How will Minnesota’s adult-use cannabis market shake out?

The adult-use cannabis market in Minnesota could end up mirroring the state’s celebrated craft beer scene.

The state’s two medical marijuana companies – multistate operators Green Thumb Industries and Vireo Growth – were prohibited from converting their licenses to recreational because lawmakers want small, independent businesses to have an opportunity to participate in the industry.

Other states that have added adult use to their medical marijuana programs have permitted existing MMJ operators to convert their licenses, which ensures a supply of cannabis as recreational sales launch.

“My interpretation is that some Democratic lawmakers view medical cannabis manufacturers as evil multistate operators,” said Jason Tarasek, a Minneapolis-based partner with marijuana law firm Vicente.

“A lot of the talk was to create a craft cannabis market along the lines of Minnesota’s microbrewery market.

“MSOs didn’t fit into that equation.”

To encourage the industry to develop like Minnesota’s craft brewing sector has, regulators didn’t cap the number of microbusiness licenses it can issue.

Cannabis microbusinesses can grow, make, sell and buy marijuana, lower-potency hemp edibles and hemp-derived consumer products.

They’re also allowed to have on-site lounges where customers can use marijuana.

But they don’t have to do all those things. They can choose to be small-scale cultivators and put their flower in the supply chain for manufacturers and retailers to use.

The cost to obtain a microbusiness license is low, with a $500 application fee, no initial license fee and an annual renewal license fee of $2,000.

“The scale of operation is designed to make it so that the risk you’re taking on starting a microbusiness is more controlled,” said Leili Fatehi, partner and principal of Blunt Strategies, a government relations and communications firm in Minneapolis that helped craft the state’s cannabis legalization policies.

Now that the rules have been published, the state can proceed with the next step of the licensing process.

“Everybody has had to wait for the rules to be adopted so they can move forward to the next phase to finalize their application submissions,” Fatehi said.

Fatehi said the first license types to be awarded will be those that include cultivation so that marijuana businesses will have a supply source. Microbusinesses likely will be first.

“Against that backdrop, people will start to build out retail and manufacturing businesses to get ready for when there’s enough supply so they can open their doors,” she said.

It’s also possible that Minnesota’s 11 tribes can supply the market after they reach compacts with the governor’s office.

“The tribes have been growing, manufacturing and selling on their sovereign territories and will be able to offer it off the reservation,” said Mitch Chargo, a partner who specializes in cannabis with Chicago-based law firm Hinshaw & Culbertson.

“Once the first tribe gets their compact signed, others will come online.”

The compacts – contracts between the tribal authorities and the state – address the framework for marijuana operations for tribes outside their reservations.

They will include the number of retail locations the tribes will be allowed to operate and the size of the grows permitted off the reservation.

Although the two medical marijuana companies are not permitted to convert their licenses to adult-use, a bill making its way through the legislature would allow them to manufacture or deliver cannabis flower or products to sell to a business.

“The state has realized there will be a supply gap,” Chargo said.

Launching the adult-use marijuana market shouldn’t have an impact on Minnesota’s hemp-derived THC beverage market, which has been around for nearly three years.

The state permits sales of beverages and gummies containing no more than 5 milligrams of hemp-derived THC in liquor stores and adult-use shops.

“We worked very hard to preserve our robust, hemp-derived THC beverage market,” Tarasek said.

“We did not anticipate beverages exploding like they have. Minnesotans embrace it, and through the legalization bill, we were careful to preserve that market.”

Hemp-derived THC products manufactures and retailers must get a license, but the barrier to entry is low. And it’s easier to open a hemp shop than it is a cannabis retail store.

What’s changed is that hemp businesses will need a license, whereas up until now they just had to register with the state saying they were selling the products.

“I think what you may see is that as our consumer base gets more mature, frequent users might need to increase their milligram intake to maintain the same effect, and that may only be possible on the adult-use side,” Tarasek said.

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With the Minnesota Office of Cannabis Management having published the rules for the impending recreational marijuana market in the State Register, a framework for compliance has been established.

“The rules are intended to supplement the statutory framework – they’re all operational and designed to fill in the gaps,” Chargo said.

The rules cover everything from submitting cultivation plans and standard operating procedures to security measures, packaging and labeling requirements and transporting cannabis – a task that requires to people in delivery vehicles, which remains controversial.

Complying with the rules is key to ensuring public health, safety and welfare as well as promoting transparency within the marijuana industry, Chargo said.

“Compliance is about protecting your license,” he said. “If you do things wrong, you don’t get a chance to fix it.

“You lose your license and your investment.”

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.