Cannabis project shows Iron Range addiction to big promises
A worker cares for plants at Essence Vegas' marijuana cultivation facility in Las Vegas, Nevada. HWY 35, LLC, proposes building an almost $68 million cannabis factory in a shuttered wood products plant in Grand Rapids. Photo by Ethan Miller/Getty Images.
Nothing haunts a small town like an empty factory. It’s a ticking clock, the tell-tale heart of everything wrong with the world.
In Grand Rapids, Minnesota, the former Ainsworth wood products plant sprawls across an industrial lot on the west side of town. It closed in 2008. Several attempts to fill it with new industry have failed.
Two large evangelical churches sit down the road, along with a museum commemorating this northern town’s logging and paper-making history. Crew-cab pickups, SUVs and minivans packed with families flow through the area, to and from the ballfields at Portage Park in nearby Cohasset.
A web of narrow but impeccably paved roads hug the long, jagged shoreline of Lake Pokegama and its log cabin mansions, highlighting the mostly imported wealth and power of this desirable neighborhood.
Little here would suggest a place to grow 60,000 square feet of marijuana, but that cavernous building is hungry. Hungry enough to attract a surprising bipartisan coalition of support for just that.
Will a 138-acre facility built to make wood siding become Minnesota’s leading producer of a burgeoning cannabis industry? Can we trust the promises of developers who say it could, one of whom was accused of improperly influencing local governments in another state?
No political force is more powerful than the hope for jobs in a place that needs them. It knits rival factions together like the leathery tissue of a lifelong scar.
When Minnesota legalized recreational marijuana in August 2023, supporters of the new law promised that a homegrown Minnesota cannabis industry would bloom. Pot wouldn’t just be medicine or a recreational drug, but a marketable product that created jobs and tax revenue.
The state got off to a rough start. In September, the first commissioner of the Office of Cannabis Management resigned the day after she was announced after a vetting controversy. Searching for a win, officials now turn north to the Iron Range.
State and local officials have placed a tentative bet on Minnesota’s first large-scale marijuana production facility in the legal pot era. HWY 35, LLC, proposes building an almost $68 million cannabis factory in that shuttered plant in Grand Rapids.
The company is headed by Jack Mitchell, a cannabis entrepreneur based in Missouri, and John Hyduke, a Minneapolis marketing executive and one-time hockey star from Hibbing.
HWY 35 proposes to create 400 jobs and open by 2025 — that is, if local and state governments act quickly. Mitchell and Hyduke also created a lobbying organization called the Minnesota Marijuana Association, bringing longtime Iron Range mining lobbyist Frank Ongaro out of retirement to be its interim executive director. This, too, is part of the plan.
On Oct. 17, the Iron Range Resources and Rehabilitation Board voted 5-3 to recommend up to $20 million in loans for the project. The Grand Rapids Economic Development Authority offered another $2 million in tax increment financing incentives.
The state money would come from iron mining revenue raised as part of the unique taxation structure on the Mesabi Iron Range. In fact, that’s precisely the appeal of this location: the IRRRB is essentially a hybridized state-local unit of government with a big pot of money. Vetted by staff at the Iron Range Resources agency, the project also gained support from the cities of Grand Rapids and Cohasset, the Itasca County Board and other local partners.
“This is the manufacturing side of an industry,” said IRRRB chair Rep. Spencer Igo, a Republican from Wabana Township north of Grand Rapids. “Those are bread and butter family wage jobs. There are growing pains that go with this. I wasn’t jumping for joy to work on a marijuana project. When you look at the path of our communities, here’s a chance to get some jobs, some family-supporting jobs, that’s why you see the support from community.”
The IRRRB comprises state lawmakers from the Iron Range. Their votes are advisory; ultimately the state and Gov. Tim Walz make the final decision. The Office of the Legislative Auditor highlighted this legal distinction after a 2016 audit explored high profile failures by the agency.
A lot has changed since then.
First, the Department of Iron Range Resources and Rehabilitation has a new commissioner, Ida Rukavina, and a staff that increasingly represents a new generation of Iron Range leadership.
Second, in recent years the agency began focusing more on quality of life issues, including housing, broadband, education and a slew of grants and loans for local business development.
