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What will legal marijuana mean for Minnesota’s ‘legacy’ growers and sellers?

As the state prepares to build out its budding cannabis industry, those in the “legacy market” have a decision to make: do they stay in the illicit market, or attempt to legitimize?

As the state prepares to build out its budding cannabis industry, wholesalers have a decision to make: do they stay in the illicit market, or attempt to legitimize?
As the state prepares to build out its budding cannabis industry, wholesalers have a decision to make: do they stay in the illicit market, or attempt to legitimize?

A local cannabis grower and wholesaler who goes by Tacoleaf has been growing the plant for himself and others for more than 15 years. He started with just one plant and a tent, and now makes a living by harvesting 8 to 12 pounds from his basement facility every nine weeks. Though police attention has been more relaxed as more states legalize cannabis each year, he said he’s seen his fair share of trouble.

“I’ve had the (Drug Enforcement Agency) at my house and the houses of my grandmother and other family members,” Tacoleaf, who agreed to talk to MinnPost on the condition that we don’t publish his real name, said. “I’ve even had the U.S. Postal Service try to stop mail that was in my name from going to my house.”

Recreational marijuana use officially became legal for adults statewide this month, and with that comes a sense of relief, he said. But it also comes with a fresh set of challenges as he begins to turn his previously unlawful profession into a legitimate business.

As the state prepares to build out its budding cannabis industry, those like Tacoleaf have a decision to make: do they stay in the illicit market, or attempt to legitimize? And should they choose the latter, for many, the costs associated with getting started may be a barrier, despite several equity measures within the bill.

Building out a new industry

Cannabis is now legal in Minnesota and entrepreneurs — both newcomers to the industry and veterans of the illicit market — are preparing to dive head first into this new industry, despite the challenges and potential roadblocks ahead. 

As of last week, any Minnesotan over 21 can possess or transport up to two ounces of marijuana flower, 8 grams of concentrate and 800 milligrams of edibles, in addition to having up to two pounds in a private residence. 

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But despite legalization, legally purchasing cannabis may prove difficult for a while as the state takes some time to build its regulatory framework. State officials predict regulatory structures to be up and running by 2025, providing the same timeline for when retail sales will begin statewide.

Licensing application fees for prospective cannabis business owners range from $500 for micro businesses and $2,500 for retailers to $10,000 for growers and testing facilities.

Though Minnesota has become the 23rd state to legalize cannabis, it remains a Schedule I controlled substance on the federal level. That means many federally regulated banks avoid serving cannabis businesses to avoid potentially violating aiding and abetting and anti-money laundering laws.

The lack of access to these institutions could be a significant barrier to business owners, who rely on banks for payroll services and lending opportunities, but some credit unions and other local banks have stepped in to help. 

The Secure and Fair Enforcement (SAFE) Banking Act by Congress would provide protections for the federally regulated banks to do business with state-sanctioned cannabis businesses. The U.S. House of Representatives has passed it a handful of times since it was first introduced in 2019, but the legislation has stalled in the Senate. 

In Minnesota, the Office of Cannabis Management, established by the Legislature, will regulate adult-use recreational cannabis, edibles that contain THC — like candies and drinks — and the state’s medical cannabis program. The brand new state agency will also develop regulations for how businesses can operate in Minnesota, as well as being the authority that will issue licenses to businesses. 

The ‘legacy’ market

Tacoleaf has his sights set on a license in order to open a warehouse growing facility, where he can upscale his current operation. He said his estimate to get up and running is between $3 and $4 million, which he plans to secure via local private investors.

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As well as immense costs, he foresees other tradeoffs with the move to legitimize marijuana businesses: there may be less room for the ingenuity and sense of community that exists within the legacy market. At the same time, he said the biggest benefit to legalization is quality control. 

“There’s going to be testing for pesticides and heavy metals, molds, things like that that could be damaging to a person,” he said. “Some people don’t respect that, and still sell dirty products.”

Ricardo Baca, a former reporter and the cannabis editor at the Denver Post when Colorado was among the first states in the nation to legalize cannabis, said the rollout of the local legal market was slow at first. Many consumers trusted their own suppliers over new government-approved retailers, who took some time to get off the ground, and dealers were able to undercut retailers’ prices.

