REGIONAL — Minnesota took its first major steps toward launching a legal adult-use cannabis market in early June, conducting its inaugural license lotteries while simultaneously imposing one of the nation’s steepest tax burdens on the emerging industry.

License lotter draws 776 applicants
On June 5, the Minnesota Office of Cannabis Management held livestreamed lotteries to award 249 licenses across four business categories: cultivator, manufacturer, mezzobusiness and retailer. The drawings attracted 776 qualified candidates.
“We’re setting a strong foundation for an equitable and safe adult-use cannabis market that will mature over the next few years,” said OCM Interim Director Eric Taubel. “Today’s lottery will set the course for a number of those new operators to start to build in that capacity.”
However, the foundation remains far from stable. The agency, still under its second interim director nearly two years after its creation, has faced criticism for delays, system glitches and policy uncertainty. The June 5 lotteries had been postponed from their original date last fall after lawsuits alleged the agency had unlawfully denied applicants access to the process. Another lawsuit challenging this month’s lottery was filed just a day before the drawings.
In a further misstep, OCM mistakenly sent rejection emails on June 10 to all 249 lottery winners, incorrectly telling them they had not been selected for a license. The agency issued corrected notifications within the hour, but not before sparking confusion and panic among business owners who had waited months for this opportunity.

Regulatory hurdles remain
OCM has not yet released the names of any lottery winners, identifying them publicly only by application number. While the agency expects to release names in coming weeks, the delay has left communities statewide uncertain about whether cannabis businesses may soon open nearby.
Those who won a license through the lottery must still complete a series of regulatory steps before they can legally operate, including passing a criminal background check, working with local governments to meet zoning and building code requirements and undergoing inspections by the cannabis agency.
Some dispensaries may open later this year, while others may be delayed until 2026. And cultivation cannot begin until licenses are formally issued, leaving early retailers to likely depend on tribal cannabis resources for their products in the same way the Ishkode dispensary opened by the Bois Forte band has done.

Tax increase draws
sharp criticism
Days after the lottery, state lawmakers approved a 50 percent increase in the state’s cannabis excise tax, raising it from ten percent to 15 percent as part of a broader budget bill that Gov. Tim Walz is expected to sign.
Combined with the state’s 6.875 percent general sales tax and possible local sales taxes, the total cost of purchasing cannabis in some Minnesota cities could be increased by 28 percent.
The tax hike drew swift criticism from some of the same lawmakers who led efforts to legalize cannabis in the first place. Sen. Lindsey Port, DFL–Burnsville, chief sponsor of the legalization bill, called the increase “incredibly disappointing.”
“With Minnesota’s legal market just starting, I fear the 50 percent increase in tax will encourage consumers to continue to buy from the illicit market where products are untested and sales to minors are far too common,” Port said. “This decision has the potential to harm the new legal businesses that are just starting to get up and running.”

Revenue goals
and local funding cuts
A Minnesota House analysis projects the increased tax will generate more than $200 million in additional revenue over four years. These funds will support programs such as youth prevention efforts, law enforcement training, support for social equity applicants and the state’s cannabis expungement initiative.
But lawmakers also removed a key provision from the tax framework: the 20 percent share of cannabis excise revenue that was originally designated for local governments. That local share was eliminated in the final budget agreement, leaving cities and counties to shoulder the regulatory and enforcement burdens without any guaranteed funding.
“Cities are disappointed to see this aid eliminated just as the market is being set up,” the League of Minnesota Cities said in a statement. “Cities will have to rely on their own existing local budgets to fund compliance, safety, and other necessary regulatory work. As the market matures and the impacts to cities become more concrete, we hope to be able to revisit options for local revenue with the state in the future.”
The change is expected to be particularly challenging in rural areas where staff and financial resources are limited. Local governments will be responsible for land-use zoning, public safety coordination, and inspection processes tied to cannabis businesses without a dedicated revenue stream.

Market development continues
OCM continues to process hundreds of applications for “uncapped” license types, such as microbusinesses and testing labs, outside the lottery system. As of mid-June, roughly 1,000 applicants had been deemed qualified, and about 400 had reached preliminary approval.
Another round of lotteries for general retail applicants is scheduled for July 22.

MPR News contributed to this article