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Equity, taxes and criminal justice: Minnesota’s latest effort to legalize recreational marijuana is about more than legalizing marijuana

In many ways, the bill introduced at the Minnesota Legislature this session reflects the latest national trends around the issue. 

Marijuana for sale at Harborside, one of California's largest and oldest dispensaries.
Marijuana for sale at Harborside, one of California's largest and oldest dispensaries.
REUTERS/Elijah Nouvelage

While opposition to recreational marijuana legalization by Minnesota Senate Republicans seems to have taken the issue off the table for the 2021 session, a bill introduced by legalization backers is more than a place-saver for a more-receptive future.

The 179-page bill, HF 600, reflects the state-of-play for current legalization efforts around the U.S., showing how the issue has moved from legalization, regulation and taxation to broader attempts to remedy what backers say are the ill-effects of decades of cannabis prohibition. “Equity” is the theme; the word appears in the text of the bill 41 times.

Among other things, the measure would create an Office of Social Equity within a new Cannabis Management Board, one whose members must be “a person with experience in promoting social equity.” The bill would also give preferences for licenses to “social equity applicants,” and would provide grants to help those who might lack access to loans and investors to start cannabis-related businesses. 

It would also devote some of the tax revenue to community development grants in places with high percentages of residents who would qualify under the social equity applicant standards. (According to the bill, social equity applicants are veterans who lost their honorable discharge status because of a cannabis-relation offense and are also residents of a census tract with high poverty rates or lower median family income, a definition is similar to that used to establish federal Opportunity Zones.)

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The bill doesn’t mention race, but sponsors say that by concentrating on areas with high poverty, they will capture a lot of people of color, especially African Americans, who have borne the brunt of marijuana arrests and convictions in the past.

Sen. Melisa López Franzen
Sen. Melisa López Franzen, DFL-Edina, the lead Senate sponsor of the bill, said equity is a necessary aspect of any bill to win support among DFLers, let alone Republicans in the House and Senate. Helping people start a business is central to that. “Who is going to benefit from this industry?” she asked. “You have to have money to make money. You have to have investors, especially in a new industry. So how do we make sure that people in the communities that were impacted the most by prohibition are part of the future of this industry.”

Minnesota bill reflects national trends

Bruce Barcott, a writer who covers legalization efforts for the Seattle-based website Leafly, said the Minnesota bill reflects current national legislative trends. “We’ve come a long way since (the 2012 initiatives in Washington and Colorado) in terms of learning about what pieces need to be included in the legislation to make sure this industry is fair and equitable,” Barcott said. “One of the dynamics that has occurred in other states is, unfortunately, the people who have suffered the most in the war on drugs, under marijuana prohibition — which is to say communities of color especially Black Americans — are so far not reaping the benefits of legalization.”

The Minnesota bill’s focus on who gets licenses and how they can be helped is similar to the approach in other states, particularly New York, which is in its third year of trying to pass a legalization bill. “States are working with new ways to rectify that,” Barcott said of disproportionate benefits of the industry.

The other common thread is how the tax revenue is spent. Early bills offered increased funding for law enforcement, something Barcott said was aimed at bringing moderate voters, and moderate legislators, over to the legalization side. But the issue of policing in communities of color, highlighted by the death of George Floyd, has made such funding more problematic.

The Minnesota bill does not include new funding for police. It would instead spend the revenue collected on economic and community development, which is consistent with what’s been shown in other states — that because of racial disparities in wealth, including home and business ownership, giving people of color a preference for licenses isn’t enough, said Barcott. 

“A retail operation needs hundreds of thousands of dollars to get started,” he said. Banks won’t loan into these businesses because of federal restrictions on what remains at that level an illegal activity, and the types of equity that many people can tap — second mortgages, loans from family — are less available to communities with less generational wealth. That means that some type of loan or grant program is needed if states want low-income residents to have a chance to be business owners, not just consumers, in places with a recreational marijuana industry. 

The bill addresses this with a series of grant programs: for farmers (CanGrow); for entrepreneurs looking to enter the industry (CanTrain); for workers (CanLearn); for startups navigating the complex regulatory landscape (CanNavigate); for non-profits who would offer startup loans (CanStartup); and for community development grants (CanRenew). 

