Minnesota’s cannabis products will face a tax increase from 10% to 15% as part of a bipartisan budget agreement reached by state lawmakers. This tax hike will apply to both cannabis flower and edibles sold at licensed establishments, even before the state’s legal adult-use cannabis market officially opens.
Under the 2023 legislation that legalized recreational marijuana, a gross receipts tax was initially set at 10% for sales in licensed businesses. The latest budget agreement, announced on Thursday, raises this tax rate to 15%. This increase is in addition to Minnesota’s existing state sales tax of 6.975%, as well as any applicable local sales taxes. The tax also extends to low-dose THC edibles derived from hemp.
Tax rates on cannabis vary significantly across the United States, with some states imposing as little as 6% and others, like Washington, charging up to 37%, according to an analysis by the Tax Foundation.
Many advocates and industry stakeholders express concern that a 15% tax rate will elevate the costs of legal cannabis products, potentially driving consumers back to the illicit market. Sen. Lindsey Port, a Democratic-Farmer-Labor (DFL) member from Burnsville and one of the authors of the cannabis law, voiced her frustration during a recent hearing. “When we legalized adult-use cannabis, we indicated this is not a cash cow,” she stated. Port criticized the decision to increase the tax instead of exploring alternative revenue sources.
The timing of this tax increase coincides with the state’s regulatory agency preparing for the launch of the adult-use market. A lottery is scheduled for June 5 to determine which applicants will receive one of the limited licenses available for growers and retailers. Other approved businesses that do not fall into specific categories will also be able to begin their operations, provided they secure locations that meet local government regulations.
As lawmakers finalize the budget framework over the weekend, the revised cannabis tax rate is still pending approval by the Legislature.
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