When the Legislature passed the adult-use cannabis bill this spring, it was made clear that even though marijuana is fully legal as of Tuesday, dispensaries won’t open until late next year, or even early 2025.
So what’s the deal with the shelves of edibles and THC-infused beverages at local retailers?
It turns out that lawmakers made an exception for hemp-derived THC products in a groundbreaking deal that will keep a unique beverage industry chugging along before and after full marijuana-based products are available. It also assures these products are and will be available outside of official dispensaries.
That’s a win for the Twin Cities breweries that began making hemp-derived-THC-infused beverages shortly after lawmakers clarified the allowed dosages in 2022, opening the floodgates for new products, and with them, a new source of revenue. (The federal 2018 Farm Bill allowed for hemp-derived THC products nationally, but the language was squishy, so most local companies weren’t willing to leap into making new products until Minnesota law specified dosages.)
“Dispensaries are not going to be online for another year, possibly two, so we have a runway to get hemp products established before the dispensaries open, which is nice for business,” said Matt Schwandt, president and co-founder of Bauhaus Brew Labs in Northeast Minneapolis.
Schwandt’s brewery was one of many that turned Minnesota into ground zero for the cannabis-infused beverage industry.
Diana Eberlein, chair of the Cannabis Beverage Association, a national group for cannabis-based beverages, said she was shocked by the market in the Twin Cities during an April visit — yes, for the marijuana-based 4/20 holiday.
“You don’t know how it is operating in a market until you have boots on the ground,” Eberlein said. “I was shocked at how normalized it is to have THC beverages on a menu and just available everywhere.”
Minnesota law now specifies that hemp-derived THC beverages can be served in bars, taprooms and restaurants. The new law also regulates and taxes these products for the first time.
“At the beginning of the legislative session, our main goal was to maintain what we were doing,” said Bob Galligan, who lobbies for the Minnesota Craft Brewers Guild. “So we went in and asked for more regulation. We knew taxes would be attached.”
Legislators listened and preserved the fledgling hemp-based market. As a result, Galligan said, Minnesota is the first state to allow beverages and edibles to be sold outside of a dispensary — legally and without loopholes. Hemp-derived products will be taxed at the same 10% rate as all other cannabis products. The products must remain low dosage (under 10 milligrams of THC per serving), but they can be sold almost anywhere — vendors are merely asked to register their business with the state.
“It’s a huge boon for the economy, for Minnesota’s cannabis industry reputation,” said Chris Parrington, the Twin Cities-based director of government affairs for the national Cannabis Beverage Association. “All eyes are watching us from afar, for those who know what’s happening. Operators, service providers and regulators now have a huge responsibility to get this right. … I truly believe we are going to see a lot more of this around the country.”
Eberlein was living in Seattle, where weed is fully legal, but had never tried THC in any form.
“I was a D.A.R.E. baby — I thought it was a gateway drug,” she said, referring to the Drug Abuse Resistance Education curriculum once commonly delivered in schools. “But people were using it for anxiety, pain, other things.”
She tried smoking it but wasn’t a fan. Edibles didn’t appeal. But when she discovered a beverage additive, she liked being able to keep her dosage small while working THC into her everyday routine.
“It really impacted my life in terms of anxiety and stress, and I thought, ‘People need to know about this,’” she said.
Beverages are a natural way for consumers who might be used to purchasing alcohol to try THC, especially when it’s on a shelf next to beer at their local liquor store.
“It’s a healthier version of self-medicating,” Parrington said. “I like the 5-milligram drinks. The smaller volume of THC reduces the stoner stereotype — it takes a lot to accidentally over-consume. It’s functioning stress and anxiety relief, as opposed to being comatose.”
The beverages have another benefit, too, when juxtaposed with alcohol: No hangover.
The cannabis beverage industry in Minnesota developed organically — and almost overnight.
When the 2022 law codified dosage levels, Parrington said the first call he received was from a brewery owner who wanted to explore making THC beverages.
Given the state’s huge craft beer scene, it makes sense that breweries were eager to explore a new revenue stream. Many taprooms, a main source of income, closed for months early in the coronavirus pandemic.
“Packaging, bottling and canning lines, they’re expensive,” Eberlein said. “Brewers already had these setups, so it made it much easier for them to create beverages.”
Nationwide, beverages are only about 3% of the legal cannabis market, but Eberlein said that figure will rise as manufacturers recognize the demand.
It helps Minnesota’s position in the marketplace that it was the first state to fully legalize and regulate the hemp-based beverages. And that means money for producers and local retailers.
Matt Kenevan, founder of Beer Dabbler events and owner of Dabbler Depot, a liquor store on St. Paul’s West Seventh Street, has been selling the beverages and a small array of hemp-based edibles from the coffee shop adjacent the store. He said that without the extra income from those products, he’s not sure his shop would have survived its first few years.
“I greatly, greatly appreciate the boost it has given my store to this point,” Kenevan said. “Without that income, I don’t know if it was going to be a sustainable business.”
Kenevan said many liquor stores are struggling because people are drinking less.
“During the pandemic, everyone was drink, drink, drink, and now everyone is like ‘I gotta slow down,’ and a lot of those people are drinking THC seltzers,” he said.
Kenevan said he’s unsure if he’ll enter the adult recreational market when it’s open for business — mostly because of challenges with banking and insurance. He’s now operating two Minneapolis shops selling low-dose, hemp-derived products and a third is planned for St. Paul’s East Side.
Even in states where adult-use marijuana is legal, most beverage manufacturers prefer to use hemp-derived additives, because the beverages then can be sold nationwide, Parrington said.
It’s also easier to bank money made from hemp-derived products, since they are legal nationwide.
Ten years ago, Parrington said, there was almost nowhere for cannabis retailers to bank their funds.
“It’s illegal for a bank to knowingly engage in a transaction that involves illegal activity,” Parrington said. “So many are afraid to transact because of that federal illegality.”
But banking is evolving, and Parrington said it’s becoming much easier to find a bank that will take legally obtained money from selling cannabis. Still, he says, the banking laws need to be fixed, because millions of dollars earned through the legal sale of marijuana products are being stored under floorboards and in storage units.
Kenevan said his original point-of-sale system dropped them after they started selling cannabis products. And it’s difficult to get a loan to open a cannabis-based business.
Insurance is another sticky wicket, and it’s the reason Parrington is advising clients who produce cannabis beverages not to serve them on-site.
Bauhaus Brew Labs’ Schwandt said his brewery chose to offer its Tetra beverages in the taproom anyway.
“We put our own policies around it,” Schwandt said. “Only two per customer per visit. You can’t have alcohol and a THC beverage.”
He said the brewery was unable to get insurance coverage for on-site THC consumption.
“To my knowledge, no insurance company in the country offers coverage for this scenario. … I’d love to see insurance underwriters treat THC beverages consumed on-premise the same as alcohol.”
Overall, the industry still has some figuring out to do. But in the meantime, manufacturers and consumers are experiencing a whole new landscape.
Parrington said no one is as surprised as he that a state known for its restrictive alcohol policies now is a leader in hemp-based product regulation.
“The thought of being able to go into a grocery store and get a THC beverage, but you can’t buy a beer there — it’s wild,” he said.
