Some Cities Double Down on Municipal Liquor While Others Bow Out

By Andrew Tellijohn

Municipal liquor stores across Minnesota are in the middle of a shift. On one hand, statewide sales and profits reached record levels in 2023, giving cities millions of dollars to reinvest in their communities. On the other hand, some smaller cities are struggling to keep their stores afloat, and a handful have chosen to exit the business altogether.

As cities with liquor stores look toward the future, some are choosing to revamp their current operations, while others are looking to new products, particularly cannabis-based beverages, to reshape the market.

Anoka’s evolving operations

The City of Anoka has been in the business of alcohol sales for nearly a century. In recent years, however, sales have lagged due to road construction and challenges with older, less accessible stores.

But momentum is starting to build again. Cannabis-based beverage sales are giving municipal liquor stores a boost, and Anoka is leaning into the trend. The city broke ground in May on what will be one of the state’s first municipally run cannabis dispensaries.

Financially, Anoka’s liquor stores have struggled. In 2023, they lost $342,976 on $2.45 million in sales, according to the “Analysis of Municipal Liquor Store Operations,” an annual report from the Office of the State Auditor.

But those numbers don’t tell the whole story. Much of the decline stems from the reconstruction of Highway 10, which cut access to one of the city’s stores, leading to its eventual closure, according to Kevin Morelli, who joined Anoka in 2022 as manager of cannabis and liquor operations.

To recover, the city is exploring new projects, including a liquor store as part of a mixed-use development on Main Street and 7th Ave., as well as another location, in the opposite direction, on 14 acres of undeveloped land on the border of Anoka and Andover.

“That one could get moving here hopefully fairly quickly,” Morelli said. “We know we want the liquor store in that development; we know how much space we need. And we can actually start our liquor store before everything else gets developed in that property.”

The bigger development, however, is the construction of the cannabis dispensary. City officials hope the new 3,000-square-foot store, financed through an internal loan to be repaid with cannabis revenues, will not only generate new income but also drive customers to the city’s remaining liquor store, which sits next door. The project includes a secure delivery area and is expected to strengthen both operations.

Under state law, municipal liquor stores are allowed to carry both liquor and cannabis beverage licenses, but only the dispensary can sell THC flower. Low-dose THC beverages will remain in the liquor store.

Cannabis-based beverages currently account for less than 10% of Anoka’s total liquor store sales, but the number is growing quickly. In July, sales of THC beverages outpaced wine for the first time, and Morelli expects them to reach 12% to 13% of overall sales by the end of 2025. Nonalcoholic beverage sales are also on the rise, he said, “People are way more conscious now of what they put in their bodies.”

THC trending up

The success of THC beverage sales isn’t unique to Anoka. Across Minnesota, municipal liquor stores are benefiting from the growing popularity of cannabis products, said Paul Kaspszak, executive director of the Minnesota Municipal Beverage Association (MMBA).

Thirteen cities have already decided to build cannabis shops, with Anoka, St. Anthony, and Elk River leading the way. It’s cyclical and right now these products are boosting sales and profits.

“It’s the way the market is going,” Kaspszak said. “Right now, there is an attitude not only in the state but around the country that THC is good, drinking alcohol is bad. Smoking cigarettes is bad; smoking cannabis is good. That’s a societal thing that is happening.”

Minnesota law allows cities with 10,000 or fewer residents to own and operate municipal liquor stores that sell off-sale, on-sale, or both. Cities of any size that established operations before July 1, 1967, are also allowed to continue.

Overall, municipal liquor stores performed well in 2023, with net profits totaling $31.6 million, a 15.3% increase over 2022. These profits allowed stores to provide $28.5 million in net transfers to their cities.

Over the past five years, net profits have increased by 13.3%. Sales have also set new records for 28 consecutive years, most recently reaching $437.4 million. However, not all cities are seeing gains. Of the 177 Minnesota cities that operate liquor stores, 31 reported losses in 2023, 28 of them are located in Greater Minnesota.

Investment, leadership spur growth in Mazeppa

Mazeppa is one city that has turned things around. While city leaders have discussed cannabis-based products, they have not moved forward with allowing them yet. Instead, the city has invested in revitalizing its existing municipal liquor store operations.

