Minnesota Should Allow Marijuana Businesses To Offer Employee Stock Ownership Plans, Lawmakers Say (Op-Ed)

“ESOP as a business structure can give hope to new businesses as they look to grow the Minnesota cannabis sector.”

By Sen. Robert Kupec (D) and Rep. Nolan West (R), via MinnPost

With new uncertainty around the federal legality of hemp products nationally and a rocky rollout of Minnesota’s cannabis market locally, we need to consider new policy solutions to help new Minnesota cannabis businesses achieve success for owners and employees.

Thankfully, there is a bipartisan path forward by allowing employee stock ownership plans (ESOPs) for cannabis businesses. Legislation allowing ESOPs has already been introduced (HF3330/SF3520) by members of both parties in both the House and the Senate.

ESOPs are uniquely suited to address the problems in Minnesota’s cannabis market. They create crucial tax benefits the industry desperately needs.

Due to IRS tax code 280E and federal prohibition, cannabis businesses cannot deduct business expenses like other businesses. As a result, they face debilitating effective tax rates that can exceed 70 percent. This creates a daunting environment for these new startup businesses, which currently have to pay leases and payroll, and they can’t even deduct payroll as a business expense.

ESOPs eliminate this issue. A 100 percent employee-owned company does not pay federal or state income tax because it is deemed a qualified retirement plan under federal law.

ESOP as a business structure can give hope to new businesses as they look to grow the Minnesota cannabis sector. Cannabis ESOPs have been successful in other states, from Maine to Illinois, and more states are considering them as their cannabis markets struggle under the tax burden, especially in mature markets.

Nonpartisan research data from Rutgers University shows that ESOP business structures help to create meaningful multi-generational wealth for BIPOC communities—including many of the populations that were most impacted by the war on drugs. Allowing ESOP structures for Minnesota cannabis businesses can go a long way towards addressing the state’s equity goals, without chaotic lotteries or special licenses.

It seems like every issue generates partisan fighting these days, but employee-owned companies perfectly appeal to both parties. They are pro-business and pro-worker. It is exactly the kind of policy that should move forward, considering the even partisan balance in the Minnesota Legislature.

ESOPs would address the problems hampering this new industry, and Minnesotans already demonstrably approve of the structure. In fact, Minnesota claims more ESOPs per capita than any other state.

When the next legislative session begins on February 17, the Legislature must take up and pass HF3330/SF3520 to allow ESOPs and give these new, small businesses a chance, and set Minnesota’s cannabis market on the right footing for the future.

State Sen. Robert Kupec, DFL-Moorhead represents the 4th District and serves as vice chair of the Agriculture, Veterans, Broadband, and Rural Development Committee, as well as a member of the Health and Human Services, Higher Education, and Labor Committees. Rep. Nolan West, R-Blaine, is a business owner who represents District 32A and serves as co-chair of the Children and Families Finance and Policy Committee, as well as a member of the Commerce Finance and Policy and Ways and Means Committees.

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