Rules generally prohibit vertical integration and cap cultivation canopy
On May 30, 2023, Governor Tim Walz executed the final version of HF 100 — a bill for the regulation of adult-use cannabis in Minnesota. Minnesota will be the nation’s 23rd state to legalize recreational cannabis for people 21 years of age and older.
For the experienced cannabis business owner, the adult-use cannabis law will have familiar levers for the new Minnesota Office of Cannabis Management and consistent barriers to entry in the application process. Here are highlights from the new law for existing business owners looking to enter the Minnesota market.
Licensing Structure and Timeline
Minnesota’s cannabis law will create a robust licensing structure for cannabis businesses, ranging from retailers to cultivators to microbusinesses (a business that can perform different types of cannabis functions, including cultivation and on-site consumption). Each cannabis business will be subject to an application process, application fees, license fees and renewal fees. Vertical integration is generally prohibited, with exceptions. The law will also give preference to certain social equity applicants, such as applicants from high poverty areas or those living with criminal convictions for possession or sale of marijuana.
The new bill is effective August 1, 2023, and the state is taking steps toward setting up the Office of Cannabis Management, including the search for a commissioner. Ultimately, it will likely be 12 to 18 months for the new agency to begin issuing licenses and retail sales to begin, but Minnesotan politicians have promised to begin issuing licenses by January 1, 2024.
There will be restrictions on plant canopy in Minnesota. Plant canopy is defined under the new law as “the surface area within a cultivation facility that is used at any time to cultivate mature, flowering cannabis plants.” For growers with a multiple tier cultivation setup, each tier counts toward total plant canopy, but the space used to cultivate immature plants or seedlings does not count toward plant canopy. Each type of license involving cultivation has a plant canopy restriction, including the following: microbusinesses (5,000 square feet), mezzobusiness (15,000 square feet) and cultivator (30,000 square feet).
Medical cultivators are restricted to 60,000 square feet (or more if they previously had more canopy space as of April 1, 2023).
The Office of Cannabis Management will have authority to increase plant canopy restrictions in furtherance of the office’s mandate set forth in the new law, including meeting market demand, eliminating the black market and promoting a craft industry for cannabis products and cannabis flower.
Low-Potency Hemp-Derived Edibles
Effective July 1, 2022, Minnesota has allowed low-potency, hemp-derived edibles or beverages with a max potency of 5 milligrams of THC per serving or 50 milligrams per package. These edibles have permeated municipalities which allowed the sale and manufacture. From breweries and restaurants to salons and concert venues, anyone with a desire to sell, and not otherwise prohibited, have integrated these edibles. There was virtually no barrier to entry to this space relative to traditional cannabis retail.
But with the new adult-use law, there are additional barriers to offering these edibles, but it is not similar to the traditional licensing and retail requirements seen in other states or applicable to the other proposed cannabis retailers in the new adult-use law.
Adult-Use Cannabis Tax Revenue
Under the law, cannabis sold to customers will be subject to a 10% excise tax, in addition to state sales tax (currently 6.875%) and any applicable local sales tax. Lawmakers expect that the 10% excise tax will raise an estimated $120 million every two years, with an additional $75 million every two years in state and local sales taxes. About 80% of the tax revenue is expected to cover the state costs of regulating the industry, while the remaining 20% will be distributed to local governments.
Transfer of Ownership
The law will permit licenses to be transferred to another owner upon approval from the Office of Cannabis Management in its sole discretion, however, social equity applicants may only transfer a license to another social equity applicant. A previous iteration of the law included a requirement that 75% of the equity of business entity license holders be owned by Minnesota entities, but that was removed in conference committee and is not a restriction in the final law.
Minnesota’s cannabis law allows for local governments to adopt reasonable restrictions on the time, place and manner of the operation of a cannabis business. At a minimum, local governments may prohibit the operation of a cannabis business within 1,000 feet of a school or 500 feet of a day care, residential treatment facility, playground, athletic field or any other attraction within a public park regularly used by minors.
Local governments may also adopt an interim ordinance that regulates, restricts or even prohibits the operation of a cannabis business within its jurisdiction from enactment of the law until January 1, 2025.