Cannabis industry hopefuls and advocates gathered at the Minnesota State Capitol on Wednesday to protest a proposed increase in the sales tax on cannabis products. This tax hike comes even before Minnesota’s legal cannabis market has fully launched. Under the 2023 law that legalized recreational cannabis, a gross receipts tax of 10% was established for sales at licensed businesses. However, Governor Tim Walz and legislative leaders recently revealed a budget agreement that proposes raising this tax to 15%. This increase would be in addition to the existing state sales tax of 6.875% and any local sales taxes, affecting all cannabis products, including low-dose THC edibles made from hemp.
Leili Fatehi, a representative from the cannabis consulting firm Blunt Strategies, criticized the tax hike, arguing it would lead to higher prices for consumers and put legal businesses at a disadvantage against the illegal market. Fatehi described the tax increase as a betrayal to those who have been patiently waiting to participate in the legal market, emphasizing that it represents poor public policy. She also pointed out the potential loss of revenue-sharing with local governments, which would receive 20% of the cannabis tax revenue while the state General Fund collects 80%.
Advocates hope lawmakers will reconsider the tax increase before finalizing any legislation. However, both House and Senate negotiators have included the tax hike in their discussions as they prepare for a special session. Supporters of the tax increase argue that it aligns Minnesota’s rates more closely with those of other states where cannabis is legal. House Speaker Lisa Demuth stated that the increase is a necessary adjustment, as Minnesota’s previous cannabis tax was among the lowest in the country.
Cannabis tax rates vary widely across the United States, with some states imposing rates as low as 6% and others as high as 37%, according to the Tax Foundation. Approximately half of the states have cannabis tax rates exceeding 10%.
The proposed tax hike comes at a critical time as Minnesota prepares to launch its cannabis market. A lottery is scheduled for June 5 to determine which applicants will receive one of the limited licenses for growers and retailers. Meanwhile, other cannabis-related businesses that have received approval from the Office of Cannabis Management are preparing to begin operations, including securing locations that meet local government regulations.
Fatehi, who was involved in crafting the 2023 legalization bill, anticipates that legal cannabis retailers might not open until 2025, with many expecting openings to occur in the latter half of that year. In the meantime, the first dispensary in Minnesota is set to open in Moorhead due to an agreement with the White Earth Nation, which allows them to operate eight dispensaries both on and off the reservation. Under this compact, off-reservation sales will be subject to the same taxes and regulations as other businesses in the state, ensuring compliance with safety standards.
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