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Minnesota’s legal adult-use cannabis market isn’t operating yet. But before the first retail sales even begin, cannabis flower and edibles could see a tax hike under a bipartisan deal approved by legislative leaders.
The 2023 law greenlit recreational marijuana with a gross receipts tax of 10% on sales at licensed businesses. The budget agreement announced Thursday would raise it to 15%.
The approved tax hike would be in addition to the state sales tax rate of 6.975% and any local sales taxes. This applies to low-dose, THC edibles derived from hemp, too.
“There are not across-the-board tax increases,” said House Speaker Lisa Demuth, R-Cold Spring. “There will be a small increase on the tax on cannabis, that is almost right-sizing it. It was very low. We were one of the very low tax states on cannabis.”
Cannabis taxes vary from state to state, with rates from as low as 6% to as high as 37% in Washington, according to an analysis by the Tax Foundation.
Advocates and businesses fear a 15% surcharge would make legal cannabis too expensive and therefore allow the illicit market to thrive.
“When we legalized adult-use cannabis, we talked about how this is not a cash cow,” said Sen. Lindsey Port, DFL-Burnsville, one of the authors of the cannabis law, during a conference committee hearing Friday. “It is not an answer to the state budget’s concerns. I am frustrated to see it is being used in that way because it will not be successful.”
Port blamed Republicans for the change instead of raising revenues elsewhere.
It comes as the state’s regulatory agency is nearing market launch. June 5 is the date set for a lottery to choose who will receive one of the capped license types, like growers and retailers. Other types of businesses that received approval from the Office of Cannabis Management and don’t fall under certain categories can move forward and prepare to begin operations, like securing a location cleared by local governments.
The budget framework approved by leaders on Thursday has not yet been approved by the Legislature. Lawmakers will work through the weekend to finalize the details of the next two-year spending plans.
Minnesota Legislature
Taxes
Cannabis
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