Third, the local legislative delegation, once exclusively DFL, shifted dramatically toward the GOP. In fact, the last election swept in the first Republican-majority board in the agency’s history.
Igo, in his a second term, personifies that change. At 27, he’s among the youngest IRRRB chairs in the board’s history.
And yet, for all the change, the HWY 35 proposal smacks of IRRRB boondoggles we’ve seen before.
For instance, the $20 million in loans come with highly favorable conditions. If the company creates 150-170 jobs, a far cry from the 400 touted in the press release, as much as $15 million of the loan could be forgiven. That’s fewer jobs than the 180 that were lost when Ainsworth closed 15 years ago.
The public investment equals about a third of the entire project cost, a major windfall if the company manages to get off the ground.
The HWY 35 project did not win unanimous support from the IRRRB. Three of Igo’s fellow Republicans, including state Sens. Justin Eichorn of Grand Rapids and Rob Farnsworth of Hibbing and Rep. Ben Davis of Merrifield, opposed the loans. In fact, Eichorn and Davis represent the area where the project is located.
“The funding process needs to be fair,” wrote Eichorn in an Oct. 26 letter to the Grand Rapids Herald-Review. “Will other companies be given the same generous funding terms? And if not, why are we doing it in this situation? Why should this company get special treatment compared to other local employers?”
Importantly, no state loans will be issued until HWY 35 earns state permits. Current law restricts the size of cannabis production far below the company’s proposal. The company intends to build the project in phases. First they will open a 30,000 square foot facility. Then they will ask for a change to those limits to add a second 30,000 square foot facility shortly thereafter.
How will they get there? They’ll have to harness the initial boom in demand to a lobbying operation built to change laws.
This is where the outlook becomes hazy.
‘It’s a terrible idea’
Eric Pollard is a hash-maker and organic cannabis producer based in southern Oregon, but he’s originally from Grand Rapids. His roots in the marijuana business go back 20 years, long before legal pot. A singer-songwriter who performs as Actual Wolf, Pollard recorded a soulful 2013 album called “Actual Wolf: USA” while on probation after a Duluth drug bust. In 2016, he went to California to wed his music career with the legal cannabis industry. The latter has proven more fruitful.
“I’m one of the original pioneers,” said Pollard, wryly. His operation is now fully legitimate, concentrating on organic products in what he calls the “boutique” corner of the industry.
Fittingly, Pollard was tending to a fresh crop of pot plants when I called him last week. I wasn’t the first to ask him about the HWY 35 project. In fact, at least one official vetting the project contacted Pollard early in the process.
“Like any good Iron Ranger who loves a good swindle they just ignored everything I said,” said Pollard. “Every single thing.”
Pollard warns that the numbers behind HWY 35’s business plan don’t add up. He argues that energy and labor costs for an operation of this size are very high, and that the demand for the product will be far lower than what the company claims.
“The average pound price is $300 in the regulated market,” said Pollard. “You would have to grow thousands of pounds and be able to distribute it, and that just doesn’t legally work out that way … all you’re doing is taking in money and burning through investor cash.”
Glass House Farms is California’s largest pot producer, farming more than 2 million square feet of cannabis. After an initial surge, the demand for legal pot dropped off, creating enormous surpluses, something Pollard warns will happen in Minnesota.
“[Big corporate farming is] not a sustainable model,” he said. “It’s not out here. These big companies are getting sued for selling out the backdoor. With corporate farms it becomes a race to the bottom. Who can cut the most costs, for the lowest quality cannabis for the highest price.”
Pollard said many small Minnesota producers are ready to level up, citing Stigma Cannabis in Minneapolis and Bent Paddle in Duluth as two examples. And he said Minnesota’s federally sovereign Ojibwe bands have a huge jump on the competition.
“Red Lake spared no expense. They bet the farm,” said Pollard. “Red Lake and the reservations are so far ahead in the commercial game that it would be wise for anyone within 20 miles of a reservation to partner with the reservations. They’re already 5-10 years ahead of anyone else in Minnesota.”
