Marijuana business owner says customers stocked up ahead of cannabis tax increase

[THEME MUSIC] NINA MOINI: Our top story on Minnesota Now, today is July 1. Happy new month, everybody. It means several new laws are going into effect. That includes raising the tax on retail marijuana sales. Tax on recreational marijuana products is now 15% plus sales tax, jumping from 10%, prior. That makes it one of the highest cannabis taxes in the country. That's according to data compiled by the Tax Foundation. This increase is coming as the State is starting to hand out its first licenses to business owners.

Joining us, to talk about the impact of this tax hike, is Jen Randolph Reise, the founder of North Star Cannabis Consulting. Thanks for being back with us, Jen.

JEN RANDOLPH REISE: Thank you so much for having me.

NINA MOINI: And also, we're really happy to be joined by Erin Walloch, CEO of CannaJoyMN, a South Minneapolis store that sells marijuana seeds and hemp-derived products, and is in the process of obtaining a microbusiness dispensary license. Erin, thank you for your time, as well.

ERIN WALLOCH: Great to be with you, Nina. Hello, Jen.

NINA MOINI: Yay, hello, everybody. Jen, I'd love to start with you. The State says the tax increase could raise $76 million over the next two years. What's your perspective on this tax increase?

JEN RANDOLPH REISE: You know, Nina, I was an opponent of the tax increase for a number of reasons. One is, because we believe that the tax increase will actually cost Minnesota money, by driving more sales to continue happening in the black market, rather than coming into the new, licensed market that Erin and so many other entrepreneurs are working to build.

It does increase the costs for consumers. And it increases them on both the hemp-derived THC products that we have come to and love in Minnesota, the beverages and edibles that people are already buying, as well as the flower and other products that will soon be available, once we have dispensaries licensed and open.

NINA MOINI: And so, Erin, you're in the process of trying to get your business up to being able to sell those additional products so that more customers have what they're looking for. From a business perspective, what do you think about this tax increase?

ERIN WALLOCH: That's a great question. We are seeing that it's unfortunate that the cannabis tax is going up before the industry has really kicked off. We know that there will be many impacts, though. And regulation, testing, and yes, taxes, too, have always been a meaningful part of the legalization conversation.

We do look forward to getting the Minnesota cannabis market open, and then continue the conversation with legislators, about what the right-size cannabis tax rates are for Minnesota. And I think we're seeing, for our guests, that they are going to see that in their pocketbooks, and trying to figure all of this out together.

NINA MOINI: Yeah, Erin, tell us a little more, if you would. I'm just trying to picture the process of trying to get up to date in making all these transitions for your business so that you can sell, perhaps, the flower and other things that you want to sell. How is that going for you? What's a timeline for you? Do you know?

ERIN WALLOCH: Yes, we're hoping, within the next two to three months, that we would be able to transition into a full dispensary, as well as, then continue our hemp-derived products and seeds in the shop, as well. So we would more add to what we're already providing for guests. So it's a both and.

NINA MOINI: OK, and Jen, do you hear from a lot of people who say, well, people are just going to go to, to your point, whoever they were going to before, or somebody around the corner? They're not going to go through these regulated businesses. What do you think about that? Do you think that's a message that lawmakers are hearing, or care about?

JEN RANDOLPH REISE: I'm not sure how much the legislature understands that Minnesota has a thriving black market, and people have been growing quality flower underground for many, many years. However, I do think that there's substantial demand among consumers to have licensed dispensaries here. We have seen, in other states, including states with significant black markets, really very substantial sales. In fact, we expect sales in the legal market in Minnesota to reach $1 and 1/2 billion a year as this market matures.

And so I think, in spite of this tax increase, or maybe that's partly why the spotlight came to us, cannabis is a bright spot in Minnesota's economy in 2024-- 2025. Oh, my

[LAUGHS]

NINA MOINI: No, that's a little-- we're halfway into 2025, I know.

JEN RANDOLPH REISE: Oh, my goodness, exactly halfway, yes.

NINA MOINI: Erin, how about you? What are you hearing from your customers?

