Friday, September 22, 2023

One Toke Over the Line?

One Toke Over the Line?[1]

As the hazy post-legalization world of cannabis in Minnesota comes into focus—after it became legal to possess, use, and grow the plant on August 1, 2023—challenges and opportunities abound for business owners to take advantage of a new market worth potentially millions.

The trick will be figuring out how to turn the excitement into profits. Cultivators may learn that marijuana—like any cash crop—is subject to the same constraints and external variables that make agriculture an inherently difficult industry to master in general.

Although there seems to be federal movement toward normalizing restrictions on credit for cultivators, high inputs with tight margins and few avenues for liquidity make growing the product a risky endeavor. Recent surveys have reported that only between 24% to 39% of cannabis business owners have reported profitable business operations in recent years, and, of those respondents, most if not all are retailers or product manufacturers. Simply put: “Cultivation businesses are having the toughest time in the industry right now.” A recent report by Whitney Economics explained that “brand-new state cannabis markets are facing an uphill battle,” mainly because illicit market remains the biggest competitor.

In part, this is because anyone hoping to comply with state law will have to navigate the robust statutory and administrative landscape Minnesota has created and is still creating. For example, there are 16 different licenses to choose and apply for if you are entering the Minnesota cannabis market. Any new cannabis business must register to pay taxes on cannabis products.

One anecdote I can share that might shed some light on the difficulty confronting business owners hoping to make a quick entry into the market. I recently made an inquiry with Minnesota’s new Office of Cannabis Management regarding how to interpret a specific statute in Minnesota’s new cannabis chapter. The response I received was essentially this: Stay tuned, we’re still writing the administrative rules.

That said, business owners can learn from the experiences of others. Minnesota is the 23rd state to legalize cannabis for people 21 years of age and older. There are countless stories in other states of success and failure. And perhaps there are historical parallels to “growing the growers,” just as the tertiary business owners during California’s goldrush “mined the miners” to make their fortunes.

If you are looking to enter the cannabis industry, Lathrop GPM can assist you navigate the new regulatory quagmire by helping you to understand and comply with Minnesota’s developing cannabis laws.

[1] With apologies to Brewer & Shipley.

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