The Wild West of Weed Drinks: Minnesota Makes a Case for Easy Access Cannabis

The legalization of cannabis-infused food and beverage products has, historically, spawned from state-level legislation that builds off existing infrastructure from medical marijuana programs, and introduces new divisions that cater to recreational cannabis consumers over the age of 21. That was the only playbook – until representatives in Minnesota’s state legislature kicked down a back door to make THC-infused edible and beverage sales legal in their state.

In late spring 2022, Minnesota’s state house passed an end-of-session omnibus bill that included a provision to remove industrial hemp from the state’s list of controlled substances. That move, in effect, opened up the market for legal sales of edible and drinkable products infused with hemp-derived delta-9 THC as of July 1, 2022.

“Let’s be brutally honest and call this what it is – intentional bad law to force an issue,” stated Chris Parrington, partner at Minneapolis-based law firm Zuber Lawler, where he represents businesses in the cannabis industry. “Call it accidental, call it whatever you want – this model was specifically designed to force [cannabis] legalization in Minnesota. That’s it. If anybody tells you otherwise they are probably lying.”

Similar to the federal 2018 Farm Bill loophole that opened up the legal sale of delta-8 THC products nationwide, the provision effectively made delta-9 THC-infused products available for sale in the state so long as the cannabinoid is derived from a hemp plant containing no more than 0.3% THC on a dry weight basis. The resulting infused food or beverage cannot contain more than 5 mg of THC per serving, must undergo independent laboratory testing and use child-proof packaging, per the state’s provision, but it’s for sale in traditional, age-restricted legal locations, not the dispensaries that are the marketplaces for most legal cannabis.

According to Diana Eberlien, president and chair of the Cannabis Beverage Association (CBA), hemp-derived delta-9 THC products still offer the same experience as “true weed,” though they are typically lower dose. Now that the cannabis beverage market is active and growing in Minnesota, those same state legislators have been challenged to find a way to regulate the space without stunting the growth of the small businesses that have supported its development thus far, all while ensuring that the products making it to market are safe and reliable.

“The state’s gonna want to make some money off this, they’re gonna want to be able to tax it, [but] they’re also going to want to be able to regulate it to make sure that consumers are getting safe products,” said Eberlien. “I don’t think at the end of the day they’re going to want to hurt the existing businesses that have made this what it is.”

The Bud Beverage Boom Begins

The North Star State’s new market sprang up virtually overnight, as businesses with food and beverage manufacturing capabilities almost instantly began selling infused products. Approximately one quarter of Minnesota’s 180 craft breweries are currently producing or are interested in producing THC beverages, according to a report from the state’s Craft Brewery Guild.

“We found out about [the new provision] basically the same way everybody else did – a news article,” explained Jason Dayton, co-founder of The Minneapolis Cider Company. He said the team began crafting a delta-9 THC beverage brand right after the news broke, and before even deciding on a name, handed off instructions to its design partner to start creating a brand that embodied the question: “What if REI made a beer?”

Dayton’s team then dove into its cooler, which happened to be stocked with strawberries, blueberries and basil that week, shifted the position of its planned Hop Water innovation to become THC-infused, and created Trail Magic – a hemp-derived delta-9 THC beverage with two SKUs. Trail Magic launched last July with Hop Water and Berry Basil as its inaugural flavors, thus becoming the first legal THC-infused beverage to be sold in the state.

Since Trail Magic’s launch, craft brewers, beverage manufacturers and food makers have followed suit with a broad swath of hemp-derived delta-9 THC products. In late December, craft brewing co-op Fair State activated a new business venture, named after its THC beverage product Chill State, and began co-packing for other delta-9 THC beverage brands operating within state lines.

“What has made this so valuable for us and so many other brewers throughout the state is, we’re still recovering from the pandemic,” said Evan Sallee, co-founder and CEO of Fair State. “It’s really, really challenging out there. It’s hard to find growth. It’s hard to find profitability with supply chain constraints and everything else going on in the economy right now. Being able to have as many tools in our toolkit to meet the market where it is at and get more volume out of our equipment has been an important tool.”

Chill State’s model will also help develop the cannabis beverage market broadly, Eberlien believes, stating that co-packing options for THC products are still extremely limited and present one of the largest barriers to the market’s growth. The legalization of delta-9 THC products has also given Minnesota hemp farmers another way to diversify their businesses.

For example, Dayton explained that many Minnesota hemp farmers that grow the crop for CBD products had been retaining the raw inputs for THC, and were able to quickly begin manufacturing water soluble delta-9 THC when the provision passed. Trail Magic uses Minnesota grown and processed THC in all of its beverages.

But with all of this growth, oversight must come as well. Legislators are working against the clock to pass a bill that legalizes adult-use cannabis and provides a regulatory framework for the products already available, without destroying the economic opportunity it created.

Cutting Through The Haze

The work toward legalization of all adult-use, recreational cannabis products began almost as soon as the provision passed in June. Since Minnesota had an extremely restricted medical cannabis market – with only six dispensaries, operated by two corporations, within state lines – the traditional route of leaning on medical-only dispensaries to open up the adult-use market was completely tossed aside, with the rapid emergence of the market making it even more complex to regulate. According to Eberlien, those working on cannabis regulation in Minnesota are still unsure “if we can put the toothpaste back in the tube.”

