Minnesota Cannabis Tax Hike Could Undermine Legal Market, Critics Warn

Cannabis flower at the NativeCare dispensary in Red Lake, Minn. (Aaron Lavinsky)

Minnesota lawmakers have approved a sharp increase to the Minnesota cannabis tax, raising concerns among industry leaders and legalization advocates that the move could hurt the state’s new legal market before it even launches.

In the final hours of a special session, the Minnesota Senate gave the green light to a bill that raises the cannabis retail tax from 10% to 15%, a 50% increase. This positions Minnesota among the states with the highest marijuana tax rates in the country, behind only a handful including Washington and Illinois.

💭 A move like this, before the legal market even opens, feels premature and risky. It sends a confusing message to consumers and entrepreneurs alike.

The bill also removes a requirement to share 20% of cannabis tax revenue with local governments — a provision that had been designed to help cities cover regulatory and enforcement costs. Cities will now have to fund those efforts on their own.

Budget Fix or Market Disruption?

Governor Tim Walz is expected to sign the bill as part of a broader budget deal aimed at staving off a projected deficit. The change is projected to bring in over $200 million in new revenue over the next four years.

House Floor Leader Harry Niska noted that the increase aligns Minnesota’s tax rate more closely with other states and reflects what Governor Walz originally proposed.

Still, some lawmakers and industry voices are pushing back hard.

Senator Lindsey Port, who helped lead the push to legalize recreational marijuana, said the original lower tax was meant to steer consumers away from the black market. She fears the higher rate will do the opposite by keeping illicit sales attractive due to lower prices.

Small Businesses and Local Aid Take a Hit

The elimination of cannabis revenue sharing with cities is also drawing criticism. The League of Minnesota Cities warned that local governments will now bear the costs of regulation without any guaranteed state funding.

Cannabis business owners echoed those concerns. Glen Brown, who runs a hemp retail shop in Hopkins, said the higher tax could lead to a noticeable drop in sales, which could hurt small businesses trying to stay compliant.

Lobbyist Leili Fatehi called the hike one of the steepest in the country and said pushing it through before issuing any adult-use licenses was short-sighted. She believes the change will only make it harder for legal businesses to compete with the illicit market.

💭 The state says it wants a thriving, regulated cannabis market, but this move feels like it puts that vision at risk. A strong legal industry starts with smart, supportive policy — and this isn't it.

Original reporting by the Star Tribune: Minnesota’s cannabis tax will be one of the highest in the nation after hike