Minnesota's THC Beverage Boom: A Case Study in Cannabis Innovation
Weed drinks are everywhere in Minnesota, other states are now embracing them.
The state’s market for THC drinks has exploded into a nearly $200 million industry over the last two years.
Call it the Minnesota Weed Miracle.
State lawmakers — some with no clue what they were doing — voted with little fanfare two years ago to partially legalize cannabis. Many had missed a provision, tucked into a massive health care policy bill, permitting the sale of low-potency, hemp-derived beverages.
The move seemed innocuous, given the narrow scope. But the result has stunned the legal weed industry, with the law leading to an explosion in the market for THC beverages unlike anything seen across the country. Practically every liquor store in Minnesota now devotes shelf space to intoxicating cannabis drinks. Struggling craft breweries have embraced the opportunity to create new product lines infused with pot. Even high-end restaurants, hair salons and this city’s iconic rock club — First Avenue — are selling weed drinks powerful enough to get most people stoned.
“I can’t tell you the number of brewery owners who have told me, ‘But for this product, we would have gone out of business,’” said Democratic state Rep. Zack Stephenson, a leading voice on cannabis policy discussions, noting that many breweries were reeling financially from the pandemic. “The timing was serendipitous. The product became available just at the time that it was needed.”
Weed beverages have become, according to one industry estimate, a nearly $200 million endeavor in Minnesota. There are about 4,000 licensed retailers.
And other states are beginning to follow. The hemp-derived cannabis beverage market is gaining a toehold across the country, particularly in states where marijuana remains illegal for non-medical consumers.
Cannabis advocates have long touted the potential for intoxicating drinks to reach a new swath of consumers. The pitch has been enticing: No beer bellies, no hangovers, no smoking. But the market never took off, at least until now.
That’s in large part because the legal cannabis market has been dominated by high-potency products geared toward high-volume consumers. That scared people who might otherwise test the weed waters but worried about over-indulging. With nothing else to compete with, cannabis drinks found widespread acceptance in Minnesota.
“That hypothesis is now validated,” said David Gonzalez, head of growth at Hemp House, a South Minneapolis retailer that carries more than 200 cannabis beverage products. “There’s a very healthy segment of people who say, ‘I don’t need to be completely cross-eyed every single night. I just need something to take the edge off.’”
Despite the success, the future of Minnesota’s weed beverage market is also hazy. The state is establishing a comprehensive adult-use market where consumers 21 and older will be able to purchase a full range of intoxicating cannabis products, with sales expected to launch next year.
The big question now: How much will that cannibalize the hemp beverage market?
Fixing the flaws
Minnesota lawmakers may have stumbled into legalizing intoxicating cannabis beverages, but in the ensuing two years they’ve put public health guardrails around the program and allowed the fledgling market to grow.
Arguably the most important step was creating a registration requirement so that there’s some transparency around who’s producing and selling the products. In addition, they’ve added testing and labeling requirements, taxes and adjusted the potency limits.
Originally, beverages and edibles were limited to 5 milligrams of THC — the primary intoxicating compound in cannabis — per serving and 50 milligrams per package. That’s been tweaked so that any single can or bottle cannot contain more than two servings — or 10 milligrams of THC.
This year, lawmakers made more adjustments designed to facilitate consumption in bars, restaurants and other licensed venues. They scrapped a law slated to take effect this month that would have prohibited selling someone an alcoholic beverage and a THC drink within five hours of each other, and legalized cannabis beverages on tap.
“It has been a priority of mine and my colleagues in the Legislature to do things to try and give it space to continue to grow,” Stephenson said. “We are cognizant of the fact that we are leaders in this space.”
Bob Galligan, director of government and industry relations for the Minnesota Craft Brewers Guild, said the brewing industry found itself in the unusual position of advocating for regulations and taxes to be implemented in order to limit the risks of entering the fledgling market.
“A lot of our members were very hesitant because it was such a wild west,” Galligan recalled. “What if we screw this up?”
Modist Brewing, which sits in the shadow of the Minnesota Twins stadium in Minneapolis’ Warehouse District, was among the first entrants into the nascent market for THC drinks. They now produce 5 mg and 10 mg cans, and they’re being sold across the state in most locations that sell the company’s beers.
“At some point, there will be an archaeological record of craft brewing in Minnesota,” said Andy Herzog, Modist’s director of cannabis business development. “Who adapted and jumped on and made the most of a really fortuitous thing that happened overnight and without a lot of us knowing.”