Parrington said he has told clients operating in the state’s cannabis space that they can do virtually whatever they want when creating these types of products since there is no official regulatory body, but he advises them to plan to operate in a highly restricted environment soon. He said many are “overly cautious” and follow best practices from other established markets. However, the distribution aspect, and lack of regulatory authority, leads into a gray zone when it comes to selling products both now and in the future.

In the state of Minnesota, beer and wine sales are restricted to the liquor store channel and in certain counties, alcohol is only sold through municipality-run outlets. However, at the time of publication, hemp-derived delta-9 THC edibles and beverages are legally being sold at retail outlets ranging from grocery and convenience stores to farmers markets.

Legislators have yet to determine the appropriate channels for cannabis drinks though, if recreational cannabis use is legalized, many will likely be relegated to privately-run dispensaries, a less-than-ideal venue for driving broad acceptance.

“What’s so exciting is all these people who are cannabis curious are able to find these products in an approachable place and figure out whether it’s for them or not,” said Sallee. “My 90-year-old grandmother has grown to enjoy some of these and I don’t know if that would have happened if they weren’t broadly available, but it’s certainly helped improve her life. There’s just a lot of opportunity for us to figure out how to build these into our communities in a healthy way.”

THC beverages are also available on-premise. Eberlien believes that consumption at bars and taprooms, alongside alcoholic beverages, is a great “case study for the cannabis space.” Eberlien, Sallees and Dayton all believe that having low-dose products available tangentially to alcohol will help mainstream the cannabis beverage market broadly, particularly in “drinking states” like Minnesota.

Parrington believes that while the channel might be good for business, regulatory enforcement of on-premise consumption is going to be a major challenge. He believes the final bill will continue to allow THC beverage sales on-premise, but in its current version, mandates that these products cannot be consumed within four hours of an alcoholic beverage. That places an unreasonable burden on bar owners who have no clear method of enforcement, especially for consumers who may be bar hopping or simply want to switch over to a THC drink toward the end of their evening, Parrington said.

The law also currently states that a consumer needs to be 21 or older to purchase a THC drink, but it does not specify a minimum age for possession. He believes this could lead to widespread, illicit consumption of THC products by minors who are able to find an adult purchaser.

“Not only do you have a law in place that has no regulation really built into it, but you don’t have anybody that wants to regulate it,” added Parrington. He said that Minnesota’s Department of Agriculture, Department of Health and Board of Pharmacy have also said cannabis does not fall into their jurisdiction. “The longer it goes on, the more difficult it becomes to bring it back and that’s what we’re seeing with the legislation right now.”

Revisions to the bill are ongoing. As of mid-March, the current version had just been amended to allow hemp-derived THC businesses to be licensed separately from marijuana companies, a controversial provision in the original bill that would have deemed many of the craft brewers operating in the space federally-illegal businesses. A provision that requires producers to use separate equipment for THC beverages has also been removed.

The Case for Common Cannabis Could Spill Into New and Existing Markets

The widespread availability of cannabis beverages could generate significant growth for the category, even more than in more mature weed markets. In 2022, beverage sales only accounted for 6.5% of the total regulated cannabis market nationwide, according to data from cannabis market research firm BDSA. If low-dose drinkable products remain widely available to everyday consumers, Eberlien, Dayton, Sallee and Parrington believe the industry will be better positioned to drive new consumers to cannabis.

“We’ve got a consumer base here [in Minnesota] that would definitely not see flower succeed,” Parrington said. “The edible industry and the beverage industry will absolutely thrive here…I used to jokingly tell people that the Northern California flower market today is where the rest of the country’s craft beer market is now, [but now], I think in all these less cannabis-friendly states, we’re going to see the beverage market just explode.”

However, Parrington argues that no state should follow in Minnesota’s footsteps toward cannabis legalization. He said this approach put the state at a “bad starting point” and while it has allowed legislators to force an adult-use cannabis bill onto the agenda, they now have to write legislation with many “nuances and twists” that he believes will always be difficult to navigate.

With the growing push for federal cannabis legalization, the CBA, Parrington and others are working to develop what it calls “template regulations,” intended to help guide states to set up appropriate frameworks and open up recreational cannabis-use in stages, based on learnings from other markets as well as what has, and hasn’t, worked in Minnesota.

Delta-9 THC beverages have already become a focal point for growth for marijuana companies looking to build brand equity in regions where cannabis is still not legal for recreational use. Drippy recently launched in California but intends to launch a hemp-derived THC beverage in Texas where the unregulated market presents an even larger growth opportunity. Brands like Cann, Happi and Cantrip have executed similar strategies as well, Eberlien explained.

“I think what would make a really great bill is one that recognizes that low-dose hemp products should be really broadly available, while also providing a solid path and route to market for traditional marijuana and take some of the steps that we need to take to build a more just legal system around cannabis,” Dayton stated.

From a national perspective, the Northeast is on track to become a top regional player in the cannabis industry: the majority of states already have established adult-use channels or are in the process of doing so. However, brands operating in the region often have slower routes to market, restricted growth and are siloed to the dispensary channel due to the strict regulatory environment.

“I feel like in 20 years, we’re all gonna look back and go ‘remember when Minnesota did that,” said Eberlien. “No one would have ever guessed that market and the way it rolled [cannabis products] out, but it has been surprisingly delightful. This is exactly what the cannabis space has always said it would look like and seeing it happening in a relatively unregulated space and working well – it’s just a great case study.”