Mayhem in Minnesota as Unlicensed, Hemp-Derived THC is Unleashed on the State

I’ll have whatever they’re smoking up in Minnesota, though judging from the lack of strategic thinking going on, it might be too strong for me even at its federally legal limit of just 0.3 percent. Now the state political parties are pointing fingers at one another over a law passed this summer with bipartisan support that provides no framework for or limit on the sale or use of edibles products that contain less than the aforementioned amount of hemp-derived THC. This was imposed on a state that is otherwise medical cannabis-only, with only two companies licensed to operate statewide – Green Goods and Vireo Health.

To get the lay of the cannabis land in Minnesota, a state that frankly does not spring to mind when one shouts, “weed!” I spoke with JT Schuweiler, a cannabis law attorney at Fox Rothschild LLP in Minneapolis, who has been thinking a lot about edible THC and cannabis reform and legalization in the North Star State.

Cannabis Business Executive: Tell me about your firm. Do you have cannabis clients in the space?

JT Schuweiler: Fox Rothschild is either the largest or one of the largest law firms that deals with cannabis. I have been working in Minnesota, but I do also work with a lot of cannabis companies outside of this state.

Do you have clients of all sizes, MSOs and smaller companies, clients in different sectors, ancillary clients, licensees, all different types?

Yes, we have all of them. We have a full cannabis department. I’m a member of the department, but I bill myself more as M&A and debt work, so I do a lot of loans with cannabis companies.

So, how did we get to this point with the hemp products? Bring us up to speed.

So, before July 1, you had medical cannabis issued to licensees within the state – Green Goods and Vireo. It was those two in the medical cannabis space and it only could be those two. There were no other new licenses or anything. It was essentially a duopoly.

On July 1, the state essentially said that whatever the legal level is for THC in hemp at the federal level you can have in Minnesota, too. That may be different than what you’ve heard, but they allow for five milligrams of THC per serving, or 50 milligrams per container. It has to be hemp derived, so you can take the hemp plant, process it, and put it into that gummy or brownie, but to the extent that that derivative product is less than point zero 3 percent THC, on the federal level right that is a legal product. You can have five milligrams of THC in a brownie, but if on a dry weight basis, it’s less than that percentage, it’s a federally legal product. You could ship it in the mail, you can deal with banks. It’s not a problem. It’s just normal hemp.

Are we talking edibles only?

Yes. Beverages are included, but you can’t do tinctures, you can’t smoke flower. It’s just edibles and beverages.

Where are those products allowed to be sold?

Oh, that’s the best question. Anywhere. There isn’t even a requirement to sell at a distance away from schools. This is completely, ‘Here you go. You can go out and sell it. My hairstylist is selling it on the counter.

What is the model for the legislature? How would you describe this scenario?

You have a very politically sensitive topic, and what they actually did is that, on one side, the Democrats will say that the Republicans didn’t read what they were passing, when they passed this permission for five milligrams. It was a part of the public health bill, and in it was that we’re going to have this five-milligrams per serving or 50-milligram per container exception to THC, period. Republicans say that the Democrats are being sneaky about it., and just didn’t tell anyone what they were doing was legalizing cannabis, or THC.

Democrats wrote the bill submitted it, they talked about it briefly, hit the gavel, and Republican committee and Republican senators approved it, because in Minnesota we have a bicameral legislature. We have a Democratic House and a Republican Senate.

It’s also an election year and the legislature will reconvene in January. Will the outcome of the election determine whether there are efforts to roll this thing back or move it forward?

The Republicans are campaigning on it being rolled back. I’m sure that the Democrats are campaigning that we’re going to just legalize everything, there are no negative effects from what we’ve done, yada-yada-yada. What I’m hoping for is a much more measured approach, and I think that it’s kind of partisan crap – the Democrats and Republicans pointing fingers at each other – and they’re both at fault there.

But is there a red and blue divide when it comes to cannabis.

A recent poll that showed that there isn’t actually a divide, but the Republican Party in Minnesota is very much against it, and part of their platform is no to legalizing cannabis, which is why the Democrats are holding out that they’ve legalized it.

There are only 14 medical dispensaries statewide. How many more stores would be needed to meet the actual demand?

This is why it’s so interesting. Right with, with point zero 3 percent, you don’t need a store. You could sell it online and ship it though the mail. The licensed dispensaries are selling straight-up THC products, but there’s actually a current lawsuit by Vireo against the state because they are not allowed to sell these [hemp-derived] edibles. So, you essentially have the medical cannabis people who are still selling medical cannabis up to the prescribed limits allowed in Minnesota – which is much stronger than the cannabis that’s being sold for the five milligrams – but they can’t sell the five-milligrams that is hemp-derived.

Is Minnesota shaping up to be a battle-ground? How significant a market will it be?

For adult-use, yes, it’s going to be a significant market. And how it plays out for that is, we’re going to see. There are so many different ways that you could go for the adult-use market. You could have the state doing it, where they’re going to preempt all the local laws to say we’re going to standardize our licensing practice, we’re going to do this right. This is the tricky part, though. Anybody can be building this business right now. There’s no licensure, there’s no nothing. You could go out to a farmers’ market, sell your wares, you’re going to show that you’re taking cash, it just doesn’t have any limitations on it. There are some guidelines from the state, but they are guidelines.

Does the state produce a lot of hemp?

I know of several producers. We have large farms. Now, there is a trick for that too; getting a hemp license for farming is a bit of a trick, and it takes years to get it. So, there is that, but you can ship hemp across state lines and take that hemp, distill it down into what you want, and now it’s in Minnesota to their guidelines and you have it. So, it’s not like you necessarily have to grow the hemp within the state of Minnesota? You just have to process it, package it, and sell it within the state of Minnesota.

