Most hemp edibles, beverages still legal under Minnesota marijuana law, but with higher taxes and new testing

How has Minnesota’s new recreational marijuana bill signed into law last week changed the 11-month old hemp-derived edibles and beverage market?

Not that much, as it turns out. While it could take up to 18 months for the first Minnesota-grown cannabis to be sold in retail stores, the already up-and-running sales of hemp-based gummies and drinks will continue mostly as before.

That is, if you like your edibles provider, you can keep them.

What will change for the fledgling edibles and beverage market in Minnesota is how they are licensed, regulated and taxed. The 2022 legalization of hemp-derived, low-potency edibles lacked those three things. The gaps were a feature, not a bug, said backers of the law to clarify sale of edibles under the 2018 federal farm bill. Too much attention — and opposition — might have resulted from running it through committees on taxes, commerce and state government. So, the hemp edibles legislation skipped those committees and the changes were put inside a lengthy omnibus bill.

But no one expected the industry would continue unchanged.

As the marijuana bill was being drafted, rewritten and rewritten again, fixing the edible law was a central feature. Doing so without doing too much damage to the existing businesses was top of mind as well.

“At the start of session, I did something I never thought I would do: I went into legislators’ offices and said ‘can we get some regulation and can we pay some taxes,’” said Bob Galligan, the legislative affairs director for the Minnesota Craft Brewers Guild.

He succeeded on both. Starting July 1, edibles and beverages must charge the same 10% tax — on top of any existing sales taxes — that recreational cannabis retailers must assess when they sell their products. And while state agencies such as the agriculture and health departments, along with the new Office of Cannabis Management, will write permanent rules over the next year, the new law contains temporary regulations. Among the interim requirements are a prohibition on the sale of hemp-derived vapes and some “artificially derived cannabinoid” products and a demand for new third-party testing of products for potency and the presence of pesticides, fertilizers and solvents.

Products must not be easily available to people under the age of 21 by either keeping them behind staffed counters or in locked cabinets. 

The new law contains no limits on the number of retailers but it does require first-ever state registration of sellers, though no fee is charged and registrants can’t be rejected. Once registration with the Department of Health is required Oct. 1, the state will finally know how many retailers are selling the products, something that has been unknown since the edibles law took effect last summer.

“Right now, the department doesn’t know if 10 people are selling edibles or 100,000 people,” said Josh Wilken-Simon, who owns Legacy Glassworks. What is his best guess? Counting bars and restaurants and smoke shops and convenience stores and gas stations — as well as specialty stores such as his — he thinks it could be 5,000.

The Minnesota Department of Health has taken on oversight of edibles from the over-matched Board of Pharmacy, which has complained that it lacks the staff and expertise to do the work assigned to it last summer. The state Department of Agriculture will continue to oversee hemp growing and processing.

The recreational marijuana bill passed this year  does not change — in the short-term — any of the patchwork of local ordinances that filled the gap last summer when the mostly ruleless state law took effect. Local government regulation can include license fees, and some have banned the sale of edibles and beverages within those jurisdictions. Those who make and sell hemp-derived products hope they can convince cities that banned the products to relent now that state rules, taxation and enforcement have been adopted.

While state registration is free, local license costs vary by city, ranging from $10,700 in Woodbury to $200 elsewhere.

However, when the state Office of Cannabis Management gets set up and begins issuing state low-potency edible retail and manufacturer licenses, local governments would have to comply with whatever state rules the office establishes. 

That temporary fealty to local hemp regulations is in contrast to the Legislature’s heavier hand with local control of the new cannabis business. House File 100 prevents local governments from banning cannabis retailers, though sponsors ultimately relented in allowing caps on the numbers of stores and their locations. No local taxes can be added to the state’s 10% tax but locals will get a share of that revenue and can charge for local registration of retailers.

Something that will help makers of hemp-derived beverages is clarification that edibles and THC beverages can be sold in bars and liquor stores starting immediately. The change is significant because while some stores and breweries did sell beverages to go, it was likely not legal because the Legislature hadn’t specifically allowed it.

“By state code, what can be sold in liquor stores is specifically listed,” Wilken-Simon said. “So, for example, a liquor store couldn’t sell a banana but they can sell lemons and limes because it is specifically listed.