ERIN WALLOCH: Well, I know yesterday, there was an influx of people coming in to get more of their edibles and drinks before the cannabis tax comes into effect. And the other piece, I think, we're also doing that education piece, and letting people know.

There are quite a few people that are still learning about this, just like we all are, as the July 1 laws are changing and putting into effect. So the education side is important for us, to let people know. And then I think, continuing to focus on the fact that legal, tested, compliant, products are coming soon, in the dispensaries. And we look forward to being a part of that.

NINA MOINI: OK. So, Jen, I also wanted to ask you about this, how the new law pertains to cities, because I understand there was a portion of the law that says, cities will no longer get a 20% share of the cannabis tax revenue. Can you explain that, and your thoughts around that?

JEN RANDOLPH REISE: You bet, yes. One of the compromises that was made in HF 100, when we legalized two years ago, was that cities would get that. So it was a 10% tax. And cities would get 20% of it, 2%, in order to help them cover increased regulatory costs, as they work hard, to stand up zoning and compliance rules for cannabis businesses in their borders.

And so it's, I think, really unfortunate that the legislature also took that money back from cities, just exactly at the time that they are working through these cannabis questions, and also that entrepreneurs are trying, in good faith, to find real estate that works as dispensaries, as cultivation facilities, as manufacturing spots. Finding quality real estate that is properly zoned is a huge challenge for my clients, and this just makes that harder.

NINA MOINI: Erin, what do you think it would take for lawmakers to eventually consider lowering this tax? I mean, I know it was just bumped up, but do you think there's a way that customers just won't notice? I mean, this is a drug, right? A lot of other things have taxes on them, cigarettes, sodas. Do you think customers may just not notice? Or do you think it's going to be so impactful that lawmakers will take notice?

ERIN WALLOCH: I think it's going to be all of the above. I do that some customers are going to, obviously, that difference. We see a lot of older adults coming in. And they might be on Medicare or Medicaid and on a very tight budget. And so every penny counts in-- including an inflation type of country we're in the middle of right now, and then I think to continue to educate legislators on what is going on in the day to day, and help them understand some of those nuances, so that can help them make future decisions that will best help and impact Minnesotans in a positive way.

NINA MOINI: Mm-hmm. Jen, let me throw this last question to you. Because everything is growing and changing so fast, I do wonder, from your perspective, as someone who talks with a lot of business owners and probably patrons, as well, what are a few of the biggest challenges right now, to getting the dispensaries up to where they want to be, and where they're legally able to be now?

JEN RANDOLPH REISE: That's a great question. I have advised over 500 entrepreneurs over the last two years in navigating Minnesota's laws, which are unique. Each state has unique cannabis laws. But I'm especially excited about Minnesota's because they create more space for craft cannabis.

I have a friend who likes to say, sure, we'll have the Budweiser equivalent in weed, but we also hope to have the Surly's on down. So we create the space for small businesses. And yet, it is very hard for these small businesses to succeed. They face significant headwinds because of federal illegality in raising capital. We can't get SBA loans, for instance, which are the lifeblood of small business in America.

We also face crushing federal taxation from 280-E, and then high compliance costs, because this is a very highly regulated product. The flip side is-- yes?

NINA MOINI: Oh, no. Go ahead. What's the flip side?

JEN RANDOLPH REISE: Is as Erin mentioned, then consumers can trust that when they go into a licensed dispensary in Minnesota, then they're going to get high-quality flower that's been tested, that's properly labeled.

NINA MOINI: I see what you're saying.

JEN RANDOLPH REISE: I think consumers are going to be excited about the craft industry that we are building. There's going to be a lot of wonderful small businesses, like CannaJoy, creating jobs, paying taxes, and serving their communities.

NINA MOINI: Well, as things continue to evolve, we hope to continue to check back in with the both of you. It's just fascinating, what we're in the middle of. And I really appreciate you both lending your perspectives.

ERIN WALLOCH: Thanks so much for having us on.

NINA MOINI: Thank you. Jen Randolph Reise is the founder of North Star Cannabis Consulting. And Erin Walloch is the CEO of CannaJoyMN in South Minneapolis.