With low taxes, no local bans, reasonable licensing fees and no neighboring states with legalization, Minnesota is one of the most attractive markets in the U.S.
By Ari Hoffnung, Bridge West Consulting
As the 23rd state to legalize adult-use cannabis, Minnesota has keenly observed and learned from the policy missteps of other states.
A review of the state’s 300-page bill demonstrates that the “Land of 10,000 Lakes” is paving the way to become one of the most attractive markets in the country to build a cannabis business.
In Minnesota, annual cannabis sales are projected to surpass $500 million by Fiscal Year 2027. The economic benefits will not only be limited to “plant-touching” cannabis businesses like cultivators, manufacturers, and dispensaries. They will also extend to professional service providers such as accounting, law, and engineering firms whose services will be needed to support the launch and operations of thousands of new cannabis businesses.
Here are five reasons Minnesota will become one of the top cannabis markets in the United States:
1. Minnesota’s cannabis excise taxes are low.
Minnesota has set a prudent rate for its cannabis excise taxes. At 16.875 percent, Minnesota boasts the fifth-lowest cannabis tax rate in the country, with only four other states—Michigan, Delaware, New Jersey, and Maryland—offering marginally lower rates.
High tax rates can inflate the price of legal cannabis, potentially driving consumers to seek out cheaper alternatives in the illicit market. This unfortunate trend has been observed in states with higher taxes, such as California.
By keeping tax rates low, Minnesota ensures the competitiveness of legal cannabis prices with illicit market prices.
2. Minnesota prohibits localities from banning cannabis businesses.
Minnesota has smartly navigated the local control issue by barring local government units from completely denying the establishment or operation of licensed cannabis businesses within their areas.
While the policy of allowing local jurisdictions to opt out is often politically appealing, it has been proven to be highly problematic in several states. For instance, in New York, almost half of the municipalities have opted out. This has constrained consumer access to legal cannabis and bolstered the unregulated, and potentially unsafe, illicit market.
In a delicate balancing act between state and local control in the regulation of cannabis businesses, Minnesota’s legislative bill permits local governments to impose reasonable restrictions and participate in the licensing process without completely opting out.
More specifically, it will allow localities to cap the number of dispensaries based on population, with at least one for every 12,500 people in a given jurisdiction. For example, the City of Mankato with a population of approximately 45,000 people would be allowed to limit the number of dispensaries to three but not be allowed to ban them outright.
3. Minnesota’s licensing fees are reasonable.
Minnesota’s legislation incorporates sensible fees based on the nature and scale of the cannabis business.
Some states have unwisely imposed multi-million dollar licensing fees on emerging cannabis businesses, not taking into account the potential negative impacts this could have on the market.
By basing fees on the type and size of the business, Minnesota’s approach encourages a diverse and competitive market while avoiding the imposition of prohibitive costs that could stifle new businesses.
4. Minnesota offers loans to cannabis entrepreneurs.
Minnesota has wisely allocated funds to programs designed to assist social equity entrepreneurs, sidestepping the pitfalls of unfunded mandates.
For instance, the state has earmarked $6 million for the CanStartup initiative, a program that grants funds to nonprofit organizations. These nonprofits, in turn, provide loans to budding cannabis businesses and stimulate job creation in communities throughout the state.
While additional financing will undoubtedly be needed, Minnesota has taken significant steps in the right direction.
5. Minnesota’s neighbors have not legalized cannabis.
According to the 2020 census, the population of Minnesota was approximately 5.7 million people. Minnesota is bordered by four states—Wisconsin, Iowa, South Dakota and North Dakota—none of which have legalized Adult-Use cannabis. Moreover, an estimated 1.9 million people live outside of Minnesota within a 50-mile radius.
That means that not only will Minnesotans not have to compete with out-of-state cannabis dispensaries but will benefit from the purchases of out-of-state residents that live within a comfortable distance, like folks from Fargo, North Dakota (population of 124,000) and Sioux Falls, South Dakota (population of 187,000).
For those seeking additional evidence that Minnesota will offer great opportunities to cannabis entrepreneurs, it is worth looking at the Colorado cannabis market.
With nearly a decade of experience and $1.8 billion in retail cannabis sales in 2022, at first glance it seems absurd to compare Minnesota’s mew cannabis market to Colorado, but think again.
Both states share nearly identical population sizes. According to the U.S. Census Bureau, in 2020, the population of Minnesota was 5,706,494, just slightly less than Colorado’s 5,773,714. Moreover, data from Statista reveals that the percentage of U.S. adults who used cannabis in the past year (2019-2020) was 23% in Minnesota and 28% in Colorado—a minor difference likely attributed to the large presence of retail dispensaries throughout Colorado.
In other words, there’s no compelling reason to assume that, over time, the state-based cannabis markets of Colorado and Minnesota won’t perform similarly. In fact, in many respects, Minnesota may enjoy a late-mover advantage since it has adopted tax rates that are materially lower than Colorado and policies that will allow regulators to limit the overall licenses in the state to ensure a supply and demand balance.
It will not happen overnight, but perhaps by 2033, the Land of 10,000 Lakes will surpass the Centennial State in annual cannabis sales.
Ari Hoffnung is a Partner at Bridge West Consulting, an affiliate of Bridge West LLC, one of the first accounting firms in the world to focus solely on the cannabis industry. Since 2009, the practice has expanded to more than 600 cannabis, hemp and CBD clients nationwide. Ari previously served as the Chief Operating Officer of Vireo Health, the parent company of Vireo Health of Minnesota, one of two licensed medical cannabis companies in Minnesota.
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