Many liquor stores were initially hesitant to sell the drinks. But now even some major national retailers — most notably Total Wine & More — have embraced THC beverages.
Jon Halper, the owner of Top 10 Liquors, which has 15 outlets around the Twin Cities, said cannabis drinks make up roughly 10 percent of sales and he would like to see that grow to 20 percent. Halper pointed to the widespread use of diet drugs like Ozempic curbing alcohol consumption as a reason that liquor stores need to diversify.
At the company’s Blaine store, he noted during an interview at the company’s Minneapolis headquarters, they sold more than 200 types of THC products in the prior 30 days. Top 10 is even looking into producing its own beverages — something it’s barred from doing as a retailer in the alcohol industry.
“Take Walmart or Target — if they introduced a new category and within a year it was 10 percent of their sales, it would be Earth shattering,” Halper said.
Minnesota’s relatively low potency caps have made THC drinks more enticing to people who might otherwise be reluctant to explore cannabis products. Hemp House’s Gonzalez recalls receiving a delivery order for more than $2,000 at a single address, far more than the typical transaction. Fearing that it might be some kind of a scam, he decided to tag along on the delivery.
The destination — a retirement home. An elderly resident explained she was a big fan of THC beverages and gummies, particularly for helping her sleep at night, and wanted to introduce her friends at the retirement home to the products.
“It just kind of shifted what I had assumed was our target market in my head,” Gonzalez said. “There is this whole subset of people who get value from these products, because they would never step foot in a recreational dispensary. They would never smoke weed. It stinks. You can’t light up [in] a retirement home.”
Emulating the Minnesota model
Cannabis beverage advocates are hoping to seize on the growth in Minnesota to develop robust markets across the country. They’re already seeing considerable success in Louisiana, Tennessee, Texas and Florida, where gray-market THC products derived from hemp — as opposed to marijuana — are all that’s legally available to most adults.
Eric Becker, who started Louie Louie beverage company with a partner in New Orleans in 2022, said their seltzers are on the shelves of the state’s largest grocery chain, as well as in many bars and restaurants.
“Minnesota was the proving ground,” Becker said. “Both in Louisiana and nationally, it’s definitely accelerated faster than we would’ve thought.”
But there’s also been blowback from policymakers in Louisiana and many other states about how the markets developed. The 2018 farm bill legalized hemp at the federal level, defined as cannabis with less than 0.3 percent of the traditional form of THC. At the time, it was touted as a boon for struggling farmers and for its potential to galvanize markets for industrial applications like textiles and hempcrete.
But manufacturers have found ways to create intoxicating products from federally legal hemp, in some cases by using a different form of THC. That market has exploded — leaving many lawmakers at both the state and federal level feeling like they were hoodwinked.
That’s led them to propose banning the products — or at least putting much tougher regulatory guardrails around them. In Louisiana, the fight over how to address intoxicating hemp products continued until the final hours of this year’s legislative session. Ultimately, lawmakers stepped back from an outright ban on most products and instead tightened potency caps, banned gas stations from selling the products and put a moratorium on new bars and restaurants being permitted to sell them.
Similar dynamics have played out across the country, often pitting the hemp industry against their former allies operating in highly regulated state-legal marijuana markets, who feel they’re facing unfair competition. Hemp industry advocates have succeeded in significantly watering down or outright thwarting legislation in Mississippi, Illinois, Iowa, Florida and elsewhere. Big battles over intoxicating hemp products still loom in California, Texas and on Capitol Hill.
Cannabis beverage industry leaders say they welcome regulations and taxes that will create markets where consumers can buy safe products and kids can’t purchase them.
“We just need the door cracked open for us to prove that we can play by these rules,” said Diana Eberlein, chair of the Cannabis Beverage Association, in an interview at Minneapolis Cider Company’s taproom, which offers a full line of THC beverages under the Trail Magic brand. “Bans don’t solve the problem. People will find a way to get these products.”
In Minnesota, the industry faces a different risk: the looming advent of a full-scale recreational weed market, with the first adult-use dispensaries expected to open next year. By 2029, the market is projected to reach $1.5 billion in sales and serve more than 700,000 customers, according to an analysis by cannabis law firm Vicente.
But most close watchers of Minnesota’s weed beverage experiment believe there will still be a market for low-potency, quality products that can be purchased at bars, restaurants or liquor stores.
“Anyone that says they have figured it out is lying to you,” said Ryan Bandy, chief business officer at Indeed Brewing Company in Minneapolis, which sells THC seltzers and gummies. “There’s no market like ours in the states — or really in the world — as far as drinks are concerned.”
