Minnesota Marijuana Legalization Bill Clears 14th House Committee, With Revised Tax Rate And New Fiscal Note

A 14th Minnesota House committee has approved a bill to legalize marijuana, after members adopted a large-scale amendment to overhaul various tax provisions of the legislation.

The House Taxes Committee passed the measure from Rep. Zack Stephenson (D) in a voice vote on Thursday. Members also received a much-anticipated fiscal note and revenue projection ahead of the meeting.

One of the main changes that was adopted as part of an amendment from the sponsor would gradually decrease the tax rate for cannabis sales over time, starting at eight percent as set in the original bill, and then reducing to 5.25 percent in 2025. Regulators would assess the rate going forward from that point every two years with the aim of reducing taxes even further so that only the cost of implementation are covered.

“The theory behind this bill from the beginning has always been that we are not doing pot for potholes. We are not legalizing cannabis in order to fund other enterprises of state government,” Stephenson said on Thursday. “We think that cannabis should be self-sufficient and that the licensing fees and tax revenue generated by cannabis should flow to what is necessary to effectuate the cannabis bill, but not go beyond that.”

The change adopted in committee puts the legislation even further at odds with the legalization plan put forward by the governor as part of his budget request. Gov. Tim Walz (D) proposed a 15 percent tax for marijuana products, arguing that there’s insufficient evidence to suggest that the higher rate would substantially empower the illicit market and that there’s a need to raise more revenue for programs like substance use treatment.

The 139-page fiscal note for the legislation from the state Department of Revenue (DOR) provides an analysis of the cannabis gross receipts tax, licensing revenue, grant program expenses, required reports and studies, property tax interactions and business expense subtraction. The chair of the committee said that an updated fiscal note would be released as early as Thursday evening.

A separate revenue analysis takes into account the adopted amendment that changes the tax rate over time. It found that for the first year of implementation in 2024, the state would be expending more dollars than it takes in from marijuana taxes, to the tune of about $46.7 million. But revenue would start exceeding expenses by the following year.

By 2027, the state is expected to generate $91.1 in revenue from marijuana sales under the revised model adopted by the committee, while expending $56.7 million from the general fund for a net fiscal impact of $34.4 million.

In its previous committee stop, members adopted a series of changes that are primarily meant to address concerns from industry stakeholders who are operating under a cannabis law enacted last year that legalized low-THC edibles in the state.

The Senate companion version from Sen. Lindsey Port (D) recently went through a similar overhaul in that chamber.

Among other changes, the amendment adopted in the bill’s last committee adds two licensing categories for lower-potency hemp edible manufacturers and mid-size cannabis firms classified as mezzobusinesses. It also revises provisions on vertical integration and stipulates that hemp business owners and workers are not subject to criminal background check requirements.

In some ways, however, the House amendment is distinct from the one that a Senate panel adopted earlier this month. For example, it lowers the amount of cannabis a person can possess in a private residence and also expands who qualifies as a social equity license applicant.

Advocates expect that the differences will ultimately be resolved in a conference committee following passage of the bills by their respective chambers.

With majorities in both the House and Senate and control over the governorship this session, Democratic-Farmer-Labor party officials are confident that legalization will be enacted in short order following the extensive committee consideration.

The legislation that’s advancing is an iteration of the 2021 House-passed bill from former Majority Leader Ryan Winkler (D), who now serves as campaign chairman of the advocacy coalition MN is Ready.

The governor has called on supporters to join lawmakers and the administration in their push legalize marijuana this session, and he circulated an email blast in January that encourages people to sign a petition backing the reform.

Much of the revised bills that are advancing through committee are consistent with Winkler’s legislation, though there are a few key changes, in addition to all of the newly adopted amendments. For example, it adds a new license category for businesses that sell “lower-potency edible products.”

There would also be reduced regulatory requirements for those licensees, and they’d be able to permit on-site consumption if they have a liquor license, which is meant to ensure that shops currently selling low-THC beverages and edibles don’t face disruption.

But throughout the committee process, industry stakeholders have pushed for additional changes to the legislation so that businesses that entered the market under the law enacted in 2022 aren’t excessively impacted.

At the House panel’s hearing on Wednesday, members of the panel adopted two Stephenson amendments to restructure the tax model.

One of the amendments further restructures provisions relating to cannabis compacts with tribal governments and prevents regulators from issuing a marijuana business license in Indian Country without the consent of the relevant tribal government. Further, it adds technical assistance programs at the request of the Department of Revenue.