But none of those ideas fill the empty building in Grand Rapids or promise hundreds of jobs all at once. And that’s why we’re not talking about them.
Addicted to promises
This is hardly the first Iron Range economic development proposal to face skepticism.
Some failures are obvious. In 2001 and 2003, the IRRRB backed Excelsior Energy with two start-up loans for a coal gasification power plant near Taconite. That company also featured an industry insider and an Iron Range hockey star at the helm. Excelsior spent the past 20 years using that money for a political operation to win tens of millions in state and federal grants before abandoning the project without paying back the loans.
Other failures are more complicated. The IRRRB, state of Minnesota and Itasca County went in big on Essar Steel 15 years ago. The India-based company built half an iron mine and processing facility before declaring bankruptcy. A successor company backed by Essar investors now tinkers on the incomplete plant near Nashwauk, despite losing key mineral leases to Cleveland Cliffs earlier this year.
Another Grand Rapids-based company called Magnetation began a scram mining operation that recaptured iron ore from old waste and surplus dumps. They built four plants before succumbing to bankruptcy when iron ore prices fell eight years ago. Early funding from the IRRRB helped them create jobs, but then came the layoffs.
And yet, other projects emerged successful despite hard times. Heliene, a Canadian solar panel manufacturer, recently expanded a Mountain Iron facility that it rescued from a previous company on the rocks. The Iron Range now has the second largest solar manufacturing facility in the U.S.
Likewise, Detroit Diesel Remanufacturing turned a long suffering spec building by the Range Regional Airport in Hibbing into a fast-growing manufacturing success.
Igo said that’s how economic development works.
“We can’t let the black spots of the past prevent us from driving toward a better future,” said Igo.
And yet, you wonder how this burn rate could be sustainable if iron ore production tax revenue falters. This is local money paid by the mines in lieu of property taxes. It takes years for Iron Range towns and schools to realize any financial gains from economic development success stories. Often it feels like every victory comes with a bigger backslide during the next downturn.
This isn’t just the Iron Range’s problem.
“After [the Depression and World War II] … a consensus formed and hardened across North America,” wrote author Jane Jacobs in her 2004 book, “Dark Age Ahead.” “If it had been voiced, it would have gone something like this: ‘We can endure meaningful trials and overcome them. But never again — never, never — will we suffer the meaningless disaster of mass unemployment.’”
The result, Jacobs argued, was an almost deranged focus on creating jobs through growth that caused as much or more damage to the economy as prosperity. The growth became its own kind of beast, something that did not care about people or places or, for that matter, jobs. The result was a system where people pay taxes that pay companies to buy the precious time and labor of the working class: a loop that extracts far more from the poor than from the rich.
On the Mesabi Iron Range, a localized depression in the 1980s added compulsive fervor to the economic strategy of “jobs, jobs, jobs,” which was the favorite phrase of late Gov. Rudy Perpich, who was an Iron Ranger. This policy, however earnest its hopes, attracts as much wishful thinking as it does opportunity. Quite often it’s like watching a first-time gambler roll up to a Las Vegas blackjack table brimming with childlike confidence.
The house always wins.
Cannabis could become a $1.5 billion industry in Minnesota. It makes sense to locate manufacturing facilities in rural Minnesota, where the jobs will have the biggest impact. But the business of marijuana is still a business, subject to the same market forces and logistical challenges as any other.
Five years from now, marijuana production might support hundreds of families on the Iron Range, with tax revenue flowing into schools, roads and local services. If it does, few would complain.
But if HWY 35 washes out, there’s no evidence that the region will learn anything from the failure.
“I love northern Minnesota with all my heart, and I don’t want people to continually get swindled,” said Pollard, who pines for a sustainable local cannabis industry. “I’m 43 years old and I’ve only known the Iron Range as that — a place where big people come in, promise the world, take a bunch of money and leave. Why is this any different?”
A bipartisan coalition of leaders on the Iron Range believe this one is different. They bought the promises of a would-be behemoth in the cannabis industry. And they’re willing to deploy precious funding and political capital to make those promises real, even if they aren’t real yet.
What choice do they have? Economic trauma is still trauma. Like a fist hole in a wall, it governs the behavior of everyone in the home.
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