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Another centerpiece of the bill is a mechanism for those convicted of marijuana-related offenses to have records of those convictions expunged. Under the legislation, it would be done automatically in minor cases and after review by a new Cannabis Expungement Board for more serious offenses.

Franzen said that early marijuana arrests and convictions “are often the entry point into criminal records,” and something that often affects young people, she said. “You can see more of those cases in communities of color.” Unlike wealthier young people who can afford lawyers and have charges dismissed or amended to a non-marijuana case, poor people are more likely to have it on their records. Expungement, she said, “is a big part of the equity piece.”

Drawing on lessons learned in other states 

The basic change in law under the bill is to make possession and use of marijuana legal. Unlike some early legalization states, Minnesota would permit adults to grow their own plants and would permit small amounts to be given away by individuals. It would also allow some public consumption in businesses and events devoted to marijuana sales and use.

Commercial production and sales would be regulated by the new Cannabis Management Board. A tax of 10 percent on the value of sales would be charged to the owners of stores and event organizers where marijuana products are sold, though there would be no retail sales tax changed on customers.

Leili Fatehi
Leili Fatehi
Leili Fatehi, a lawyer and lobbyist who co-founded Minnesotans for Responsible Marijuana Regulation, said the bill introduced this year is nearly identical to a measure filed in 2020 just before the COVID-19 pandemic hit and mirrors legislation in other states. 

Explaining its 179-page length, she said the bill is the first comprehensive legalization legislation in Minnesota, describing a marijuana bill that was heard in the Senate two years ago as “a conversation starter.”

“Taking a product that is currently illegal and criminalized and turning it into a legal industry impacts a lot of different things,” Fatehi said. “This bill draws on a lot of the lessons learned in other states so it’s been able to innovate.” It also has to incorporate the state’s existing medical marijuana program.

Fatehi said the one area where specifics are lacking is in the money for different grants. Fatehi also is concerned that the tax rate in the bill might not be enough to pay for regulation and the social equity grants. The last thing advocates want is a marijuana legalization bill that adds to the state deficit.

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“What they’ve strived for is to make entering the industry as accessible as possible to support that craft-local market, but the fees are a lot lower than we’ve seen in other states,” Fatehi said. 

Barcott said he also noticed the Minnesota bill’s low tax rate — and the lack of a retail sales tax charged to consumers. According to a state-by-state analysis that Fatehi prepared, Montana has a 20 percent excise tax on wholesalers. Nevada charges a 15 percent excise tax and a 10 percent retail sales tax. Washington has a 37 percent sales tax. 

“Consumers will pay it,” Barcott said of higher taxes. “You can’t tax it at 75 percent, but consumers will pay a noticeable excise tax.”

Franzen said the 10 percent rate in the bill is a placeholder “to signal to the public that we don’t want to overtax it, to overtax it to the point that there’s still a black market.” But she does want the bill to pay for itself, including funding programs, such as a cannabis substance use disorder advisory council, to respond to problems caused by more access to marijuana. “Just because it’s legal doesn’t mean it’s not going to have negative effects,” Franzen said.

Potential problems

The Minnesota bill also keeps with another trend in how it treats large and out-of-state businesses that might seek entry into the market. The short version: It treats them as outsiders but doesn’t outright deny access, something that would have put the bill at odds with the interstate commerce clause of the U.S. Constitution.

The state would create three license levels: one for “craft cultivators”; one for “micro-businesses”; and another for “bulk cultivators.” The difference is size: micro operators could grow up to 2,000 square feet of plants, craft operators up to 10,000 square feet of plants, and bulk operators up to 30,000 square feet. (The microbusiness licenses are a way for very small businesses to get into the industry, allowing them to grow and sell marijuana at a retail location and even have space for consuming products bought at the store.)

But the bill says the state can’t license the larger operators for five years — unless the board determines that the micro and craft licensees are not producing enough marijuana to meet the market, a provision meant to favor smaller, and more-likely, local startups.

A five-year restriction on larger operators is longer than most other states and creates a potential problem. Even though the bill would allow the cannabis board to allow larger operators if supply is inadequate, the delay could be enough to drive customers to black market sales due to lack of supply and price-increases — undermining one of the main points of legalization: disrupting illegal and unregulated sales.