Analysis: What marijuana regulators could learn from Minnesota’s municipal liquor stores

By: - December 20, 2022 7:52 am

A woman holds a beer coozy reading ‘Tim Walz makes me want to drink’ as Minnesota gubernatorial candidate Scott Jensen speaks to supporters at a rally at an Apple Valley Cowboy Jack’s Wednesday, May 4, 2022. Photo by Nicole Neri/Minnesota Reformer.

Last week the State Auditor’s office released its annual report on the finances of Minnesota’s 212 municipal liquor operations. The local government-run establishments, which include both bars and liquor stores, made $37 million in profits in 2021 on a record $424 million in sales. Close to two-thirds of those profits — $23.1 million in total — were transferred to city general funds, while the rest were used to fund ongoing business operations.

“For many communities in Greater Minnesota, municipal liquor operations provide access and convenience in areas that might be unable to attract a privately‐run establishment,” according to the report. “In addition to these functions, profitable municipal liquor operations have provided another source of revenue to supplement traditional tax and fee revenues.”

While a number of other states maintain a state-level monopoly over the sales of liquor and sometimes other types of alcohol, Minnesota is somewhat unusual in having a widespread system of city-run bars and liquor stores. In most cases these systems were set up after prohibition, in the hope that states and municipalities would do a better job protecting the public from the health risks of alcohol than an unfettered private sector.

It’s easy to imagine why: private companies exist to make profit, and most profit in the alcohol trade comes from extremely heavy drinkers who in many cases are doing great harm to themselves. State and municipal liquor stores — in theory at least — don’t have that same profit motive.

But the data on this is somewhat limited, with most of the research coming from British Columbia, due to the gradual roll-out of privatization there. That allowed researchers to compare what happened in areas of the province where new private-run stores opened with similar areas where sales stayed under government control. Those studies generally show that privatization led to increased alcohol consumption, with concomitant spikes in alcohol-driven death, hospitalization and crime

There may be lessons for the modern introduction of a previously prohibited intoxicating substance: cannabis. So far, marijuana legalization in the U.S. is a relatively binary affair, with weed either completely illegal or available for sale on the open market. But drug policy experts point out that there are many different policy options in between, which may do a better job limiting any harmful effects of more widespread marijuana use.

A 2015 report by the RAND Corp., a non-profit research group, highlighted at least a dozen regulatory frameworks, running the gamut from outright prohibition (you go to jail for possessing weed) to no regulation whatsoever (you can sell it to kids getting off the school bus.) In between are a host of compromises. One of them is a system of government control, similar to what many states do with liquor – or what many Minnesota towns do with alcohol.

Other options include limiting production solely to what households could grow for their own personal use; putting production under the control of non-profit enterprises; and more esoteric models following policies in places like the Netherlands and Spain.

“These choices could have profound consequences for the outcomes of legalization in terms of health and social well-being, as well as for job creation and government revenue,” RAND’s researchers wrote at the time. 

Most states that have legalized marijuana since 2015 have followed Colorado’s standard commercial model, with some relatively minor variations. At the moment Minnesota stands out for having an extremely unusual marijuana policy on the books, with hemp-derived edibles available to those 21 and older — but virtually no other regulation. Unlike other states there are no licenses, no taxes and no limits on what types of establishments can sell it. 

It’s a policy so strange it wasn’t even contemplated by RAND’s researchers, who wrote an exhaustive 218 pages on the topic.

That strangeness, and the fact that municipalities are currently scrambling on how to respond when say, a restaurant starts selling gummies at the bar, is why many drug policy watchers are hoping the Legislature will put in place a proper regulatory framework in the coming session. Gov. Tim Walz recently said he hoped to have the issue tackled by May of this year

The state auditor’s report on municipal liquor stores is a reminder that policymakers have options between strict prohibition and Wild West-style legalization. If regulators here open the door to allow towns and cities to control their own marijuana businesses, it could serve as a model for other states looking to legalize in the future.

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Christopher Ingraham
Christopher Ingraham

Christopher Ingraham covers greater Minnesota and reports on data-driven stories across the state. He's the author of the book "If You Lived Here You'd Be Home By Now," about his family's journey from the Baltimore suburbs to rural northwest Minnesota. He was previously a data reporter for the Washington Post.