THC sales boost city-owned liquor stores across Minnesota. How’s your muni performing?

The popularity of THC beverages and gummies is bolstering Minnesota’s municipal liquor stores, with industry experts saying it’s the biggest thing to hit the market since wine coolers.

“The impact that these products have made in the sales and retail alcohol industry has been major, nothing in the likes that I’ve ever seen in 40 years of being in the business,” said Mike Larson, who manages both “muni” locations of St. Anthony’s city-run liquor stores.

“The last closest thing was Bartles and Jaymes wine coolers,” Larson said Wednesday at the State Capitol when the Minnesota State Auditor’s Office released its annual municipal liquor store report.

The takeaways and trends are more about THC than liquor. Sales of cannabis-infused drinks and gummies are buoying declining sales in wine and beer, but overall city-owned liquor stores are seeing significant growth.

“What we see is continued growth in this area,” said State Auditor Julie Blaha of THC and CBD sales. “So stay tuned. We will continue to monitor this.”

An operations report from 2023, the latest data available from Blaha’s office shows total net profits reaching $31.6 million, a 15.3% increase from 2022.

Profits declined more than 25% in 2022 compared with 2021, after record highs during the COVID-19 pandemic.

Munis are one of Minnesota’s quirks, a Prohibition-era agreement allowing cities to control the sale of alcohol and run stores where there might be gaps in the market.

Cities use muni revenue to help fund programs, maintain parks and pay for equipment, with the aim of easing the burden on taxpayers.

Paul Kaspszak, executive director of the Minnesota Municipal Beverage Association, said alcohol sales have taken a hit as younger consumers’ habits change. While THC drinks replace beer, he said sales of spirits have been more stable.

“Bourbon drinkers are still drinking their bourbon,” Kaspszak said at the Capitol news conference.

The state auditor doesn’t collect specific data on THC sales vs. alcohol. But Kaspszak predicts alcohol sales will continue dropping over the next few years while THC sales will rise and increase muni profitability.

In Minnesota, 176 cities operate 210 stores (some have more than one). That’s 25 fewer than 10 years ago. Of those, 93 are on-sale and 117 are off-sale.

More than 30 cities reported net losses in 2023, all but three of them in greater Minnesota.

Only 18 of the state’s munis are in the metro area, yet they account for 33% of total sales and 26% of net profits.

Metro sales averaged $3.8 million, compared to average sales of $1.7 million for greater Minnesota.

The Minnesota Star Tribune gave a close look at unique situations for a muni in the metro and one in greater Minnesota.

Walker, in northern Minnesota’s lakes country near Bemidji, is looking to sell its municipal liquor store and license to Super One Foods, giving the chain grocer a monopoly in the city after a large expansion to its grocery store that reopened this summer.

City officials say the potential sale doesn’t mean the muni is underperforming. Last year it brought an additional $70,000 to city coffers, said city administrator Hope Fairchild.

The muni is an old museum with stuffed wolves and bears next to stacks of spirits and seltzers. The building is also home to the Walker DMV.

Super One has been presenting unsolicited offers in recent months, Fairchild said, and the City Council will again discuss the proposal in a closed-door session Monday to make a potential decision.

“Change is hard,” she said. “This, of course, isn’t a guaranteed change, but the City Council wants to make sure they do their due diligence for the taxpayers of Walker … to make sure that we are getting the most bang for our buck and making it as affordable as possible for our residents to live here.”

Super One declined to comment for this story.

Potential property-tax revenue from Super One could offset the loss in muni revenue, Fairchild said.

Walker is not entering the municipal cannabis market, she added, namely because the Leech Lake Band of Ojibwe operates a dispensary right outside city limits and it would be hard to compete.

Blaha said it’s not uncommon for cities to close or sell their munis, but it typically happens when they’re in the red. Walker’s municipal liquor store near the shores of Leech Lake always makes a profit.

In Anoka, access to one of the city’s liquor stores was cut off when a project to reconstruct Hwy. 10 started a few years ago.

“Sales dropped basically overnight by 66%,” said Kevin Morelli, the city’s liquor operation manager. “That was a tough one.”

The city, Morelli said, tried to bring more traffic into the store despite the construction, but eventually decided to close the business. Then, a big-box liquor store opened across city lines in Coon Rapids, near Anoka’s second municipal liquor shop.

“We’ve been working with one arm tied behind our back,” Morelli said.

The store closure and other disruptions have resulted in Anoka reporting the largest profit losses in the state in recent years.

In 2022, the city lost nearly $183,000 in net profits. In the latest report released Wednesday, Anoka was down nearly $343,000 in 2023. It was followed by Lonsdale, which lost $135,000.

But Morelli expects the outlook to turn around. The city is reporting a $305,000 profit gain in 2024, he said, bolstered by Anoka selling the shuttered liquor store.

The city is now looking to build two new liquor stores to replace the older shops, including one that could be attached to a planned municipal cannabis dispensary.

He’s already seen a boost from THC beverages.

“Low-dose THC has been a godsend,” he said. “It’s cutting into beer sales most noticeably, but it’s more profitable than beer.”