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Expert: Recreational marijuana in Minnesota could bring in $300 million in taxes

That was the estimate offered Wednesday by a Denver-based marijuana industry consultant who keynoted a Minneapolis conference on the impacts of legalization business and government. 

About 7.9 percent of Minnesotans say they used cannabis in the last month.
About 7.9 percent of Minnesotans say they used cannabis in the last month.
REUTERS/Steve Dipaola

Recreational marijuana could produce $1.12 billion in sales within five years of legalization, creating 20,000 direct and indirect jobs and $300 million in taxation.

That was the estimate offered Wednesday by a Denver-based marijuana industry consultant who keynoted a Minneapolis conference on the impacts of legalization business and government. 

Sal Barnes, a director of the Marijuana Policy Group, which consults with both business and government on marijuana policies and planning, based that estimated on Minnesota having a slightly smaller market potential than the comparably populated Colorado.

About 7.9 percent of Minnesotans say they used cannabis in the last month, a figure that is below the national average of 9.5 percent and well behind usage rates of 20 percent in states that have legalized recreational usage, such as Colorado. That, Barnes said, is the difference between 860,000 customers in Colorado and 341,000 in Minnesota for states that are nearly equal in population of adults over age 21.

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Of daily users, there are 115,000 in Minnesota and 342,000 in Colorado. “Marijuana follows the 80-20 Rule,” Barnes said. “Twenty percent of the consumers produce 80 percent of the market.” Those heavy users are defined as daily users.

Usage rates do increase once a state legalizes recreational marijuana, while the participation in medical marijuana programs, like the one Minnesota now has, tends to decline.

Regulation and taxation key

Barnes was part of the CannConMN Symposium in Minneapolis aimed at examining the implications of a legal marijuana market for business and investors. The gathering was sponsored by the publisher of Minnesota Lawyer and Finance and Commerce.

Barnes said that governments that legalize recreational marijuana have to get regulation and taxation just right. “If you guys are going to create a $1.12 billion adult-use market, the number one thing you can do is have the appropriate amount of licenses for cultivation, manufacturing and retail,” he said. “There is a delicate balance … on one side is Oregon with unlimited amount of licenses and on the other side is Colorado, where they try to parse out the types of licenses. You have to make it competitive enough to compete with — and preferably end — illegal black markets, but not so uncontained that there is too much supply and no profits for businesses.”

He counts Colorado, where he consults with the government agency that regulates cannabis, among those that have gotten that balance right. Colorado’s taxes make prices in the legal market close enough to those in the black market so as to not drive customers to make illegal purchases.

On the other side is Oregon, which has done little to cap the number of producers and sellers, said Barnes. The result is a glut of marijuana, some of which has flowed across state lines into illegal sales. 

“The challenge you’ll see is if you have too many or too few licenses you will encourage the black market,” he said. And because marijuana is legal only in certain states, each market is separate, bound by the borders of each of those states, something he called “hermetically sealed regulator markets.”

Speaking at the same conference, Minnesota House Majority Leader Ryan Winkler predicted that House Democrats would bring a bill before the 2020 Legislature and that it would likely pass the House. But the Senate, which is controlled by Republicans, would be unlikely to adopt the bill, Winkler said.

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Still, he has held meetings around the state to gather information and begin drafting a bill that answers many of the concerns he’s heard from his caucus and in his travels. Many of those questions revolve around regulation and taxation, criminal justice, health implications, economic development and the concerns of veterans and tribal nations.

Winkler said making a lot of revenue for the state is not one of the motivations for a legalization push, instead saying taxation should pay for the regulation, law enforcement and ill effects caused by increased use of the drug.

“We are not interested in this as a major source of revenue for the state of Minnesota to deal with education or road construction, things like that,” Winkler said. “We know that there is a harm to cannabis. But the amount of harm that cannabis creates is far exceeded by the harm we are creating with our current approach to it. But that doesn’t mean that there isn’t a harm.”

If Barnes’ estimate is close to what Minnesota could capture — $297 million a year after five years of legalization — it would be less than half of the $650 million the state will collect this year from tobacco taxes.

Benefits overblown?

Chris Tholkes, acting director of the state Department of Health’s Office of Medical Cannabis, said her office is proceeding with the already legal production and sales but with an eye on how that would change should the state legalize recreational marijuana.

She said the state has about 18,000 active patients in its program and 1,600 health providers. Of those patients, nearly two-thirds are using the drug for intractable pain, one of 14 conditions that are covered by the program. The next most common conditions are post traumatic stress disorder, muscle spasms and the effects of cancer treatment.

MinnPost photo by Peter Callaghan
Minneapolis attorney Ross Hussey, far right, speaking about investing in marijuana businesses while other panelists listen. They are Kim Bemis of Smart Approaches to Marijuana, Laura Monn Ginsburg of Blunt Strategies, Chris Tholkes of the state Office of Medical Cannabis and state House Majority Leader Ryan Winkler.
Two additional conditions are being studied and could be added soon. They are chronic pain and age-related macular degeneration, Tholkes said. In states that have legalized recreational marijuana, participation levels in medical programs has dropped from 30 to 40 percent. 

She said some states have tried to keep their programs going by having lower taxation rates for medical (Minnesota doesn’t currently tax medical marijuana), letting approved patients grow their own supplies, or allowing higher THC levels for medical marijuana than for recreational. Minnesota could also consider allowing leaf marijuana to be used by patients who now are restricted to oils, tinctures and vaping.

Another speaker, Kim Beamis, introduced himself as the “Debbie Downer of the afternoon, or perhaps the canary in the coalmine,” given that he was talking at a conference conducted primarily by and for enthusiasts for legal marijuana.

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Bemis is the state director for Smart Approaches to Marijuana, an organization that thinks states are rushing toward legalization without properly analyzing the ill effects and lack of research around recreational usage, especially involving teens.

“We have no research that says what 90 percent THC does to brains, especially teen brains,” Bemis said. While most recreational marijuana contains THC levels in the 13 to 15 percent range, there have been illicit vaping cartridges confiscated with the higher levels, he said.

Bemis said while polls show clear majorities supporting legalization, they are often overly simplistic, since they group pro-legalization respondents with pro-decriminalization respondents. SAM polls find that when respondents are given both options, only one-third support the type of commercialized legal markets that exist in states like Colorado, Washington, Oregon and soon Illinois.

Bemis also said the taxation benefits and impacts for farmers have been overblown. Bemis was booed by some in the audience for his points that legalizing marijuana is premature and that the national momentum behind it has slowed.