“We do see in these early days of like regulated market, oftentimes the legacy growers and dealers can offer their cannabis at a lower price point than they can in the regulated market, because it is one of the most highly regulated industries in the world,” he said. “(Legal retailers) are going to have to overcome significant barriers to entry on both the local and the state processes, and that just adds to the cost and their cannabis products will likely cost significantly more than the products that are being grown locally in the illicit market.”

A year later, however, he said he spoke with three dealers after the law went into effect, and all had stopped selling marijuana illicitly. It wasn’t very profitable anymore as regulatory enforcement got easier and dispensary prices began to compete with illicit market prices, and the smaller profit margin wasn’t worth risking their personal freedom, he said.

As for what the illicit market in Minnesota will look like into the future, Baca suggested it might depend on how tightly Minnesota enforces regulations.

A decade after legalization, Baca said the illicit market in Colorado is a shell of its former self, but states like California and New York are still seeing robust illicit sales. A large part of what makes the difference, he said, is how aggressively the respective states enforce the new regulations. 

“Because you have these giant illicit markets, even as they roll out legal markets in states like New York right now, every new state-licensed dispensary that opens is accompanied by hundreds of illicit market retailers that are selling right next door to them,” he said. “If a state doesn’t have an aggressive law enforcement mechanism, then it’s going to be very challenging for them to have a successful rollout of their regulated markets.”

The focus on equity

In Baca’s view, the single most important failing by states that have legalized cannabis in the 10 years since Colorado and Washington were among the first to do so, has been the lack of opportunities provided to those who have been disproportionately affected by cannabis enforcement. Because it’s been more than a decade since the first legalizations, he said Minnesota lawmakers were able to learn from those failings.  

“They can go back in time 11 years ago to when (Colorado’s) state regulators were truly writing the world’s first legal cannabis rules and regulations,” he said. “And they were doing so completely in the dark because there is nothing upon which to base their policy.”

With that in mind, Minnesota’s law has opportunities for grants, and a section for social equity applicants — those impacted by having a cannabis conviction, or those who live in an area where poverty is 20% or greater, or make less than 80% of the median family income. 

State officials will award points to each application for criteria like a business plan, employee training plan, or status as a social equity applicant, and use those points to determine license priority. To qualify as a social equity applicant, the points they receive for criteria related to social equity must be at least 20% of their scores. 

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DFL authors of the bill Rep. Zack Stephenson of Coon Rapids in the House and Sen. Lindsey Port of Burnsville built in several other provisions meant to promote equity along with industry, including automatic expungement for minor cannabis convictions for and establishing a system to review more serious cases for possible expungement. In addition, those who’ve had criminal convictions related to cannabis on their records will be given preference in the license application process to assist those from communities that experienced the most enforcement by police.

According to data released by the Bureau of Criminal Apprehension last September, Black Minnesotans were nearly five times more likely to be arrested for a marijuana-related offense compared to white Minnesotans. Scheril Murray Brown, an attorney and the COO of the JUSTÜS Foundation, a nonprofit that helps people who have been selling cannabis illegally to transition into the legal market, said social equity pieces of legalization bills around the country are critical.

“Expungement is a remedy to the fact that because of people’s convictions, they haven’t been able to live in the neighborhoods they’ve wanted to live in with their families, they haven’t been able to get the jobs that they could’ve gotten,” she said. “There are so many stigma-related impacts based on having that conviction so expungement is a great first step.”

The JUSTÜS Foundation is offering grants of up to $20,000 to help facilitate that transition for legacy operators. 

Despite strides in equity efforts within the cannabis industry — Colorado, for example, barred those with convictions from obtaining a license when it first legalized cannabis — many of those efforts have failed to yield results. In Massachusetts, the state’s Cannabis Social Equity Trust Fund remains underfunded and dozens of social equity applicants can’t secure funding to open their businesses. 

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Minnesota’s social equity efforts have the benefit of hindsight but their success remains to be seen, Baca said. 

“We’ve learned to be cautiously optimistic, because there was a time where Massachusetts had the gold standard in cannabis social equity approach and strategy and that generally failed,” he said. “I think we are very much looking forward to seeing how Minnesota can change things and how they can give new ideas so that markets that haven’t yet legalized can learn from Minnesota moving forward.”