“Many liquor stores have been but many have not,” Wilken-Simon said.

The same was true for brewers who weren’t even sure if they could sell their own THC products in their taprooms. Now they can. The new law caps the serving size and potency of beverages. Each can or bottle can hold no more than two servings of 5 milligrams of THC.

Wilken-Simon said his stores sold beverages with 50 mg of THC, the previous limit. Those became illegal June 1.

“We’ve been doing a sale on them,” he said after the May 30 bill-signing ceremony in the governor’s reception room. “If we have any stock left, we’ll just give them away at close of business today.”

Wilken-Simon said there was concern in the hemp-derived industry that any taxes could hurt the new industry. What started as an 8% tax grew to 10% in the final version, partly to provide money to share with local governments for their own regulation and enforcement.

With the Minneapolis state and local sales tax of 8.03%, hemp-derived products will come with a more than 18% tax at the register.

“A lot of people were concerned about taxes, but the 10% is actually one of the lowest in the entire country for cannabis,” he said. A typical bag of gummies costs $20, so the taxes in Minneapolis would be about $3.60 starting July 1. “No one is even going to notice that.”

Some in the hemp-derived industry, while celebrating the passage of recreational marijuana, are worried about perhaps unintended impacts on their businesses. Anthony Newby founded Cultivated CBD, a Black-owned Minnesota company that works with growers and manufacturers on a broad line of products that include both delta-9 THC, which has an intoxicating effect, and CBD creams and tinctures that are sold for medical purposes but produce no high.

“Any business involved in this industry needs to be prepared for the ebb and flow of regulations and laws and expect that it’s going to be a very rocky road for businesses to endure,” Newby said.

CBD products have been marketed since shortly after the 2018 Farm Bill, which legalized the growing of hemp as long as it contained less than 0.3% THC, the psychoactive component of the plant. Edible products made after extracting and concentrating the THC from those plants in a way that increases the intoxication effect have been on the market in Minnesota only since last July 1.

Newby said he supported the recreational marijuana legislation. He is on the board of  MN is Ready that led the push for the new law and the Minnesota Hemp Growers Cooperative that supported it. He is also a member of the Minority Cannabis Business Association.

“It’s a massive topic,” Newby said. “We’re still trying to get to the bottom of this 300-page document. The smoke is still clearing, no pun intended.” But some of the products he and others make and sell “are on the chopping block.”

One example is CDB vapes that appear to be banned under the new law. He has removed them from Cultivated CBD’s website. In a memo on the new law, Shawn Weber, the president of the hemp cooperative, said the CBD vape ban closes a loophole that allowed synthetic cannabinoids in vape. Other recreational cannabis states have banned those products because of unknown health impacts.

But Weber, who is president of Crested River Cannabis Co. in Morgan, said vapes will be allowed in the recreational cannabis market and could be reestablished for CBD by the Office of Medical Cannabis if officials determine they are safe. 

Newby said other products known as full-spectrum CBD that contain a broad range of cannabinoids that are federally compliant could well be banned, too.

“I did not get the impression that the intent of this bill was to do that,” he said. “However, sometimes these massive bills have unintended consequences. It looks to us, until we hear differently, that this is an unintended consequence of a very complex bill and that there is an appetite on the part of regulators and state agencies to fix this.

“The cannabinoid provisions in the bill very clearly need work and they need immediate attention from regulators,” he said. “It’s best to assume folks are working with the best intentions of consumers and small businesses.”

Newby described himself as optimistic and that the law language was based on a misunderstanding of the hemp industry.

The temporary rules also block sale of products known as THC-P, THC-O and HHC that are considered “artificially derived” cannabinoids, though it does allow the health department to consider their use.

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Under the new law, artificially derived means a cannabinoid extracted from a hemp plant but changed to create a different cannabinoid using catalysts other than heat or light. The law does not allow the sale of edibles containing synthetic cannabinoids that are not derived from the hemp plant but via chemical or biochemical processes.

Cultivated CBD doesn’t sell products that fall into those categories. Newby describes himself as a “plant purist.” But he said there is a market for those so-called artificial or synthetic products across the state, especially in tobacco shops.

“Those businesses will take a tremendous hit,” Newby said, adding that consumers who want those products will turn to an illicit market.