A New Publicly Funded Cannabis Facility is Raising Concerns in MN Recreational Market

A New Publicly Funded Cannabis Facility is Raising Concerns in MN Recreational Market

The project is drawing heavy criticism from industry stakeholders who view the state's decision as a betrayal of the social equity and small business commitments promised under the initial bill.

The ink is barely dry on the new law legalizing adult-use cannabis in Minnesota, and the program is already off to a less-than-stellar start. One day after being chosen by Governor Tim Walz (D) to run the regulatory agency in charge of establishing rules and regulations for Minnesota's legal marijuana market, the newly appointed director of the state's Office of Cannabis Management (OCM) abruptly resigned amid allegations of selling products that exceed state limits on THC potency and other dubious business dealings.


And now, according to the Minnesota Star Tribune, a new Missouri-based cannabis company led by cannabis entrepreneur Jack Mitchell and business partner John Hyduke on the Iron Range in northeastern Minnesota is being awarded millions in publicly-funded loans to convert a run-down timber mill into a state-of-the-art $67 million marijuana cultivation and manufacturing plant that will eventually employ over 400 people in Grand Rapids, MN.


On Tuesday, the Iron Range Resources and Rehabilitation Board (IRRRB) awarded the HWY35 LLC project a $10 million loan from the Iron Range Resources and Rehabilitation agency, another $10 million loan from the Minnesota Department of Employment and Economic Development fund, which the IRRRB directs, and $2 million in tax increment financing from the City of Grand Rapids.


The board, made up of lawmakers from both sides of the aisle, voted five to three to approve the proposed loan package. The IRRRB primarily focuses on economic development for Northern Minnesota and receives most of its funding from mining taxes.


"We will revitalize the 138-acre former Ainsworth site into a high-tech, state-of-the-art, cannabis cultivation and manufacturing facility that our communities will be proud of and that will serve as an industry leader for the state of Minnesota," Hyduke said.


"We will revitalize the 138-acre former Ainsworth site into a high-tech, state-of-the-art, cannabis cultivation and manufacturing facility that our communities will be proud of and that will serve as an industry leader for the state of Minnesota."

- John Hyduke, HWY35 LLC project


The decision was celebrated by some board members and area leaders, who believe the cannabis industry could provide a much-needed financial boost to the region.


"It's a huge project for our region. We have worked a long time to see that site put back to use and to create jobs and tax base for the community. We're thrilled about it," said Rob Mattei, director of community development for Grand Rapids, in an interview Tuesday.


"It's a huge project for our region. We have worked a long time to see that site put back to use and to create jobs and tax base for the community. We're thrilled about it."

- Rob Mattei, Director of Community Development for Grand Rapids, MN


However, other leaders and industry advocates expressed concerns over awarding such a large amount of public funds to a massive multi-state operator like the one run by Mitchell and Hyduke.


One of those voices of dissent belongs to Sen. Justin Eichorn, R-Grand Rapids, who voted against providing public funds to the company. According to Eichorn, the approval of this type and level of funding is too soon, especially since the Office of Cannabis Management, which is responsible for overseeing and providing regulatory guidance for the industry, does not have a director or a full staff to authorize the issuance of business licenses yet.


"We have a responsibility to the taxpayers of the taconite relief area in the Iron Range to spend those dollars prudently, and in this case, I didn't think we were being prudent," Eichorn said in an interview.


"We have a responsibility to the taxpayers of the taconite relief area in the Iron Range to spend those dollars prudently, and in this case, I didn't think we were being prudent."

- MN State Sen. Justin Eichorn, R-Grand Rapids


Other critics of the plan cite legitimate concerns regarding a loan of this magnitude going to a business that has already secured millions in private capital fundraising for the project.


Leili Fatehi, partner and principal at Blunt Strategies who worked on the legislation at the capitol, contends that the cannabis reform legislation intended to create a "craft" cannabis market comprised predominantly of small to medium-sized businesses, not large multi-state operators.


"It's very concerning that one operator—a large out-of-state operator—that's going to have a head start in terms of capital and getting this facility established even before rulemaking has been done or the application process for licensing has even been opened," Fatehi said.


"It's very concerning that one operator—a large out-of-state operator—that's going to have a head start in terms of capital and getting this facility established even before rulemaking has been done or the application process for licensing has even been opened."

- Leili Fatehi, Partner and Principal at Blunt Strategies


Still reeling from the OCM director debacle, Gov. Tim Walz tried to perform damage control concerning the poor optics generated by the IRRRB's decision. At a press conference on Wednesday, Walz admitted that questions about the investment project were legitimate and said his office was pursuing more information about the details behind the decision to approve the financing.


"This is the age-old question: is this government picking winners and losers? That's always a fair question to ask. Is it the appropriate thing to do this? We have determined in Minnesota, with the IRRRB's nature, that we are going to give some preferential treatment to the Iron Range because of unique situations on that. I don't know yet exactly how that was. But I think the question is fair," Walz told reporters.


For many of the small business owners who worked tirelessly to push the legalization measure through the state assembly and onto Gov. Walz's desk for approval this past Spring and Summer, the Iron Range decision is the exact outcome they feared when they lobbied lawmakers to pass a fair and social equity-minded bill and not one that would show favoritism to powerful corporate interests.


That is now strike two for the barely 3-month-old legal marijuana industry in Minnesota. It may be time for activists, stakeholders and lawmakers to reconvene and push the reset button on the whole program before too many more missteps sideline and potentially derail the state's still fragile cannabis train.