On May 21, 2025, a group of approximately 24 cannabis industry hopefuls and advocates gathered at the Minnesota State Capitol to protest a proposed increase in the retail sales tax on cannabis products. The rally took place before the official launch of the legal cannabis market in Minnesota, which is set to begin in June.
Under the 2023 law legalizing recreational cannabis, a gross receipts tax of 10% was imposed on sales at licensed businesses. Recently, Governor Tim Walz and legislative leaders announced a budget proposal to raise this tax to 15%. This increase would be in addition to the existing state sales tax of 6.875% and any applicable local sales taxes. It would also extend to low-dose THC edibles made from hemp.
The protestors chanted, “Stop the tax, start the market,” as lawmakers negotiated the final components of the state budget. Leili Fatehi, a representative from cannabis consulting firm Blunt Strategies, criticized the proposed tax increase, stating that it could lead to higher prices for consumers and put legal businesses at a disadvantage compared to the illicit market. Fatehi expressed disappointment, highlighting that the change undermines the expectations of those waiting to enter the legal market and could disrupt the revenue-sharing model between the state and local governments.
Currently, 80% of cannabis-related tax revenues go to the state’s general fund, with the remaining 20% allocated to cities and counties. Fatehi and other advocates urged lawmakers to reconsider the tax hike before finalizing the budget legislation, as both the House and Senate included this increase in their tax proposals.
Supporters of the tax hike argue that it aligns Minnesota’s cannabis taxation with other states that have legalized cannabis. House Speaker Lisa Demuth stated that the increase is a necessary adjustment, as Minnesota’s previous cannabis tax rate was among the lowest in the nation. Cannabis tax rates in other states vary widely, with some states imposing rates as high as 37%.
The proposed tax increase comes at a critical time, as Minnesota prepares for the launch of its legal cannabis market. A lottery scheduled for June 5 will determine which applicants will receive licenses for various cannabis business types, including growers and retailers. Other cannabis-related businesses that have received approval from the Office of Cannabis Management are also preparing to open, typically requiring local government clearance for their locations.
Despite the excitement surrounding the impending market launch, Fatehi anticipates delays in opening state-licensed retail locations, projecting that the first dispensaries may not open until late 2025. Meanwhile, a dispensary is expected to open soon in Moorhead, following a compact agreement with the White Earth Nation, which allows for the establishment of eight dispensaries on tribal land. Off-reservation sales from these dispensaries will be subject to the same taxes and regulations as other cannabis businesses in the state.
As Minnesota moves closer to launching its legal cannabis market, the outcome of the proposed tax increase could have lasting implications for the industry and its participants.
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