Minnesota’s hemp rules could offer a model for federal regulation as ban looms

As Minnesota prepares to tighten its rules on hemp-derived THC next month, the state’s already well-regarded hemp framework is drawing renewed national attention — even as a looming federal ban puts it at risk.

A surprise move in Washington earlier this month will effectively reclassify intoxicating hemp products as illegal in one year, threatening to upend a national market that has grown to nearly $30 billion since the 2018 farm bill quietly opened the door. The provision, which was part of the bill to end the shutdown, bans hemp products containing more than 0.4 milligrams of THC per container, far below Minnesota’s 5-milligram cap for edibles and 10-milligram cap for beverages.

Regulators and businesses in Minnesota, home to one of the country’s most developed THC beverage scenes, are now weighing whether the past few years have been a blueprint for the future or a brief, fragile experiment.

The Minnesota hemp-derived THC market now supports an estimated $200 million in annual sales and generated more than $11 million in state tax revenue last year, business owners and elected officials said during a news conference last month.

“We have the proof that it works,” said Eric Taubel, director of Minnesota’s Office of Cannabis Management. “We have a robust industry. We have consumers who are confident in what they’re buying.”

Minnesota’s regulations — testing requirements, ID checks, packaging rules and caps on potency — are, he said, a “ready-made template” for federal oversight.

The federal change could erase the very market Minnesota helped pioneer.

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The 2018 farm bill legalized hemp but failed to create a national regulatory system. That allowed intoxicating THC to be produced from hemp and sold widely, often in convenience stores or online with little oversight.

Manufacturers used hemp to create products as potent as those sold in marijuana dispensaries, and in many states, synthetic or chemically converted cannabinoids proliferated.

But Minnesota moved to impose guardrails. A bipartisan 2022 law legalized low-dose hemp THC edibles and beverages for adults over 21 and required testing, disclosures on packaging and bans on child-appealing look-alike products. In 2023, lawmakers placed hemp and marijuana under the same regulatory authority, the OCM.

U.S. Sen. Tina Smith recently called it “one of the strongest and safest and most responsible hemp market in the whole country.”

The contrast is stark. In Wisconsin, hemp flower and high-potency products are sold with minimal oversight.

“It’s the Wild West,” Tarasek said.

DFL state Sen. Lindsey Port, the chief author of Minnesota’s cannabis law, warned that the federal hemp ban will lead to the return to an unregulated market.

“There are too many people across the country that like these products, that will pay for these products,” she said at the November news conference. “There will be an illicit market that pops up to fill this space. It will not be regulated.”

The regulated framework didn’t kill Minnesota’s hemp market. It helped it explode — especially in bars, restaurants and breweries.

And research and sales patterns suggest many THC beverage customers don’t shop at cannabis dispensaries and may not follow the market into the cannabis system if the hemp option disappears.

“My gut [feeling] is they don’t meander over to the cannabis supply chain,” said Taubel. “They probably just sort of go away.”

Talebi sees the federal move not as a ban but as leverage to push for national standards — “a year for us to work with legislators and put the right regulations in place to make this a safer, more trusted industry.”

He and other beverage makers say they support clear national rules on dosage, age limits, labeling and manufacturing standards — a framework that would look a lot like what Minnesota is already doing.

To Taubel, the core problem is that hemp-derived products exist in a vacuum: federally legal but federally unregulated. Without a national baseline, the weakest state rules effectively became the national standard, allowing untested products and synthetic cannabinoids to flow across borders.

Though some business owners note that Minnesota’s own regulatory overhaul is already squeezing operators, even before the federal ban lands.

New licensing requirements, labeling rules and in-state testing mandates taking effect Jan. 1 have raised fears about bottlenecks and compliance costs — especially with only a handful of state-approved labs. Manufacturers have warned that delays or confusion in the transition could slow production or spike expenses, even as they brace for far greater uncertainty from Washington.

But even if Minnesota preserves its hemp rules when the ban goes into effect, federal reclassification as a Schedule I substance could push out breweries, restaurants and retailers.

Once hemp-derived THC becomes illegal federally, these businesses could face the same tax and banking burdens as cannabis companies, including the 280E tax rule that prevents them from deducting ordinary business expenses.

Large national hemp brands that rely on retail chains could be hit even harder. Fatehi said she does not expect major chains to continue carrying those products if the ban takes effect.

The uncertainty is rippling back to the farm.

“Hemp really changed the game for me in 2020,” said Minnesota hemp farmer Angela Dawson at the news conference. “It let me innovate. I created my own strain of compliant hemp. It brought jobs to my small town.”

Responses from Minnesota businesses vary. Some wholesalers have begun layoffs already, Tarasek said. Others, like Talebi, are moving forward but avoiding major investments until the political landscape clarifies.

“There is no playbook,” Talebi said. “Hopefully, the Legislature moves quickly to bring certainty to a category that needs it.”

Hemp farmers will begin planting in May, meaning the practical window for a federal fix may be only a few months.

Even the best-designed state system can’t overcome federal tax codes or interstate commerce restrictions. All agree that the next year will determine national hemp-derived THC policy.

“The thing that’s frustrating for us is that it is fully out of our hands,” Taubel said.

In Washington, Minnesota’s federal delegation says it is trying. Rep. Tom Emmer, the No. 3 Republican in the U.S. House, has signaled openness to a fix.

“We are in a good position to try to do something to fix this,” U.S. Sen. Amy Klobuchar told reporters last month, calling the ban “a one-size-fits-all measure” that puts thousands of jobs at risk.

“I want our state, small businesses and farmers to know that we have their back, and we will do everything we can in our power and in a very difficult Congress to change this,” she said at the news conference.