Minnesota’s legal cannabis market turns 1 as growers ramp up production
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Minnesota’s recreational cannabis market is about to have a lot more cannabis heading into its second year.
The state’s cannabis industry turned 1 on Wednesday, with about $150 million in adult-use sales and a massive increase in the number of cannabis plants tracked by the Office of Cannabis Management. Including medical cannabis, Minnesota generated more than $250 million in sales in the last year.
That surge in cultivation is expected to bring more products and eventually lower prices for consumers starting in the next few months, according to OCM head Eric Taubel.
“The biggest thing that I'm looking at and seeing as proof points of the market moving towards maturity is the 95 new licenses we issued for cultivation sites this summer,” he said. “We’ve gone from almost no cannabis flower available in the state to having retailers that have a decent selection.”
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A market still taking shape
The state now has 369 licensed cannabis businesses, according to OCM. Nearly 75 percent of the businesses licensed to grow cannabis are microbusinesses, and 43 percent of licensed cannabis businesses are owned by social equity applicants — people who were disproportionately affected by cannabis prohibition, as well as veterans, farmers and low-income individuals.
Minnesota started its recreational market with two companies serving the state’s medical cannabis program. The industry spent much of its first year working through limited supply, testing bottlenecks and a supply chain that was being built out.
The state also became the first in the nation to sign intergovernmental cannabis compacts allowing tribal nations to operate businesses outside reservation boundaries. Tribal producers helped supply the state’s early recreational market. Those relationships have continued as more state-licensed cannabis comes online, Taubel said.
“The growth of their market and our market — they’re intertwined,” Taubel said. “You can’t have one succeed without the other.”
The number of license holders growing cannabis has since risen to 102 from a year ago, with nearly 500,000 plants in the state’s tracking system. OCM issued the bulk of cultivation licenses this past summer.
The current focus is filling gaps in the selection of specialty products, Taubel said. “We’ve got to fill in some of those gaps, whether it’s vapes, concentrates or edibles.”
Growing cannabis can take three to four months, followed by another 30 to 60 days for drying, curing and processing. That means the increase in plants this summer could start showing up in stores from November into January, said Taubel, adding that he expects prices to fall as supply rises.
Minnesotans will likely see a wider variety of flower later this fall as outdoor-grown cannabis is harvested and comes onto the market, said cannabis industry consultant Jen Reise.
But prices remain high. Minnesota charges a 15 percent cannabis tax on top of the regular sales tax.
“I’m a consumer myself, and $70, including the taxes, for an eighth is a staggering amount of money compared to the black market, or compared to what one can buy in other states,” Reise said. “I think we’re going to start to see prices get a lot better in November, after all of that outdoor flower has been harvested and tested and is available to the public.”
The tax has been a drag on dispensary sales and “tough for both businesses and consumers,” Erin Walloch, owner of CannaJoy MN in Minneapolis, told MPR News on Wednesday.
Can small businesses thrive?
As more cannabis is expected to come, that also means more competition.
In other cannabis markets, small businesses have often struggled to compete with larger companies. Minnesota has made supporting small and social equity businesses a priority, but Reise says the cost and regulatory requirements can make it difficult for entrepreneurs to get started.
“A lot of social equity applicants have not managed to get off the ground because of the dearth of investment dollars,” she said. “It's a real problem, and there's a lot of reasons for that. There's just not a lot of investors who are excited about cannabis after some of the failures in cannabis markets nationally.”
OCM is trying to help through its CanRenew community reinvestment grants, Taubel said. The program awarded $1 million in its first year and directly served more than 350 people.
“We’ve got 10 times that to award this year,” he added.
Reise said the state could do more to support small and social equity businesses. She runs a program through her firm, North Star Cannabis Consulting, that provides technical support to small businesses. She expects the next year to be a test as competition increases.
“We know that small business is hard, and cannabis business is small business on hard mode,” she said. “So this next year is a real test for folks as to whether they can not only open, but continue to move ahead, find efficiencies, and thrive in an increasingly competitive market.”
That competition, she added, could eventually lead to some dispensaries failing or being consolidated as the market matures.
