Why a National Cannabis Company Took Interest in Minnesota
From an outsider’s perspective, Minnesota’s medical cannabis market probably doesn’t seem like the most promising business opportunity. Today, the state’s medical cannabis program serves just shy of 30,000 patients, a small fraction of the 5.7 million people living here.
Compare that to a place like Oklahoma, which legalized medical marijuana just three years ago and already has hundreds of thousands of residents enrolled in its program. Though Minnesota’s medical cannabis program has been in place since 2015, it’s much more restrictive than programs in other states, even historically red states like Oklahoma and North Dakota.
Why, then, would a national cannabis operator even want to do business in Minnesota? At the tail end of 2021, Chicago-based Green Thumb Industries Inc. announced that it acquired Cottage Grove-based LeafLine Industries, one of just two licensed cannabis operators in Minnesota. In a news release, Green Thumb CEO Ben Kovler said he hoped to “broaden access to cannabis products for Minnesota patients.”
Green Thumb, which operates 73 retail locations in 15 states, also hopes to grow the number of patients enrolled in Minnesota’s program.
Observers see the acquisition as part of a broader trend in the industry. As the country’s patchwork cannabis industry continues to evolve, cannabis companies have been transforming into multi-state operators in the hopes of capitalizing on both medical and recreational markets. As an example, consider the remaining Minnesota-based cannabis cultivator: Goodness Growth Holdings, formerly Vireo Health. Though it’s based in Minneapolis and operates several medical dispensaries in Minnesota, Goodness Growth has since opened recreational stores in Maryland and New Mexico.
“This [acquisition] follows a national pattern,” said Jason Tarasek, a cannabis attorney with Minnesota Cannabis Law. “Green Thumb is a multi-state operator who has economies of scale and historical knowledge of how this game works in other places. … The businesses succeeding in this industry have a multi-state presence.”
To date, 38 states have legalized medical cannabis, and 19 have authorized adult use recreational cannabis.
Though Minnesota’s program is small, Green Thumb is evidently betting that it will one day grow. As the state loosens restrictions, the company may soon find itself in a prime position to capitalize on new customers. Minnesota has already added to the list of qualifying conditions over the years, and, in 2021, the state allowed dispensaries to sell smokable forms of the plant – a move that both operators said would drive down costs and bring more patients into the program. At the time, Goodness Growth CEO Dr. Kyle Kingsley said that both companies were operating at a loss, largely due to the limited number of patients enrolled in Minnesota’s program.
“One of the benefits of being in Minnesota, despite the smallness of the market size, is that there isn’t a lot of competition,” said Chris Walsh, CEO at national cannabis industry publication MJ Biz. “If you’re in that market and things do loosen up, you’re going to be sitting pretty. Any company interested in a market like Minnesota is likely looking at the long-term play.”
Walsh noted that there’s a lot of attention on big markets on the East Coast, like New York and New Jersey, which both recently legalized recreational cannabis. “But there are also companies looking for plays in markets that seem off the radar, like Minnesota,” he said.
To be sure, there’s money to be made in the medical market alone, depending on a state’s restrictions. Thanks to lax regulations, Oklahoma, for instance, is now home to the largest number of cannabis farmers in the nation, despite its small population. “In terms of sales, Oklahoma is one of the largest medical cannabis states in the country,” Walsh said. “It’s kind of mind-boggling.”
Where Oklahoma’s program is perhaps the loosest in the nation, Minnesota’s is on the other end of the spectrum. Still, Walsh and other observers see recreational as a foregone conclusion, eventually. “Any state that has legalized medical is poised to legalize recreational one day,” Walsh said. “Lawmakers can change their mind and embrace cannabis very quickly.”
Green Thumb leaders are apparently hopeful that day comes soon. “Once Minnesota legalizes adult-use marijuana, these companies can be grandfathered in as vertically integrated providers,” said Tarasek, referring to companies that grow marijuana, process it, and sell it in a retail setting. “That’s how you make the money in this space: Dominating in all three areas.”