Minnesota could become the first state in nine years to open cannabis dispensaries that are run by cities and counties.

That’s because of one line in the state’s new cannabis laws that allow for cities and counties to “establish, own and operate a municipal cannabis store.” The law appears to be the first of its kind in the country and has prompted cities to research whether they want to open their own dispensaries.

But there’s only one city that’s been successful with running a cannabis store. The City of North Bonneville in Washington was the first city in the country to open a municipal cannabis dispensary back in 2015, but was no longer operating it as of 2021.

Municipal cannabis stores are of particular interest to local governments in Minnesota that don’t already operate their own liquor stores. In cities like Edina and Isanti, liquor stores serve as a revenue stream that helps reduce taxes for residents and businesses. 

Because of conflicts with federal law, other states have shied away from adopting the state-owned liquor store model for cannabis retailers.

“The idea has been floated and rejected in various states, such as New Mexico and New Hampshire. Lawmakers have done so because cannabis remains illegal (Schedule I) under federal law and they do not wish to enact policies that place state-employees in a position where they are engaging in activity that is in positive conflict with federal law,” said Paul Armentano, deputy director of NORML, a national cannabis advocacy group.

According to state Rep. Zack Stephenson, DFL-Coon Rapids, who helped author the legislation that legalized recreational cannabis last year, the idea of municipal cannabis stores came directly from cities and counties in Minnesota.

“When we were putting the bill together, we weren’t copy-pasting from other states. We were trying to come up with a Minnesota-specific model. And one of the things that works well for many communities across Minnesota is municipal liquor stores. They are important to a lot of cities all across the state. And building from that successful model, there were cities that had some potential interest in taking the same approach with cannabis that they take with liquor. And we wanted to enable them to do that, if they chose to do it and if it was workable,” said Stephenson.

Government officials in the City of Osseo, the City of St. Joseph and Cook County have been weighing the pros and cons of operating a cannabis retail store, despite the fact that Minnesota’s Office of Cannabis Management won’t come out with official cannabis regulations until early 2025.

The Office’s rules will dictate what municipal cannabis dispensaries could look like. But the Office is still in the process of drafting those rules, and most municipalities are still in the early stages of discussion on cannabis dispensaries.

Country’s first government-run dispensary struggled to break even

North Bonneville Mayor Brian Sabo said when the idea of a government-run marijuana store came forward, before he was mayor, marijuana stores were still an uncharted concept in Washington after the state legalized recreational cannabis use and sales in 2012.

Soon after, the city formed a public development authority for the purpose of opening a cannabis retail store. The plan was to use the profits to pour back into North Bonneville, like upgrading street lights and rebuilding a central park playground.

An “aggressive business plan” was put forward outlining the customer base needed to support the store would come from other areas throughout the Northwest, according to Sabo.

“On paper, the plan appeared to be a good one but critics were warning it was far too aggressive given how far out and secluded North Bonneville is within the Gorge, and the number of retail stores that were planned to be opened throughout Washington State,” Sabo said.

The store, known as the Cannabis Corner, opened in 2015 and was widely reported as the first municipal marijuana store in the U.S. Sabo said it did fairly well the first couple years, but as more retail stores opened in the state and in Oregon, business drastically fell off.

By 2018, the dispensary was struggling to break even.

“A request by the PDA was granted to move the store and license to a larger market of Stevenson, Washington, the next city 10 miles east of North Bonneville. Although the store did better in the larger market, sales never exceeded break-even status, negating the promise of a financial windfall for the city,” said Sabo.

In 2021, their city council decided the business was more of a liability than an asset. They dissolved the public development authority and sold the store.

Government officials and cannabis experts from multiple states were not aware of any other government-run dispensaries in the U.S., meaning Minnesota appears to be poised to be the second try after North Bonneville failed.

Minnesota cities say revenue from a cannabis dispensary could help reduce property taxes, offset budget increases

The Minnesota cities of Osseo and St. Joseph, along with Cook County, are a few municipalities that don’t operate a liquor store and are exploring the idea of a cannabis store.

The biggest draw for them is the potential revenue a dispensary would bring in.

