A case challenging how the Minnesota Office of Cannabis Management handled social equity license applications moves next to the state Co­­urt of Appeals.

The court on Wednesday directed the state regulatory agency to supply more information on the process it used to decide who moved forward. The judicial process will dictate whether a lottery can be rescheduled to determine who is preapproved to run cannabis businesses once the legal market launches and how that might occur.

A Ramsey County district judge halted the lottery indefinitely after applicants who were denied sued. Judge Stephen Smith didn’t rule on the merits of the case, pushing that matter to a higher court.

One of those applicants, Cristina Aranguiz, filed paperwork Tuesday with the Court of Appeals over her application denial from the Office of Cannabis Management. The social equity lottery was intended to give a leg up to people who live in high-poverty areas, those harmed by the war on drugs, and military veterans.

Aranguiz is a first-generation Latina entrepreneur, and she said she met the criteria the state laid out. But the office “violated the legislature’s cannabis statutes, was arbitrary and capricious, and constituted an abuse of discretion” in its decision to deny her, Aranguiz’s lawyers wrote in their statement of the case to the court.

More than 1,500 people applied for a social equity cannabis license, the agency said. And a lottery scheduled for Tuesday was to narrow that down to 282.

But on Monday, Smith sided with a group of applicants — including Aranguiz — who had been denied access to the social equity pre-approval lottery. They sued over a process they argued had lacked clear criteria and that left no room for appeals.

The Office of Cannabis Management had defended its process, saying it attempted to root out applicants who were looking for a quick profit instead of actually moving to set up legitimate businesses. Officials argued that Aranguiz and others had connections to larger businesses that had the option to buy the social equity licenses later on, bypassing the licensing system to gain a market advantage in Minnesota.

Several applicants, including Aranguiz, said the description mischaracterized the agreements with other businesses in the cannabis marketplace.

In a written statement after the ruling, the office said the regulatory agency remained “committed to launching an equitable, sustainable and responsible adult-use cannabis marketplace.”

State lawmakers legalized cannabis for adult recreational use in 2023 but the setup of a retail marketplace has been slow. No licenses have been issued for commercial growers or sellers ahead of what is expected to be an early 2025 launch.

People can grow their own marijuana and give away small quantities. American Indian tribes have also opened their own stores but those sales are limited to reservation land.

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