Minnesota’s First Year of Hemp Sales Brings in Nearly $10M

Minnesota’s Hemp Industry: A $130 Million Business in Its First Year of Tax Collections

Nearly a year into collecting taxes from Minnesota’s burgeoning hemp industry, new data reveals that the sale of hemp-derived edibles, beverages, and other products has become a $130 million business. This impressive figure underscores the rapid growth and economic potential of the state’s lower-potency hemp market.

Tax Collection Data

According to the Minnesota Department of Revenue, the 10 percent tax on cannabis product sales brought in $1,217,450 in May alone from 1,873 taxpaying businesses. Over the 11 months of tax collection, the state accumulated a total of $10,022,635, averaging more than $900,000 per month. Notably, tax collections have consistently exceeded $1 million per month in 2024, suggesting annual sales around $130 million.

Legal Framework and Taxation

State law mandates the 10 percent tax on sales of products derived from hemp, which contains no more than 0.3 percent THC, the intoxicating compound in cannabis. While hemp is legal under federal law, Minnesota’s regulations cap the potency of hemp-derived products at 5 milligrams of THC per serving. Notably, medical marijuana and products sold at tribal cannabis dispensaries are exempt from this tax.

Industry Reactions

The tax collection figures have surprised some industry insiders who believe the numbers underrepresent the actual market size. Shawn Weber, president of the Minnesota Cannabis Growers Cooperative and owner of Crested River Cannabis, suggests the industry might be larger than reported. He highlights that his business alone collects about $1,500 monthly in cannabis taxes.

The Department of Revenue’s data shows an average tax payment of $650 per business. However, larger retailers and craft beverage producers, who sell significant amounts at their locations, contribute substantially more. Liquor stores also collect the cannabis tax on THC beverages.

Market Growth and Projections

Jason Dayton, co-founder of Minneapolis Cider Company, notes the industry’s rapid growth, especially in the beverage sector. A recent Bloomberg News article estimated Minnesota’s THC beverage industry at $180 million annually. While Dayton considers this figure high, he estimates the market closer to $100 million, with beverages comprising half of the hemp-derived product sales in the state. This would imply $10 million in annual taxes from beverages alone.

Bob Galligan, government relations director for the Minnesota Craft Brewers Guild, expressed similar sentiments, noting discrepancies between the number of businesses paying taxes and those registered with the state. The Office of Medical Cannabis, which temporarily regulated hemp sales, reported nearly 3,896 registered businesses, indicating a higher level of industry participation than reflected in tax returns.

Regulatory and Tax Collection Challenges

The industry faced no taxation or registration requirements during its first year. The May 2023 recreational marijuana bill introduced registration, regulation, and taxation for hemp products. Monthly reports show initial slow growth in tax collections, starting at $699,407 in July 2023 from 685 businesses, and peaking in March with $1,364,639 from 2,043 businesses.

Ryan Brown, spokesperson for the Department of Revenue, explained that the figures are based on filed tax returns. He acknowledged the possibility of businesses registered but not operational, or those that ceased sales and stopped filing returns. Additionally, some sales may be underreported or not captured, especially in the nascent market.

Distribution of Tax Revenue

State law mandates that one-fifth of collected taxes be distributed to local governments. The distribution formula allocates funds to counties and cities based on population and the number of licensed cannabis businesses. This complex structure ensures that localities benefit from the burgeoning hemp industry.

Minnesota’s lower-potency hemp industry has quickly grown into a significant economic force, with tax collections indicating a $130 million business in its first year. While some industry players believe the true market size is even larger, the current data highlights substantial growth and potential. As the state continues to refine its regulatory and taxation frameworks, Minnesota’s hemp market is poised for continued expansion and increased contributions to the state’s economy.