It sounds like a situation where, on the one hand, the state is regulatory when it comes to cannabis-derived THC products, and on the other, it’s hands off when it comes to a hemp derived THC.

That is exactly correct.

Could they easily then apply the standards that they’ve already got to either side, should they want to?

Yup. However, if they take the medical cannabis regulatory regime and impose the same requirements on the hemp regulatory regime, that is going to cause a huge problem. Existing businesses are going to be shuttered. You can’t put that kind of level of requirement onto that kind of extreme market. Even if they were going to institute licensure requirements, those licensees need to be working with them as they are now. You can’t just sit there and go, ‘Everybody stop!’ That’s not how this works.

Within the sense that we have a market, the only people who are going to be able to repeal that hemp THC law would be the Democrats and the Republicans unless the Republicans switched, and we haven’t switched either of those legislatures since, I don’t know, 2008, so the idea that they’re going to switch again, I really doubt it.

So, even though the Republicans are running on an anti-hemp platform, it’s not going to change the bicameral situation even if they win?

Right, and if it does change the bicameral situation, it’s not going to be in the Republican’s favor.

Does that mean that for the time being, or for however long, this schizophrenic situation, which does cause some stress in a state, is going to continue?

Correct.

You also spoke about cities banning the sale of these hemp products. Is that because the cities do not want unregulated products, so they’re banning them out of safety concerns?

You hit it on the head. They’re putting in moratoriums that essentially say, for the next year or six months, whatever they choose, we’re going to have to evaluate how we’re going to regulate this, whether by a license; where you can sell it within our city boundaries, like no closer than 1000 feet from a school; and how many sites can we have in our city? What they’re doing is putting a pause in place to say, ‘We need to figure out what’s going on here.’ This Tuesday, I published an interactive survey that shows where those moratoriums are popping up within the state. It’s on my Fox profile if you want to see what it looks like.

Did the State know that the moratoriums were going to happen?

No, It’s currently being advocated by the lobbyist group, the League of Minnesota Cities. They’re walking around all these cities trying to pass these moratorium. But again, I find them woefully futile. Like I said, you can mail it. You can’t stop the mail. Who are you going to stop when somebody orders that stuff? I mean, the companies themselves should figure out where the moratoriums are. I love Richfield as an example. Richfield is just south of Minneapolis, and just north of Bloomington. Bloomington and Minneapolis do not have moratorium. What are you doing? The business is literally just going to go to either of those sides and you won’t get any benefit from sales tax.

Because it’s a free-for-all, do you have any concerns about products that are not safely produced? And what about the fact that medical patients often have much higher dosage requirements that would only be met by over-consuming the hemp-derived products?

Medical patients can go and get a license, but in Minnesota, and even before this, it’s very hard to get a medical card in the state of Minnesota. I think they just opened it up to interactable pain but before it was like you better be dying. But to your point, there are people who otherwise would qualify for medical cannabis in other states that are going to be pounding these sugar candy edibles just so that they can feel some relief. Otherwise, people who currently have a license can go out and get the prescribed dose that actually does something for them

You say businesses should not be punished for following the current state guidelines and laws. What do you mean?

Think of businesses following the current laws. For the local municipalities and counties implementing moratoriums, I’m not 100 percent convinced that that’s actually illegal. We haven’t had enough time to actually challenge those laws. And here’s the thing. We passed it in late May. That’s how fast it happened.

Have things sprung up that fast? If you go to drive around, is it everywhere?

No, because it happened so immediately and without warning, there was actually a huge issue because there wasn’t enough product. We don’t see that, and that’s why the people in localities and municipalities are responding to a problem that has not occurred.

How will all this impact the election? It sounds like people are running on nothing.

Republicans are saying that we need to roll it back, but here’s the other thing; we don’t have special excise taxes on these products. It’s just sales tax, but the state is getting no extra revenue from the sale of these products.

Here’s a fun fact: In the state of Minnesota, more often than not if you include flour, because we’re a huge mill city – we have Pillsbury, we have General Mills here – if you include flour in any of these products, they are likely exempt from sales tax.

The one thing that’s going to get this stuff to change is that the state is going to realize we are so missing out on revenue. Then, we will tax it and impose a state-level regulatory regime to what degree they impose a state regulatory regime is going to be totally dependent on January.

We legalized Sunday liquor sales only about three or four years ago. That’s how long ago we had a total ban on liquor sales within the state on a Sunday, so we’re not exactly at the forefront of imbibing beverages or food or anything like that.

Are you proposing that the current situation is unworkable, and we need a statewide licensing framework and to not allow cities to put on moratoriums, because they can’t enforce them, so it doesn’t make any sense. My question is, isn’t all of this still just a stop gap because it’s only about hemp-derived products, which are a stepping-stone to what everybody is talking about, adult-use. Are you saying: we’re Minnesota, we need to take that step, and that it is a step we’re going to need to take to bring our state into its future?

Absolutely! If we’re able to buy cannabis here, and impose an excise tax, I’m all for having a responsible regulatory regime that says, this is recreational cannabis, do away with these little five-milligram things, we’re just going to do regulatory cannabis. You can also do regulatory hemp, but whatever way it goes, it needs to be at the state level so that someone who’s starting a business, or somebody who’s coming into the state with business, understands the one resource that they can look at and say, ‘This is what I need to do to comply. Here are the steps I need to take here to make sure that I can actually do business in the state.’ Because if it’s anything but that, what you’re enforcing is the ability for large operators to come into the state of Minnesota instead of a small business mindset that a lot of these local municipalities try to support.