Can Minnesota cannabis dispensaries compete with black market weed?
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August 20 2025
The state’s 15% tax on cannabis products solved a state budget problem, but some worry it will drive buyers away from regulated, legal dispensaries.
Mark Eide, owner of In-Dispensary, stands in his business in the skyway in downtown Minneapolis on Monday, Aug. 18, 2025. Minnesota recently raised the tax on cannabis sales by 5%. Eide plans to cover that extra cost but will label his products with the exact price customers will pay, including the remaining tax. Credit: Ellen Schmidt / MinnPost / CatchLight Local / Report for America
A last-minute tax hike on cannabis products passed as part of Minnesota lawmakers’ special session budget compromise may prove to be a boon to illicit dealers.
That’s according to cannabis industry experts, business owners, and at least one prominent DFL lawmaker who say the state’s relatively high cannabis tax will give consumers reason to avoid regulated, legal dispensaries in favor of informal sources on the black market.
Minnesota’s 15% state tax on marijuana and other cannabis products is among the highest in the country, trailing only Arizona (16%), Oregon (17%), California (19%), and Washington (37%).
“I thought it was the wrong thing to do, increasing the tax,” said Sen. Ann Rest, DFL-New Hope, chair of the Senate Tax Committee. “What we saw in California is that the high tax on legitimate cannabis leads straight to the black market. And I’m very concerned that that’s going to have the same or similar impact here.”
How do Minnesota taxes compare to other states?
Minnesota’s cannabis tax was initially set at 10%. The increase was a product of bipartisan budget negotiations between Gov. Tim Walz, Senate Majority Leader Erin Murphy, DFL-St. Paul, House Speaker Lisa Demuth, R-Cold Spring, and the late Speaker Emeritus Melissa Hortman, DFL-Brooklyn Park. The leaders stepped in to try to forge a compromise on the state’s budget after months of gridlock in the Legislature due to a tied House and a one-seat DFL majority in the Senate.
At the time, Demuth said the tax increase was simply “rightsizing” the tax rate to be more in line with other states’ rates. But, research by the Tax Foundation shows that the new rate puts Minnesota above the median tax rate for states that have legalized the sale of recreational marijuana.
Of those 23 states, 14 have a lower cannabis tax than Minnesota. There are nuances, like Illinois’ higher tax on edibles and concentrates compared to marijuana flowers, as well as two states that tax by weight rather than price.
This doesn’t account for Minnesota’s sales tax of 6.875%, and any local taxes. In Minneapolis, state, county, and city sales taxes are 9.03%. Add that to the cannabis tax and you end up with an effective tax rate of over 24% on cannabis products sold in the city.
“I’ve had people pick out their products, ring them up, and then when they hear the final price, they just walk out the door,” said Mark Eide, owner of In-Dispensary, the first recreational dispensary licensed in Minneapolis.
What are the downsides of higher cannabis taxes?
The new 15% rate, effective since July 1, affected the tax rate on THC edibles and drinks that most dispensaries and smoke shops have had on their shelves for years, since Minnesota legalized those categories of cannabis products in 2022. Medical marijuana, available in Minnesota since 2014, is exempt from both the cannabis tax and the state sales tax.
THC vapes and marijuana flowers are set to be on shelves as soon as cultivators can grow them or retailers can sign contracts with the tribal nations that have been allowed to grow plants since recreational use of all cannabis was legalized in 2023. This will give consumers more choices, but at higher prices than they are used to getting from the illicit market that has flourished in a state that legalized using cannabis products years ago but is only now licensing recreational retailers.
The price difference, which varies, is not only because of taxes. In addition to having to lease a storefront and pay employees, licensed dispensaries have to go through a regulatory gauntlet, outfitting their stores to fit the Office of Cannabis Management’s specifications regarding security, odor-control, and other aspects of their business. They also have to have their cannabis sent to an approved lab to have it tested and its potency measured and labeled.
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