Minnesota Marijuana Regulators Warn Businesses Against ‘Creative Workarounds’ To Start Sales Before Licenses Are Issued

“Some people think these types of alternative payment schemes are a way they can skirt the law, but it’s still a commercial transaction, there’s still money being exchanged for cannabis.”

By Peter Callaghan, MinnPost

At least give them points for creativity.

Some of the hemp stores and smoke shops recently spanked by the state’s Office of Cannabis Management (OCM) for dealing in raw cannabis flower tried to get around the ban by giving it away in exchange for making other purchases. Buy a T-shirt, get a bag of pot, for example.

“When we first started doing inspections for flower, it was people straight up just selling pot,” said Margaret Wiatrowski, the enforcement director for the office. “Now we’re seeing more creative workarounds. We see people trying to give these products away or say, buy a shirt and we’ll give you cannabis, or offering a subscription service.”

OCM inspectors weren’t impressed.

“Some people think these types of alternative payment schemes are a way they can skirt the law, but it’s still a commercial transaction, there’s still money being exchanged for cannabis,” Wiatrowski said.

Interim OCM Director Charlene Briner said that as with any industry, the creativity of those being regulated is ahead of the regulator.

“People will also try to see how far they can push the boundaries,” Briner said. “We have been as consistent and clear as we can be: Sales of cannabis or any attempt to share cannabis through a commercial transaction is illegal. When we hear about it, we are on it, and in our inspections, if we see it, we are on it.”

Wiatrowski, the former hemp regulator with the state agriculture and health departments said she has seven inspectors on staff and is preparing to hire four more. She said the staffing will eventually be at least 18 inspectors.

Not until OCM issues licenses for cannabis sales sometime next year is it legal to sell cannabis products in Minnesota outside some of the state’s tribal reservations. Once OCM closed a previous legal gap that gave it more-clear authority to sanction illegal sales, the state has destroyed nearly 190 pounds of illegal flower from 116 locations. Those products have an estimated retail value of nearly $564,000, OCM reported.

And OCM inspectors have now started issuing citations and fines for repeat violations which carries a five-year ban on gaining cannabis licenses. So far three such penalties have been issued. The ban was added to the recreational cannabis law last session after Republicans pushed for the change.

“One of the biggest complaints I hear about from legal cannabis businesses is the availability of illegal products in the marketplace,” said Sen. Jordan Rasmusson (R-Fergus Falls), who sponsored the amendment that blocks those who violated cannabis law after August of 2023 from getting licenses. This includes both those with administrative violations from regulators as well as those who are criminally convicted of illegal sales. It does allow OCM to make exceptions for violations that “occurred as a result of a mistake made in good faith and the violation did not involve gross negligence, an illegal sale of cannabis, or cause harm to the public.”

“I’m glad to see OCM issuing more citations, but I think there is a lot of illegal product out in the marketplace and people who are not following the law,” Rasmusson said. “The amendment that was passed is important to make sure we don’t reward businesses or individuals who are illegally selling cannabis. I hope OCM takes this seriously and makes sure we’re not rewarding bad actors with licenses.”

In addition to the destruction of illegal cannabis flower, the OCM has destroyed more than 34,000 retail units of hemp-derived products that run afoul of state law. Those products could have sold for an estimated $878,000, OCM reported.  The license ban would only be imposed against violations of the cannabis law, not hemp-derived products.

The issue of raw cannabis flower sales goes back nearly a year and resulted from the sometimes awkward transition between legal hemp-derived products and the full-legalization of cannabis. The hemp products—within boundaries for serving size and potency—have been legal since July 2022 and regulated first by the state pharmacy board and then by the Office of Medical Cannabis under the Minnesota Department of Health.

But because those agencies were only authorized to regulate hemp-derived products and not raw flower itself, they felt they didn’t have authority to stop the sales. And while the OCM clearly had the authority, it didn’t yet have the staff. There was also the creative claim by some sellers that because the chemical makeup of hemp was different from marijuana and required burning to activate the intoxicants, it wasn’t illegal.

The state made some changes earlier this year in response to the gap in regulatory authority. First, OCM ruled that the kind of flower being sold as hemp was in fact marijuana based on its total THC content. What was being sold in some stores was illegal, the state declared. OCM deputized health department inspectors to enforce the ban. Then the Legislature moved up the merger of the medical cannabis office with OCM, which formalized the staffing arrangement needed to enforce the prohibition on raw flower sales.

Briner said her agency followed a stepped-up approach to enforcement. Because hemp regulation had been relatively lax under the 2022 law, OCM began with an education campaign. Only later did it become more assertive with repeat violators.

“This is an ongoing and maturing endeavor,” Briner said. “We’ve made quite a bit of progress in terms of our enforcement presence and what we believe are the right trends in terms of compliance.” When inspections began, two-thirds of store visits resulted in findings of violation. In August, 27 percent of visits resulted in violations.

The chart above shows the percentage of inspections for hemp-derived cannabis products that resulted in a business being compliant with state regulations. Minnesota Office of Cannabis Management / MinnPost

OCM is now preparing for the next phase of the state’s legalization process—the inspection of licensed cannabis businesses starting sometime in the spring.

“There’s a lot happening and still a lot left to do,” Briner said. There are 4,121 registered sellers of hemp-derived products in Minnesota. Those that want to continue to sell only hemp products will be able to get licenses once the recreational cannabis system is up and running sometime next spring.

Wiatrowski said the first inspections of hemp-derived products found that many violations involved edibles with much-higher-than-legal THC content levels and vapes that were not allowed. Those violations have tapered, and it is now more common to have labeling violations. Products must contain Food and Drug Administration and child warnings and include a QR code with the testing results—the certificate of analysis—of the product including THC levels.

This story was originally published by MinnPost.

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