Minnesota lawmakers recently approved a bipartisan budget agreement that increases the tax on cannabis products sold at licensed businesses from 10% to 15%. This tax hike comes before the state’s legal adult-use cannabis market has even launched.
Under the current 2023 law, which legalized recreational marijuana, a gross receipts tax of 10% was set on cannabis sales. The newly approved budget agreement, announced on Thursday, raises this rate to 15%. This increase is in addition to Minnesota’s state sales tax of 6.975% and any applicable local sales taxes. The tax hike also extends to low-dose THC edibles derived from hemp.
Cannabis tax rates differ widely across the United States, with some states imposing as little as 6% and others as high as 37%, as noted in a Tax Foundation analysis. Business owners and advocates in Minnesota are concerned that a 15% tax will make legal cannabis products prohibitively expensive, potentially allowing the illicit market to thrive.
Senator Lindsey Port, a DFL-Burnsville representative and one of the authors of the cannabis legislation, expressed her frustration during a recent conference committee meeting. She emphasized that the legalization of adult-use cannabis was not intended to serve as a financial solution for state budget issues. Port criticized the tax increase, blaming Republican lawmakers for failing to explore alternative revenue sources.
As the state’s regulatory agency prepares for the market launch, a lottery is scheduled for June 5 to select recipients for various limited licenses, including those for growers and retailers. Other businesses approved by the Office of Cannabis Management can proceed with preparations, such as securing locations that meet local government requirements.
Although the budget framework has been approved by legislative leaders, it still requires formal approval from the Legislature, which is expected to finalize the two-year spending plans over the weekend.
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