This story was first published by MinnPost.

“$130 million from scratch, that’s pretty good, but I think it’s underrepresented.”

By Peter Callaghan, MinnPost

Nearly a year into tax collections on Minnesota’s new lower-potency hemp industry shows that the sale of hemp edibles, beverages and other products is a $130 million business, at least.

According to numbers compiled by the state Department of Revenue, the 10 percent tax on cannabis product sales raised $1,217,450 in May from 1,873 taxpaying businesses. Over the 11 months that the tax has been collected, the state took in $10,022,635 with average collections of a little more than $900,000 per month.

But tax collections have been well over $1 million a month this year, which would provide annual sales in the $130 million range.

According to state law, the tax applies to sales of products made from hemp, the variety of cannabis plant that contains 0.3 percent of the intoxicating compound THC. Unlike more-potent cannabis plants, hemp is legal under federal law but manufacturers process the plants to make intoxicating edibles and beverages. The state caps the potency of hemp-derived products at no more than 5 milligrams of THC per serving.

Medical marijuana and marijuana sold at tribal cannabis dispensaries are not subject to the tax (four tribal dispensaries are already operating). When the state launches general recreational marijuana sales next year, the tax will apply to it as well. One fifth of the taxes collected are distributed to local governments. Sales are also subject to the state sales tax of 6.875 percent and any local sales taxes.

For its first year of existence, legal hemp-derived products paid no tax and businesses were not required to register. With the passage of the recreational marijuana bill in May 2023 came the first registration, regulation and taxation of hemp-product sales. According to monthly reports from Revenue, both registrations and tax collections started slowly, with just $699,407 in July 2023 from 685 businesses. It peaked in March with 2,043 taxpaying hemp businesses collecting $1,364,639.

Some in the new hemp industry were surprised at the tax collection numbers, thinking they undercount the size of the business. Shawn Weber, the president of the Minnesota Cannabis Growers Cooperative and an owner of Crested River Cannabis in Morgan, said he thinks the industry is much larger. Crested River sells mostly to retailers who collect and report the taxes. But his rural-area business has a dozen or so sales a day, from walk-in customers and those who order online. He said he collects around $1,500 month in cannabis taxes.

The Department of Revenue numbers show the average taxes paid of $650 per business, but the larger hemp retailers or craft beer and cider makers who sell significant amounts at their taprooms pay significantly more than that average. Liquor stores also collect the cannabis tax when they sell THC beverages made by others.

That said, “$130 million from scratch, that’s pretty good, but I think it’s underrepresented,” Weber said. “To me they sound low based on what I know.”

Jason Dayton is a co-founder of Minneapolis Cider Company, which developed a THC beverage called Trail Magic. He agreed the tax collection numbers appear low based on his assessment of the industry, especially the beverage side.

“I think the industry is growing at a pace faster than this,” Dayton said. A recent Bloomberg News article estimated the THC beverage industry in Minnesota at $180 million a year. While Dayton thinks that is too high, he estimates the THC beverage market—which makes up half of hemp-derived product sales in the state—is closer to $100 million.

If that is true, the taxes from beverages alone would be $10 million a year.

Bob Galligan, the director of government relations for the Minnesota Craft Brewers Guild, said he was “a bit underwhelmed by the data as well.” He also noted the difference between the number of businesses paying taxes on hemp sales and the number that registered with the state.

The same law that created the tax also required hemp-businesses to register with the state Department of Health’s Office of Medical Cannabis. That office was charged with temporarily regulating hemp sales and merged with the Office of Cannabis Management Monday.

The database on the department’s hemp-derived cannabinoids page shows there are 3,896 hemp businesses registered.

“Obviously not all of them are actually operating, but still. Quite the jump,” Galligan said of the different totals.

There are 15 Top 10 Liquor stores in Minnesota, and THC beverages already make up 10 percent of sales, said owner and CEO Jon Halper. He expects that share to grow to 20 percent by next year.

“It is a growing business,” he said. “I think we’re scratching the surface of what it could be.”

While Halper said the estimate of the industry derived from tax collections might be on the low side, he said he thinks it is close to capturing the size and growth of the industry.

“I think those look pretty accurate to me,” Halper said. “I assume there is a fair amount that is under the table that you would never be able to pick up, but I don’t know if in the low-dose market there is a lot of that happening.”

Ryan Brown, a spokesperson for the Department of Revenue, wrote this in response to questions: “Our figures are based on tax returns filed. MDH’s registrants may include wholesalers who wouldn’t be registered for the Cannabis Tax as they are selling it exempt for purposes of resale.” He also said there might be businesses that are registered but have closed or ceased selling the product and stopped filing, or businesses that aren’t selling products now but will in the future. And there is a possibility that some making sales aren’t filing.

State law assesses the tax on businesses that are located out of state but sell into the state via e-commerce. The taxes collected—at least the 20 percent assigned to local governments—have a complex distribution structure. Counties get half the money, with 20 percent of the county share going to all counties based on population and 80 percent distributed based on the number licensed cannabis businesses in the county. Cities get half the money with all of the city share being distributed based on the number of licensed businesses within each city.

Marijuana Moment via (https://www.marijuanamoment.net/minnesota-made-nearly-10m-in-revenue-during-first-year-of-hemp-sales-but-some-say-industry-is-even-bigger/)

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