Minnesota Passes Full Legalization (with a twist of hemp-derived THC)

Editor’s note: This article is a guest-post written by my colleague, Jen Reise, the Head of Business and Cannabis at North Star Law Group in St. Paul, Minnesota. 

Exciting times in the North Star State: in May, Minnesota became the 23^rd state to legalize recreational adult-use cannabis.

At the same time, Minnesotans are already enjoying the hemp-derived THC beverages widely served at restaurants and breweries – pioneering a social consumption model unique in the nation.  

This article addresses:

• Expected timing and implementation in Minnesota
• Licensing structure
• The future of the hemp-derived THC beverage market
• Other points of interest

Timing

Gov. Walz signed the bill into law at the end of May, and we are off to the races! Possession limits increase August 1 to a generous two ounces when out and about, and two pounds (!!) at home (per adult). The high possession limit is due in part to the fact that the bill allows Minnesotans to home grow for the first time, up to 8 plants (4 mature at once), also effective August 1,

At the same time, many steps remain before Minnesotans (aged 21+) can walk into a legal dispensary. The bill creates a new regulator, the Office of Cannabis Management (OCM), which will be promulgating important rules and license applications, and granting licenses.

Licensing structure

The bill creates a roster of different types of licenses for businesses looking to participate in the adult-use cannabis market:

• Cannabis microbusiness
• Cannabis mezzobusiness
• Cannabis cultivator
• Cannabis manufacturer
• Cannabis retailer
• Cannabis wholesaler
• Cannabis transporter
• Cannabis testing facility
• Cannabis event organizer
• Cannabis delivery service
• Medical cannabis combination business

The authors strove to create a craft cannabis market and minimize the influence of multi-state cannabis companies by placing strict limits on vertical integration, especially for larger businesses. Specifically, a business that receives a license as a cannabis retailer may not also operate as either a manufacturer or cultivator, and vice versa. They may, however, also hold a cannabis delivery service license, a medical cannabis retailer license, and a cannabis event organizer license.

However, the micro and mezzo licenses offer more flexibility. A licensed cannabis mezzobusiness, for example, may legally conduct a range of activities including growing up to 5,000 feet of canopy, manufacturing concentrate and other adult-use cannabis products (as well as hemp-derived THC products), and packaging and selling the whole range of products and immature plants at up to three retail locations. They may also hold a cannabis event organizer license.

Insiders do not expect the kind of limited, high-priced licensing seen in some states. Instead, this is a licensing scheme designed to encourage entrepreneurship. Cities cannot entirely prohibit cannabis businesses, and license fees are moderately priced compared to some states, at $500 – $10,000 depending on the license.

At the same time, this will be a merit application system and substantial demand is expected.

Other points of interest:

Expungement: The bill also includes comprehensive expungement provisions: automatic expungement of petty misdemeanor and misdemeanor marijuana convictions, and creation of a Cannabis Expungement Board to review other convictions.  

Drug testing: Employer drug testing for cannabis is largely prohibited by the new bill, though employers are allowed to test for certain “safety-sensitive” and medical positions and those tied to federal regulation.

Taxes: Taxes were set relatively low in an attempt to replace the black market, at 10% for both the hemp-derived products available now and full cannabis once dispensaries open. Medical cannabis receives exemptions and other favorable tax treatment.  

Medical: Minnesota has had a fairly restrictive medical program since 2014. The omnibus bill transfers management of it to the new OCM, but makes few changes.

No local ownership: The final bill does not include a residency requirement.

Hemp-derived THC

Since July 1, 2022, Minnesota has been participating in an experiment of sorts: a definitional change last year allowed the sale of beverages and edibles with 5 mg per serving of hemp-derived delta-9 THC. Without further regulation on who can produce or sell, the industry has rapidly advanced, led by Minnesota’s craft breweries. It feels like almost every brewery has its own craft seltzer, and they are widely sold in restaurants and bars for on-site consumption right alongside alcoholic choices. People bring them to potlucks.

In other words, Minnesota is experiencing low-key social consumption far ahead of “consumption lounge” efforts in Colorado, Nevada, or elsewhere. In addition, as these products are federally legal under the 2018 Farm Bill (as they are all derived from hemp with less than 0.3% THC), they can be manufactured and shipped with minimal regulation and legal risk, purchased with credit cards, and avoid 280E taxation issues.

After intensive conversation about how to move forward with legalization of adult-use cannabis in light of this unique market, the omnibus cannabis bill includes integrated but parallel regulation of what it terms lower-potency hemp edible products. It creates two additional new licenses, low-potency hemp edible manufacturer and retailer, and imposes labeling and testing restrictions that kick in over time.

As hemp-derived products may be sold without interruption as the full adult-use regulations roll out, some entrepreneurs are planning to launch with hemp-derived THC and then apply for licenses and transition to the full adult-use market. Others may stay in the hemp-derived market to avoid the heavier regulation and risk.

It is, and will be, a complex and dynamic time in Minnesota!

Finally, a disclaimer: There is much more detail to come as the Office of Cannabis Management is staffed and promulgates rules, forms, and policies under the statute. Please do not rely on this article as legal advice; consult an attorney who can provide those updates and advise you on your specific circumstances.

June 29, 2023

This article was written by Jen Randolph Reise, the Head of Business and Cannabis at North Star Law Group in St. Paul, Minnesota. Many thanks to Jen for this helpful summary of the new legal landscape for cannabis in Minnesota. -Rod Kight