“It really comes down to dollars and cents. In the time when the costs of providing the high-quality city services to our residents and business owners only continues to go up each and every year, we are looking for any potential revenue stream that can help offset our budget increases,” said Riley Grams, Osseo city administrator.

The sales tax on cannabis product sales in Minnesota is 10 percent, in addition to state and local taxes. Local governments are barred from imposing their own tax on cannabis.

In Cook County, commissioners are divided on the idea. County administrator James Joerke said Cook County currently doesn’t have any enterprise funds or operate any utilities. 

“There are some who see this as an opportunity to generate revenue that can be used to offset property taxes. There are others who I think have concerns about playing a role even selling a product that could have harmful effects to residents. And there’s also some sentiment that this is really something that the private sector should handle,” said Joerke.

Similar discussions are happening in the City of St. Joseph. Mayor Rick Schultz said 30 percent of the city’s land is exempt from property taxes and the income from a dispensary could help relieve some of the tax burden for residents and businesses.

Both Osseo and Cook County have formed committees to look more closely into what it would take to run a cannabis store. Cook County is partnering with the City of Grand Marais for the committee, while St. Joseph has had only a few conversations about the topic.

Now, all that’s left to do is to wait for the state’s Cannabis Office to come up with official rulemaking. The Office has until this summer to draft rules and plans to adopt them by early 2025, when licensing applications are also planned to open.

While St. Joseph and Cook County are still in the early stages of exploring a cannabis store, Osseo wants to be ready to submit as soon as the application window for licensing opens.

“We didn’t want to be reactionary. We wanted to get out ahead of the game and be ready as or as ready as we possibly could be once the final rules and regulations were implemented and approved by the state legislature,” said Gram.

Between the summer and early 2025, the rules are subject to change. Depending on those changes, it could elongate the timeline the Office has in mind for opening cannabis sales.

“Realistically, even if we were able to offer full licenses in early 2025, the process of obtaining a license and actually opening your doors is a lengthy one. And so I think that 2025 is always the goal, but OCM is very focused on making those license applications available,” said Charlene Briner, Minnesota’s interim cannabis director.

The timeline could also be impacted by the Minnesota Legislature, which is expected to make some tweaks in cannabis laws this session, with the goal of streamlining the rollout of cannabis dispensaries.

Cities will have to work through federal law, banking, public safety concerns

There are still a few challenges ahead for Cook County and the cities of St. Joseph and Osseo. 

Cook County has already heard some pushback from private businesses who don’t want to compete with a county-operated cannabis store. Others in St. Joseph are worried about how a municipal cannabis operation will impact public safety.

“If it’s a privately owned dispensary, then is it subject to a different crowd than if it’s city-owned? Also if you open one, what kind of consumers are coming into your city?,” said Schultz.

Kyle Hartnett is an assistant research manager at League of Minnesota Cities, a membership association representing over 800 cities in Minnesota, and has been fielding questions from cities about municipal cannabis stores. He said public health is a concern.

“This is kind of like municipal liquor in that if we control it, we can have better controls and as to how the operations are being run because we’re making sure it’s not going into the hands of minors, that kind of thing. Ultimately, that’s a policy decision for each city council to make both on the revenue side and then the public health side of it,” said Hartnett.

The other, more obvious obstacle is that cannabis is illegal at the federal level. That means there is the risk that banks won’t accept cannabis funds since it’s technically illegal by federal law.

“There’s still so many logistical issues with the fact that it is still illegal at the federal level and because of that, it is a cash business. You cannot use credit cards to take payment and so that presents a huge challenge and frankly a huge risk if you’re running a cash-only business and so there are so many issues that need to be investigated before the county board could feel comfortable making a decision about whether to move forward,” Joerke said.

In the case of the Washington city of North Bonneville, Mayor Sabo said it was difficult to find a bank that would process funds for their dispensary but they were eventually able to find a private company to use for banking services.

Initially, only 30 percent of residents in North Bonneville supported the idea of their cannabis store.

“Most were worried about the feds descending in on North Bonneville and shutting the place down, blackening the eye of the city’s reputation. Fortunately, there was never any federal intervention,” said Sabo.