Minnesota’s medical marijuana economy isn’t booming, and there’s one primary reason for the industry’s struggle – regulations. According to information obtained by The Associated Press and reported by CBS, the two licensed medical marijuana manufacturers in Minnesota reported millions of dollars in losses after their first full year of operations. In 2015, Minnesota Medical Solutions reported a $3 million loss while LeafLine Labs reported a slightly lower loss of $2.2 million.

However, Cannabiz Media has been tracking the marijuana economy across the country for a new report to be released later this year. Using Cannabiz Media’s data, we can make some educated guesses about the state of Minnesota’s medical marijuana businesses, and all signs point to strict regulations being the main cause for the industry’s problems.

Taxes and Fees are Not out of the Ordinary in Minnesota

Consider the taxes and fees that marijuana-related businesses are required to pay in states where medical marijuana is legal. These taxes range from 0% in Minnesota to as much as 37% for a state excise tax charged in Washington. These taxes are typically passed on to consumers in the form of higher prices, which could reduce demand for marijuana products. With no taxes, this is not the case in Minnesota.

Minnesota’s fees aren’t exceptionally high either. In Minnesota, marijuana licenses are fully stacked which means a business must control the entire marijuana value chain from seed to sale including growing, processing, and dispensing. The state’s stacked license fee is $20,000, which is less than the fee charged in some other states that stack licenses such as New York ($100,000), New Hampshire ($80,000), and Vermont ($25,000).

Minnesota also charges a $100,000 annual processing site inspection fee to marijuana manufacturers. While other states don’t charge an annual site inspection fee, some do charge annual processing site renewal fees. In fact, that fee could go as high as $40,000 (Maryland). Other states that have unstacked marijuana business licenses can charge additional annual fees to cultivators ($125,000 per year in Maryland is the highest) and dispensaries ($80,000 per year in Nevada is the highest). Some of those fees are as high or higher than the fee Minnesota charges for its annual processing site inspection.

Bottom-line, Minnesota’s annual processing site inspection fee is high, but when compared to other states with stacked licenses, Minnesota’s fees aren’t exorbitant. However, the stacked license requirement could be a problem as marijuana-related businesses are forced to operate a variety of businesses (agriculture, manufacturing, and brick-and-mortar dispensary sales) rather than focusing on specialized niches.

Legal Restrictions are Too Limiting in Minnesota

Next, consider the legal restrictions that marijuana-related businesses must operate under in Minnesota. As stated above, licenses must be fully stacked, so it’s easier for the state to track marijuana from seed to sale. While this makes things easier for the state, it definitely doesn’t make things easier for businesses in the marijuana industry or for patients who need access to medical marijuana.

Covered Conditions Restrictions

Most noteworthy is Minnesota’s limitations on the number of covered conditions that patients can obtain medical marijuana for in the state. Only 13 conditions are covered in Minnesota, but in Cannabiz Media’s research, it was discovered that what really matters in terms of opening up the industry to a large number of patients is the inclusion of four key conditions: chronic/severe/intractable pain, muscle spasticity, spinal cord injury, and post traumatic stress disorder (PTSD). Of these conditions, chronic pain is by far the most important. Nationwide, nearly 53% of all medical marijuana patients are registered to obtain marijuana for chronic pain.

Before July 1, 2016, Minnesota did not cover chronic pain. Today, the state covers two of the four most important conditions: chronic/severe/intractable pain and muscle spasticity. This should help to increase the number of patients, which has been a significant problem. According to Cannabiz Media’s data, only 0.02% of Minnesota’s residents were registered medical marijuana patients as of June 30, 2016. Clearly, there is a lot of room for growth.

Clinic Restrictions

Another regulation that has kept patients from accessing medical marijuana is the cap on the number of marijuana clinics allowed in the state where they could actually purchase the drug. For most of the first year of the state’s medical marijuana program, there were only three clinics in the entire state where they could get their marijuana. That means patients might live hours from a medical marijuana clinic.

Fortunately, the number of clinics is going up. As of July 2016, there were six clinics and the goal is to have one clinic in each of the state’s congressional districts very soon. As Jennifer Brooks of Minnesota’s Star Tribune reports, “In many states with medical marijuana programs, the number and location of clinics are left up to the free market. But the Minnesota Legislature, anxious to keep a tight rein on its program, opted to have the state select just two companies to grow and sell cannabis and allowed them to open just four storefronts each.”

In other words, even eight clinics isn’t enough and with product inaccessibility comes fewer sales, which leads to lower revenue for marijuana-related businesses. When revenues and profits go down, prices go up and demand goes down. It’s a vicious circle that is being allowed to perpetuate because of the highly restrictive regulations in Minnesota.

Doctors are the Gating Factor

In all states where medical marijuana has been legalized, doctors are the gating factor that patients must pass to get certified to purchase the drug. Unless doctors in the state are willing to recommend medical marijuana to patients, they can’t access it. According to a study by Dr. Charles Reznikoff, a member of Minnesota’s Task Force on Medical Cannabis Therapeutic Research, most doctors in Minnesota aren’t recommending medical marijuana for three primary reasons:

  • They don’t know enough about it to discuss the risks and benefits with their patients.
  • They don’t think the state’s marijuana program should include chronic pain patients.
  • They think the medical marijuana program is a hassle and equates to more paperwork for them that they don’t want to do.

The Star Tribune reports that in January 2016, only 479 health care practitioners in the state had been registered to certify patients for medical marijuana. At the time, only 844 patients had been enrolled in the program. Finding a doctor in Minnesota who would recommend medical marijuana has been challenging for patients. Again, this keeps patient enrollment numbers low and prices high which negatively affects demand.

Increasing Profitability Depends on Increased Patient Access to Medical Marijuana

Until these regulations and doctors’ attitudes change, which would make it easier for more patients to access medical marijuana, Minnesota’s marijuana-related businesses will continue to struggle. According to CBS, adding chronic pain as a covered condition has already more than doubled the number of registered patients to greater than 2,300. That’s certainly good news for Minnesota Medical Solutions, LeafLine Labs, patients, and the marijuana industry in Minnesota.