Some Minnesota hemp growers see new marijuana law as a threat to their industry

Matthew Stolle, Post-Bulletin, Rochester, Minn.
·5 min read
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Jul. 22—ZUMBROTA, Minn. — Do not count Ted Galaty of Zumbrota a fan of Minnesota's new marijuana law.

On Aug. 1, a red-letter day for marijuana advocates will arrive. Adults will be able

legally to smoke weed under a new law

that is expected to ignite a new home-grown marijuana industry in Minnesota. Users can now possess and publicly transport 2 ounces of cannabis flower and keep up to 2 pounds at home.

Given the near-similarity between the plants, it might be assumed that hemp growers and cannabis advocates would be full blown natural allies. But that's not true. The marijuana legislation ended up dividing and fracturing those in the hemp industry.

Galaty, owner of 10-acre hemp farms in Zumbrota and Hagerstown, Wisconsin, said he was never opposed to the legalization of recreational marijuana. "More access to the cannabis plant" was something he wanted.

But the ensuing law and its language? That was another matter.

What he came to oppose were the burdens the legislation imposed on the state's hemp industry — burdens that prompted him to purse hemp opportunities out of state.

Galaty testified before legislative committees more than a dozen times during the last session, urging lawmakers to rid the proposal of its many references to hemp. Lawmakers ended up turning a deaf ear to those and other pleas.

As of July 1, 2023, a 17.38% sales tax was added to CBD and THC derived from hemp. He said all of his CBD products are now taxed at the same rate as marijuana, the only state in the country to do that. And starting Jan. 1, 2024, hemp retailers will have to pay a $250 application fee and $500 annual licensing fee to sell those same products.

"Why are my customers paying to start the legal recreational marijuana program, which is the Office of Cannabis Management? They shouldn't have to do that," Galaty said. "This is bad for hemp growers and hemp processors and hemp retailers. You think a 17.375(%) tax is going to hurt my business? You better believe it will."

The 300-page law that sets up a new state Office of Cannabis Management, as well as taxes and regulates weed, mentions hemp no fewer than 1,200 times, Galaty said.

But advocates of the new law argued that bringing regulatory order to hemp under a law that legalizes recreational pot was necessary.

"The bill mostly does what (hemp producers) want it to do," Ryan Winkler, chair of Minnesota is Ready and former House leader, who authored an earlier version of the marijuana bill, told WCCO News last April. "But nobody is going to get everything, and maybe they're having a hard time accepting the fact that the Wild West won't continue forever in Minnesota."

Hemp plants and marijuana plants come from the same species. Legally, hemp is defined as a cannabis plant that contains 0.3% or less THC, the psychoactive component that produces a "high" in people. By comparison, marijuana is a cannabis plant that contains more than 0.3% THC. CBD can be derived from both hemp and marijuana plants.

David Ladd, president of the Minnesota Industrial Hemp Association, a hemp advocacy organization, said his group took a neutral stance on the legalization of weed. But he worries about the uncertainties created by the new law and its potential to stifle innovation and opportunity in the industry.

"Do we believe in guard rails and putting some framework around that? Yes. But we had some concerns about lumping them all together. And those concerns in a lot of ways persist," Ladd said.

Galaty, owner of Willow's Keep Farm and operator of Hemp Maze Minnesota, began growing hemp in 2018 under a pilot project supported by the Minnesota Department of Agriculture for research and education purposes. When then-President Donald Trump signed the

Farm Bill in December 2018,

it allowed industrial hemp to be grown across the country.

Galaty said he isn't an anti-government type, but he is opposed to big government. And he thinks the new law will create a sprawling regulatory structure that will be hard to support over time. It pumps millions into police departments, into educational efforts to warn young people about marijuana's dangers and into a new Office of Cannabis Management with a commissioner.

But the experience of many states that legalize marijuana should be a cautionary tale for Minnesota. Legalized pot often creates a gusher of tax revenue in the first year or so, but then the stampede of new outlets causes prices — and tax revenue — to plunge.

"You're going to create and generate a lot of tax revenue to be able to support this growth in big government," Galaty said. "If you look at other states, cannabis ends up doing real well in the first year or so. And then it tanks and the prices fall out. If all of sudden, if the same level of taxes aren't being generated by recreational marijuana, who pays for the growth in government?"

Galaty said Minnesota's marijuana law was a major factor behind his decision to start a hemp farm in Wisconsin last year. Neither medical marijuana nor recreational pot are legal in the Badger State. It's a "hemp state" that operates under the Farm Bill.

"I'm here to educate and inform the public about industrial hemp and what it can do and its thousands of uses," Galaty said. "And so I said, 'I'm going to have another business outside of the state, because if they start messing with everything, I need to protect my interest.'"