After years of modest profits or breaking even, Mazeppa lost $8,000 on liquor sales in 2014. Like many small cities, it faced stiff competition from nearby big-box stores, shifting consumer preferences, and limited resources.

New leadership responded quickly. City Administrator Karl Nahrgang and Liquor Store Manager Heather Groby made sweeping changes. They secured a one-time transfer from city reserves to expand the building, adding table space and a more welcoming and accessible outdoor seating area.

Groby also adjusted off-sale pricing to be more competitive with nearby private stores and expanded the product mix to feature more craft beers, hard sodas, and higher-quality wines.

Sales and profits increased immediately and dramatically. “Our overall sales from the facility, within two years, pretty much doubled,” Nahrgang said.

In 2016, Mazeppa’s operations returned to profitability with $495,755 in sales and a $33,480 profit. The following year, sales reached $513,909 with $16,295 in profits.

Groby left her role in early 2023, but her replacement, Todd Ihrke, has maintained the momentum. In 2023, the most recent data available, Mazeppa recorded $720,311 in sales and $77,765 in profits, or 10.8% of sales, according to the state auditor’s report.

The city also paid back its interfund loan, set on a 10-year schedule, in just seven years. Except for a dip during COVID, Nahrgang said the city has sustained a strong growth rate for nearly a decade.

“I was in agreement that there was a lot of space in that old building for tables where, if we could just get people to come in and sit down, they’d stay longer,” he said. “It was a great decision on the part of the Council.”

Communicate the positives

In addition to the major changes, Nahrgang said the city made more subtle improvements, including stronger security and began hosting community events, like football watch parties and vendor expos to help bring in people who might not otherwise visit the store.

Now, leaders are focused on showing residents the value of liquor store revenues. For example, funds will provide matching dollars for a grant to extend Mazeppa’s trail system and replace sidewalks across the city.

“We definitely like to use that money toward projects everybody can use, even if it’s resurfacing a street,” Nahrgang said. “You don’t want to use it on administrative stuff — you want it to be out there and associated with the projects that people can see.”

Communication is key, said MMBA’s Kaspszak, whether it’s showing how cities use funds or how they are maintaining community standards. Responsible service goes without saying, he said, but cities also make values-based choices. For example, St. Anthony will not sell frozen alcohol pops.

“The reason they won’t do that is it reflects a community attitude,” he said. “They feel there can be confusion in the marketplace about those, and they have decided to take the financial hit associated with that.”

Small cities step away

While most municipal stores are faring well, some smaller cities with limited resources and competing priorities have chosen to exit the liquor sales business.

Greater Minnesota cities, especially those with smaller populations, are more vulnerable if a business closes or a road project blocks access, Kaspszak said. “If you don’t have the population, it makes it tougher to survive.”

Smaller cities also tend to resist changing hours or staffing, he said, because “it’s the way it’s always been.”

MMBA consults at no cost with members across the state, Kaspszak said, on ways they can improve profitability if they want to continue operating municipal stores. Some, in recent years, have chosen to move on.

Kiester closed and sold its municipal operations in 2025, and Elmore, Hanska, Littlefork, and Spring Grove have also exited since 2023.

Spring Grove sold its store to a private owner in 2023 and has had no regrets. The new owner remodeled the store, making it more attractive, and the city now receives more in tax revenue than it earned in profits, said Jana Elton, city clerk/administrator.

Doing so also allowed a local grocery store owner to expand into alcohol sales. The American Legion also can now sell alcohol.

“When we were the ones that held the liquor license, no one else could sell,” she said. “It opened it up for our current businesses to be able to grow.”

Elton said the City Council also wrestled with what it saw as a moral issue: running a city-owned liquor store while also trying to protect residents’ health and safety.

The decision was not unanimous, and residents were divided at first. But skepticism faded as private owners invested in the store.

“Now that the dust has settled, I think things are going just fine,” Elton said. “It was a move to be able to let a new business owner come in and another current business enhance their operation. This has created opportunities for three businesses to grow with the potential for others to follow suit if they choose. That’s kind of what you want in your city.”

Andrew Tellijohn is a freelance writer.