As an underserved area, the Duluth market was a logical location for Vireo Health’s next dispensary, said Dr. Kyle Kingsley, the company’s founder and CEO. But Duluth’s stiff restrictions on where dispensaries can operate made Hermantown a more attractive destination for Vireo, the parent company of Green Goods.
The new dispensary, which Kingsley called “one of our Green Goods flagship stores,” is located at 4960 Miller Trunk Highway.
Green Goods employee Julie Ostazeski staffs the window at the chain’s Hermantown store. During the COVID-19 pandemic clients receive their purchases at the window. (Steve Kuchera / skuchera@duluthnews.com)
“We wanted to provide a comfortable experience for medical cannabis patients in Minnesota,” he said. “A lot of dispensaries, including our own, in previous iterations were a little more clinical, a little more sterile, and we’re really looking to elicit sort of the opposite of ‘white coat syndrome” here and have people feel comfortable and relaxed.”
For the moment, with COVID-19 precautions of paramount concern, Vireo will provide most of its customers with curbside pickup, “But post-COVID, people will be able to come in and really enjoy the space,” Kingsley said. “We think this is really going to be kind of the best in class for dispensaries in the United States.
Employees Troy Bjerkness and Kat Gronski talk at the knowledge bar in the Hermantown Green Goods location. When clients are allowed in the store they will be able to confer with employees at the bar. (Steve Kuchera / skuchera@duluthnews.com)
The Hermantown dispensary will be Vireo’s fifth in Minnesota, and Kingsley said the company plans to open three more in the state before the end of this year. Those other new operations will be located in Blaine, Burnsville and Woodbury.
Vireo also has four dispensaries in New York, two in Mexico, one in Arizona, and the company soon expects to open one in Maryland, as well.
A display at Green Goods in Hermantown shows the color coding used to represent different product lines for various qualifying medical conditions. (Steve Kuchera / skuchera@duluthnews.com)
Although Vireo is growing, the company has continued to lose money here. For the first six months of this year, Vireo reported a net loss of about $11 million.
“In Minnesota, we can’t sell flower or bud to the patients, and that’s really a big cost driver. It limits demand. So, that would be a big thing that if it changes would allow us to lower prices for patients and give them more accessible options, and that would probably lead to eventual profitability,” Kingsley said.
“It’s very difficult to make money as a business in this industry in Minnesota right now for certain. But flower would be a big step in the right direction,” he said. “It makes a lot of sense. It would take a big bite out of the illicit market and provide more cost-effective alternatives to people who are currently relying on opioids other harsh pharmaceuticals in some cases to treat their pain.”
As Vireo looked to enter the Duluth market, its gaze quickly fell on Hermantown, which allowed for the development of dispensaries on one of its busiest commercial thoroughfares — Highway 53.
Hermantown City Administrator John Mulder said elected city officials saw a place for a medical marijuana dispensary in the local retail landscape.
“We just felt it was like a regulated pharmacy. That was our kind of view of it,” he said.
Kingsley said he feels Vireo has found a good fit.
“Hermantown has been just an amazing partner, very proactive and helpful in this process, and we’re very excited about the location. There’s a huge amount of traffic It’s very visible. It’s wide open and accessible for people,” he said.
Dr. Kyle Kingsley, founder and CEO of Vireo Health
In Duluth, medical marijuana operations are allowed to locate only in mixed-use business districts or general industrial districts. They are also to locate at a distance of least 1,500 feet — more than a quarter-mile — from any type of housing, schools or churches.
Those rules were established by a 2015 ordinance.
“It has not been revisited since then. So, I don’t know if there would be an interest in re-evaluating that,:” said Adam Fulton, Duluth’s deputy director of planning and development.
“We recognize that the location in Hermantown is more of a retail area, and that is different than what our zoning code provides for,” he said.
Joel Sipress was one of two Duluth city councilors who voted against the 2015 ordinance governing the placement of medical marijuana dispensaries.
“I did believe at the time and continue to believe that we were being overly restrictive,” he said.
Nevertheless, Sipress said he’s pleased a dispensary is coming to the area “because I do know we have people in our community who need to access medical marijuana, and this is definitely to the benefit of our community.”
Sipress said he’s unaware of any effort to revise Duluth’s rules and there may be little point in doing so at this point. He noted that the state has allowed for a limited number of dispensaries to open in specific geographic areas.
“And with one serving our region now in Hermantown, probably that ship has sailed,” he said.
Vireo’s choice of locations has some financial ramifications, as well. Hermantown collects a 1% local sales tax, as compared with Duluth, which collects 1.5% as a base local sales tax. Meanwhile, St. Louis County adds another 0.5% to the local sales tax.
Kingsley wouldn’t hazard to project what the annual sales of the Hermantown dispensary will be. But a Minnesota Department of Health report on medical cannabis documented $26.3 million in 2019 net sales for the state’s then-eight active dispensaries — an average of about $3.3 million per operation. Sales of that magnitude would have generated about $49,000 in annual local sales tax revenue in Duluth or $33,000 in Hermantown.