Minnesota officials are considering a tax increase on recreational cannabis products before the state launches its marijuana market next year. As part of a budget agreement, Governor Tim Walz and legislative leaders propose raising the tax from 10% to 15%. Additionally, legislators aim to eliminate a provision that mandates sharing 20% of cannabis tax revenue with local governments. These changes aim to address a projected multibillion-dollar budget deficit in the coming years.
Eric Taubel, interim director of Minnesota’s Office of Cannabis Management, acknowledged the challenges faced by the legislature and the frustrations of cannabis advocates regarding the tax increase. He stated, ‘I understand the frustration of cannabis advocates about the tax increase, but I’m also pretty clear-eyed about the tough choices the Legislature faced.’
In response to the proposed tax hike, cannabis advocates gathered outside the governor’s office to voice their opposition. Kurtis Hanna, a prominent cannabis lobbyist, warned that higher taxes could push consumers to continue purchasing from the illicit market rather than legal retailers, complicating the transition to a regulated market.
Currently, Minnesota’s cannabis tax is one of the lowest in the United States, with only three out of 21 states that impose a sales tax having lower rates. If the proposed increase is approved, Minnesota would join states like Arizona, Oregon, and Illinois with higher tax rates.
House Speaker Lisa Demuth (R-Cold Spring) characterized the tax increase as necessary, stating, ‘It was very low. We were one of the very low-tax states on cannabis.’ If enacted, the tax increase could generate over $140 million in additional revenue over the next four years, with the repeal of the local government revenue share projected to contribute an additional $64.6 million to the general fund.
Local governments have expressed concerns over the repeal of their share of cannabis tax revenue. Representatives from the League of Minnesota Cities highlighted the importance of this funding for regulatory activities related to new cannabis retailers, including age verification and compliance monitoring. Without this assistance, Hanna noted, municipalities would face increased difficulties in enforcement.
As discussions continue around the cannabis tax bill, Minnesota’s approach to cannabis taxation remains a focal point for both lawmakers and advocates as the state prepares to enter the legal cannabis market.
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