At the committee hearing on Thursday, a representative of the Association of Minnesota Counties testified that its membership has diverse views on the issue of legalization, but generally agree that there’s a need for local cannabis tax revenue sharing from either the gross receipts tax or a local sales tax option if the reform is enacted.

The bill’s next stop is the House Ways and Means Committee on Monday. Meanwhile, the Senate version is heading to the Rules and Administration Committee next Tuesday.

Here are the main components of the revised marijuana legalization bills, HF 100 and SF 73:

Adults 21 and older could purchase up to two ounces of cannabis and cultivate up to eight plants, four of which could be mature.

They could possess up to two ounces in a public place and up to five pounds in a private dwelling.

Gifting up to two ounces of marijuana without remuneration between adults would be permitted.

It would promote social equity, in part by ensuring that diverse licensing by scoring equity applicants higher.

Prior marijuana records would also be automatically expunged. The Bureau of Criminal Apprehension would be responsible for identifying people who are eligible for relief and process the expungements.

In addition to creating a system of licensed cannabis businesses, municipalities and counties could own and operate government dispensaries.

On-site consumption permits could be approved for events, and cannabis delivery services would be permitted under the bill.

Unlike in many legal states, local municipalities would be banned from prohibiting marijuana businesses from operating in their areas, though they could set “reasonable” regulations on the time of operation and location of those businesses.

Retail cannabis sales would be taxed at eight percent. Part of that revenue would fund substance misuse treatment programs, as well as grants to support farmers.

A new Office of Cannabis Management would be established, and it would be responsible for regulating the market and issuing cannabis business licenses. There would be a designated Division of Social Equity.

People living in low-income neighborhoods and military veterans who lost honorable status due to a cannabis-related offense would be considered social equity applicants eligible for priority licensing.

The legislation as revised fixes an issue in current statute that prohibits liquor stores from selling THC products.

It also contains language banning synthetic cannabinoids, which is consistent with Board of Pharmacy rules put into place last year.

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The House panels that have passed the legislation in recent weeks are the Transportation Finance and Policy Committee, Economic Development Finance and Policy Committee, Public Safety Finance and Policy Committee, Health Finance and Policy Committee, Education Finance Committee, Human Services Policy Committee, Workforce Development Finance and Policy Committee, Agriculture Finance and Policy Committee, State and Local Government Finance and Policy Committee, Labor and Industry Finance and Policy Committee, Environment and Natural Resources Finance and Policy Committee, Judiciary Finance and Civil Law Committee and Commerce Finance and Policy Committee (twice).

The Senate committees that have signed off so far are the State and Local Government and Veterans Committee, Labor Committee, Human Services Committee, Health and Human Services Committee, Transportation Committee, Environment, Climate, and Legacy Committee, Agriculture, Broadband, and Rural Development Committee, Jobs and Economic Development Committee, Commerce and Consumer Protection Committee and Judiciary and Public Safety Committee (twice).

Lawmakers and the governor have expressed optimism about the prospects of legalization this session, especially with Democrats newly in control of both chambers, whereas last session they only had a House majority.

Following their election win in November, Democrats internally agreed to discuss the issue imminently.

House Speaker Melissa Hortman (D) said recently that she expects cannabis reform to be included in the governor’s forthcoming budget request, though she reiterated that the reform “will take a long time” to move through the legislature.

While marijuana reform was excluded from a list of legislative priorities that Democrats unveiled last month, Hortman said that the issue is “a priority,” albeit a “very big, complicated.”

The governor included funding for implementing legalization in his last executive budget request, but lawmakers were unable to enact the policy change. He and Hortman have differing opinions about how quickly the issue can advance this session, however, with Walz recently saying it would be done “by May” and the speaker indicating it could take until next year.

Winkler, who recently launched a THC beverage company, told Marijuana Moment that he agrees with the governor, saying “it is likely that [passing legalization] will be done by May.”

“The reason is that the legislature adjourns until next year at the end of May, and so if they don’t do it in that timeline, it’ll take another full year—and I don’t think anything will be improved or bettered by waiting,” he said. “So it’s in everyone’s interest to get this bill passed.”

Two polls released in September found that the majority of Minnesota residents support adult-use marijuana legalization—and one survey showed that even more Minnesotans approve of the state’s move to legalize THC-infused edibles that was enacted last year.

A survey conducted by officials with the House at the annual State Fair that was released in September also found majority support for legalization. That legislature-run poll found that 61 percent of Minnesotans back legalizing cannabis for adult use.

Support was up this year from 58 percent when the House Public Information Services polled fair goers on the issue in 2021. In 2019, the House poll found 56 percent support for legalization.

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Photo courtesy of Mike Latimer.