reduce the levels of these PFAS in drinking water if they exceed the MCLs or the target hazard level.

The EPA’s new proposal is a dramatic change from its 2016 recommended allowable PFAS concentrations of 70 ppt for drinking water, and signals the EPA’s continued focus on PFAS. In March of 2021, the EPA made its final determination to regulate PFOA and PFOS in drinking water, foreshadowing this latest proposal. EPA expects to finalize the drinking water regulation by the end of 2023, and will soon seek public comments on the proposed rule following publication of the proposal in the Federal Register.

This drinking water proposal is not the only EPA regulatory proposal related to PFAS.  In 2022, EPA proposed regulating PFOA and PFOS as “hazardous substances” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which would require entities to immediately report releases of the substances; it would also place responsibility for environmental damage and clean-up costs on  facility owners and operators, generators, and parties who contribute to a release of the substance. EPA is currently in the process of reviewing public comments on its proposed rule regulating PFOA and PFOS under CERCLA.

Minnesota PFAS Activity

In Minnesota, PFAS have the attention of the Governor’s office and the Minnesota Pollution Control Agency (MPCA). Governor Tim Walz’s budget allocates more than $35 million to identify and treat PFAS contamination in drinking water. The MPCA takes the position that PFAS compounds are “hazardous substances” under the Minnesota Environmental Response and Liability Act (MERLA), though the agency’s position has not yet been tested by the courts.   The MPCA established its PFAS Blueprint in February 2021, which included ten priorities for PFAS action in Minnesota. Currently, the MPCA is focused on executing a monitoring plan to determine where and how PFAS enter the environment. Preliminary testing at closed landfill sites using detecting wells shows that 97% of these sites are positive for PFAS.

As part of its monitoring plan, the MPCA has begun requesting that facilities it has identified as potential sources of PFAS contamination undergo testing for these compounds.  These facilities include water treatment facilities, landfills and composting sites, metal scrapyards, and certain industrial manufacturing facilities. To date, the MPCA has requested testing at 413 facilities in Minnesota,  and plans to release the findings of this testing in 2024. Based on preliminary testing, the MPCA expects many areas to exceed the proposed drinking water limits.

Funding for PFAS Monitoring in Minnesota

The MPCA has indicated that there are funding opportunities for participants in the monitoring plan, coming at least in part from the $2 billion allocated in the Infrastructure Investment and Jobs Act to address emerging contaminants. These funds would be available as grants to states. Given the extreme costs of remediation of PFAS, however, it is unlikely that these funds would cover extensive remediation within Minnesota should it be required.

Winthrop and Weinstine continues to monitor the proposed actions of the EPA and MPCA, and how these actions will impact the regulated businesses. For more information about PFAS regulation, CERCLA, MERLA, or to discuss specific questions related to your facility,  please feel free to reach out to any member of our Environmental team.

House and Senate Hold Joint Tribal Sovereignty Day

On Monday, many committee meetings and other official items of business were halted to allow the House and Senate to hold a joint session dedicated to government-to-government relations. Legislators participated in a day of learning and socializing with tribal officials, dignitaries, and leaders from the 11 sovereign tribal nations located within Minnesota’s borders.

Free School Lunch Bill Heads to Governor’s Desk

This week, the House re-passed the bill to provide free school breakfast and lunch to all students after the Senate approved a slightly different version of the bill than was originally passed. Governor Tim Walz said he would try to sign the bill by Friday, March 17, to maintain a deadline of the same day by which schools and districts must determine how to implement programs for the 2023-2024 school year.

Bonding Bill Fails in the Senate

After easily passing the House last week, the legislature’s initial $1.9 billion capital investment proposal—which requires a three-fifths majority in each body in order to pass—was rejected by the Senate on a 33-32 party-line vote on Thursday. In an explosive debate that continued from the Senate floor into the Capital Investment Committee later in the day, Republicans reiterated to Capital Investment Chair Sen. Sandy Pappas (DFL-Saint Paul) that they would continue to hold out on voting for a bonding bill until tax cuts are enacted.

Governor Releases Supplemental Budget

After the February budget forecast showed little change in the state’s projected revenues and expenditures, Governor Walz released a supplemental budget on Thursday containing revisions to the original proposal. Notable changes in the budget include more money for public safety aid, funding to local and tribal governments, new tax credits for electric vehicle purchases, and a bump in local government aid spending.

Well Wishes for Dziedzic and Westrom

Senate Majority Leader Kari Dziedzic (DFL-Minneapolis) announced she had been diagnosed with cancer and had undergone surgery on Monday. While she is in recovery, she will participate in important votes remotely. The same week, the office of Senator Torrey Westrom (R-Alexandria) announced he had suffered minor injuries in a snowmobiling accident and expects to make a full recovery. We extend our best wishes to Senator Dziedzic and Senator Westrom.