Five Reasons Minnesota Is a Great Place to Build a Cannabis Business (Op-Ed)

With low taxes, local restrictions, reasonable license fees, and neighboring states that are not legal, Minnesota is one of the most attractive markets in America.

By Ari Hoffnung, Bridge West Consultant

As the 23rd state to legalize adult cannabis use, Minnesota has seen other states’ policy mistakes well.

“The Land of 10,000 Lakes” is paving the way for one of the most attractive markets in the country to build a cannabis business, according to the state’s 300-page financial review.

Annual cannabis sales in Minnesota are projected to exceed $500 million by fiscal year 2027. The economic benefits will not be limited to “plant-touching” cannabis businesses such as growers, producers and distributors. They also promote professional service providers, such as accounting, law and engineering firms, whose services are needed to support thousands of new cannabis businesses starting and operating.

Here are five reasons why Minnesota is one of the top cannabis markets in the United States:

1. Minnesota’s cannabis excise tax is low.

Minnesota has set a conservative rate for cannabis excise taxes. At 16.875 percent, Minnesota boasts the fifth-lowest cannabis tax rate in the country, while four other states — Michigan, Delaware, New Jersey and Maryland — offer slightly lower rates.

Higher tax rates will put pressure on the price of legal cannabis, which may lead consumers to seek cheaper alternatives in the illegal market. This unfortunate trend is seen in high-tax states like California.

By keeping tax rates low, Minnesota will ensure legal cannabis prices are competitive with illegal market prices.

2. Minnesota prohibits localities from banning cannabis businesses.

Minnesota has wisely navigated the issue of environmental regulation by preventing local government departments from outright prohibiting the establishment or operation of licensed cannabis businesses in their areas.

While the policy of allowing local governments to opt out is often politically attractive, it has proven highly problematic in many states. For example, in New York, about half of the municipalities opted out. This has limited consumers’ access to legal cannabis and encouraged an unregulated and unsafe illegal market.

In a careful move between state and local control in the regulation of cannabis businesses, the Minnesota Legislature allows local governments to impose reasonable restrictions and participate in the licensing process without opting out entirely.

Specifically, it allows for the number of dispensaries in a given region, based on population, at least one for every 12,500 people. For example, Mankato, a city of about 45,000 people, is allowed to limit the number of dispensaries to three, but not ban them entirely.

3. Minnesota license fees are reasonable.

Minnesota law includes reasonable fees based on the nature and volume of cannabis business.

Some states have imposed multi-million dollar licensing fees on budding cannabis businesses without considering the negative impact this could have on the market.

By basing fees on the type and size of business, Minnesota’s approach promotes a diverse and competitive market, avoiding the imposition of prohibitive costs that could discourage new businesses.

4. Minnesota offers loans to cannabis entrepreneurs.

Minnesota has wisely allocated funds to programs designed to help social equity entrepreneurs.

For example, the state has allocated $6 million to the CanStartup initiative, which provides funding to non-profit organizations. These non-profit organizations provide loans to grow cannabis businesses and encourage entrepreneurship in communities across the state.

While there is no doubt that additional funding is needed, Minnesota has taken significant steps in the right direction.

5. Minnesota’s neighbors have not legalized cannabis.

According to the 2020 census, Minnesota’s population was approximately 5.7 million. Minnesota is bordered by four states – Wisconsin, Iowa, South Dakota and North Dakota – none of which have legalized cannabis for adult use. Additionally, approximately 1.9 million people live within a 50-mile radius outside of Minnesota.

That means Minnesotans not only compete with out-of-state cannabis suppliers, but also benefit from purchases by out-of-state residents, like the people of Fargo, North Dakota (population 124,000) who live within convenient driving distance. ) and Sioux Falls, South Dakota (population of 187,000).

For those looking for more proof that Minnesota offers great opportunities for cannabis entrepreneurs, it’s worth looking at Colorado’s cannabis market.

With nearly a decade of experience and $1.8 billion in retail cannabis sales by 2022, at first glance it may seem absurd to compare Minnesota’s Mayo cannabis market to Colorado’s, but think again.

Both states share almost the same population sizes. According to the US Census Bureau, in 2020, Minnesota’s population was 5,706,494, slightly less than Colorado’s 5,773,714. Additionally, data from Statista shows that the percentage of US adults who used cannabis in the past year (2019-2020) was 23% in Minnesota and 28% in Colorado.

In other words, there is no compelling reason to assume that, over time, the state-based cannabis markets of Colorado and Minnesota will not perform similarly. In fact, in many ways, Minnesota may have a late-mover advantage, as it has adopted materially lower tax rates than Colorado and adopted policies that allow it to limit the number of general licenses in the state to balance supply and demand.

It will not happen overnight, but maybe by 2033, the land of 10,000 lakes will exceed the annual sales of cannabis in the state of the century.

Ari Hoffnung is a partner at BridgeWest Consulting, a partner of BridgeWest LLC, one of the first accounting firms in the world to focus exclusively on the cannabis industry. Since 2009, the practice has grown to over 600 cannabis, hemp and CBD clients nationwide. Ari previously served as Chief Operating Officer of Vireo Health, the parent company of Vireo Health of Minnesota, one of two medical cannabis companies in Minnesota.