Minnesota Lawmakers Propose Marijuana Tax Hike Before Legal Sales Even Begin, Raising Concerns Over Market Viability and Budget Strategy

Minnesota’s adult-use marijuana market has yet to make its official debut, but state lawmakers are already eyeing a significant tax increase that could affect the financial outlook of the program, consumer affordability, and the ability to compete with the illicit cannabis market. As part of a recently unveiled budget agreement, state officials propose raising the gross receipts tax on adult-use cannabis sales from the originally approved 10% to 15%, a move that would make Minnesota’s marijuana taxes among the highest in the region.

Legal Marijuana Was Approved in 2023, But Sales Launch May Not Happen Until 2025

Minnesota legalized adult-use cannabis in 2023, becoming the 23rd state in the U.S. to enact such legislation. However, the actual sales of recreational marijuana have not yet commenced and may not begin until sometime in 2025. In the meantime, lawmakers are grappling with a projected budget shortfall and are exploring revenue-generating measures, including modifying the marijuana tax structure before the market is operational.

This proposed increase would raise the gross receipts tax from 10% to 15% for all sales made at licensed cannabis retailers once sales officially begin. Importantly, this tax would be in addition to the standard state sales tax of 6.975%, as well as any applicable local sales taxes that cities or counties may impose.

Proposed Tax Hike Would Extend Beyond Cannabis Retailers to Hemp-Derived THC Edibles

Notably, the tax hike wouldn’t just impact future adult-use marijuana dispensaries. The proposed legislation would also apply the 15% gross receipts tax to hemp-derived THC edibles and beverages. These products, which are currently available at liquor stores, smoke shops, and convenience retailers throughout Minnesota, have already become a significant part of the state’s cannabis economy.

Hemp-derived THC edibles were legalized separately from the adult-use cannabis law and have gained popularity among Minnesotans due to their accessibility and convenience. If the new tax proposal is passed, even these over-the-counter products would face a much higher price point, which could discourage consumers and impact retail sales across a wide range of businesses.

Minnesota Would Have Higher Cannabis Taxes Than Neighboring States With Established Markets

If implemented, Minnesota’s effective cannabis tax rate would exceed that of several neighboring states, potentially placing the state at a disadvantage when it comes to competing with both legal and illegal markets. For comparison, Michigan currently imposes a 10% excise tax on retail cannabis sales, plus a 6% state sales tax. Although Michigan Governor Gretchen Whitmer has proposed raising cannabis taxes, no increase has been finalized at this time.

Illinois, meanwhile, employs a tiered tax structure based on THC content. Products with less than 35% THC are taxed at 10%, while those with higher THC concentrations are taxed at 25%. Additionally, Illinois levies its standard 6.25% sales tax, and municipalities can add even more. This complex model has generated substantial tax revenue but has also been criticized for making legal cannabis relatively expensive for consumers.

If Minnesota proceeds with its 15% gross receipts tax, in addition to nearly 7% in state sales tax and potential local add-ons, consumers could be looking at effective tax rates approaching 25% or more, rivaling or exceeding the highest rates in the region. That level of taxation could deter consumers from purchasing legally and may sustain the illicit market that the state’s legalization efforts were meant to replace.

Cannabis Advocates Warn That Excessive Taxation Could Undermine the Market Before It Starts

Some cannabis advocates and industry observers have expressed concern that implementing such a high tax structure before the legal market is even active could undermine the program’s potential. They argue that legal marijuana should be priced competitively to encourage consumers to move away from illicit sources and participate in a safe, regulated system.

Overly aggressive taxation, they warn, may drive customers to continue using underground sellers, whose prices are often significantly lower due to the lack of regulatory overhead and tax obligations. Without proper pricing incentives, the state could struggle to convert illicit market consumers into legal market participants, making it harder to meet public health and revenue goals alike.

Beyond market dynamics, the proposed tax hike has raised questions about the state’s intentions and the underlying purpose of cannabis legalization. When the law was passed in 2023, lawmakers emphasized that the goal of legalization was rooted in social justice, public safety, and economic opportunity—not simply to generate tax revenue.

Concerns That Cannabis Is Being Treated as a Budget-Filling Revenue Stream

Minnesota is currently facing a sizable projected budget deficit, which is driving lawmakers to identify new revenue sources quickly. However, critics argue that targeting cannabis sales—which haven’t even begun—is premature and shortsighted. By setting a precedent of using cannabis as a fiscal tool to patch budget holes, the state risks treating marijuana as a “cash cow,” rather than prioritizing public health, equitable business opportunities, and the safe transition to a legal market.

Some legislators have also questioned the fairness of raising taxes on a market that is still in development. Entrepreneurs and small business owners planning to enter the cannabis industry may be discouraged by the unpredictability of the state’s regulatory and tax framework. A sudden increase in taxes, even before dispensaries open their doors, could force them to reconsider the viability of participating in the legal market at all.

Potential Impact on the Hemp Derived THC Market and Non-Traditional Cannabis Businesses

The proposed tax changes also present complications for Minnesota’s fast-growing hemp-derived THC market. These products, which became legal in 2022 under separate legislation, include drinks, gummies, and tinctures sold at hundreds of retail locations across the state.

Applying a 15% gross receipts tax to these goods could result in price increases that consumers may not be willing to absorb, especially when cheaper, untaxed versions remain available from illicit sources. Retailers who rely on these products for revenue may find themselves in a difficult position, balancing compliance with the law against the risk of losing customers.

Moreover, because these products are often sold by businesses outside the traditional cannabis industry—such as liquor stores and health shops—there is concern that applying the same taxation model used for dispensaries could have unintended consequences. These businesses have different cost structures and less familiarity with the complexities of cannabis regulation, and the additional financial burden could drive many of them to discontinue THC product sales altogether.

A Market Still in Transition Faces Uncertain Taxation and Political Scrutiny

Minnesota’s adult-use cannabis market is still in its formative stages. Regulations are still being developed, licenses have yet to be issued, and retail storefronts remain months away from launching. Yet even at this early juncture, the state’s decision-makers are introducing tax policies that could have long-lasting effects on the program’s success.

The budget proposal has not yet been finalized, and debate over the tax hike will likely continue in the legislature as policymakers weigh the benefits of added revenue against the risk of stunting a new industry’s growth. Stakeholders from across the cannabis spectrum—including potential business owners, medical patients, consumer advocates, and economic analysts—will be watching closely to see how the state proceeds.

Ultimately, the outcome of Minnesota’s tax debate will not only shape the future of cannabis sales in the state, but also serve as a cautionary tale or model for other states that have yet to finalize their own marijuana tax policies. As Minnesota moves closer to launching adult-use cannabis sales, its approach to taxation will be a key factor in determining whether the market thrives or falters before it even begins.