Cannabis industry hopefuls and advocates rallied at the capitol on Wednesday in protest of a proposed tax hike on retail sales before the legal market is even off the ground.

The 2023 law greenlighting recreational marijuana implemented a gross receipts tax of 10% on sales at licensed businesses. DFL Gov. Tim Walz and legislative leaders announced a budget deal last week that increases the rate to 15%.

That’s on top of the state sales tax rate of 6.875% and any local sales taxes. And it applies to low-dose, THC edibles derived from hemp, too. 

The group of about two dozen people chanted “stop the tax, start the market” outside Gov. Tim Walz’s office, as key lawmakers behind closed doors worked to finalize the remaining parts of the next two-year state budget that they didn’t pass before Monday’s end-of-session deadline.

Leili Fatehi with cannabis consulting firm Blunt Strategies said high taxes means higher prices for consumers, which puts legal businesses at a disadvantage compared to the illicit market. 

“It feels like a real betrayal, both to the folks that have been very patiently waiting to enter the legal market, but also a really bad public policy decision,” said Fatehi, noting the change would also eliminate revenue-sharing with local governments that will handle some of the enforcement of the law.

The state’s General Fund rakes in 80% of the revenues from cannabis and cities and counties get the remaining 20%. 

Fatehi and others hope lawmakers will reverse course before any legislation is final, but both the House and Senate negotiators included the increase in their tax packages they are refining this week before the official special session. 

Supporters of the move say the new rate brings Minnesota more in line with other legal cannabis states. 

“There are not across-the-board tax increases,” said House Speaker Lisa Demuth, R-Cold Spring, during the budget deal announcement last week. “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. About half of those states have taxes higher than 10%.

The proposal comes as the state 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 don’t fall under certain categories and received approval from the Office of Cannabis Management can move forward and prepare to begin operations, like securing a location cleared by local governments. 

Still, Fatehi—who worked closely on the 2023 legalization bill—believes there will be a months-long delay before businesses start opening.

“I anticipate that we will see some state licensed retailers opening up in 2025,” she said “It’s likely going to be in the back half of the year.”

The first dispensary is set to open soon in Moorhead after the state entered into a compact with White Earth Nation allowing them to open eight dispensaries off of the reservation. Tribal nations have been able to sell legal cannabis on their land because of their sovereignty.

Under the agreement, off-reservation sales will be subject to all of the taxes other businesses face, as well as state regulators’ rules for safety.

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