Minnesota Cannabis Businesses Can Level Up by Being Efficient

Minnesota’s recreational cannabis agenda has always been to encourage small business, support social equity applicants, and mitigate the growth of an illicit market. But changes, including a 50% excise tax hike and preferential treatment for American Indian tribes in the state, have raised concerns about the road ahead for cannabis entrepreneurs recently granted licenses through the state’s lottery system.

Starting a cannabis company in Minnesota won’t be as easy as it used to be. But the demand is there, and companies that have sound business practices should be rewarded.

Minnesota Cannabis Landscape

In the two years since legalization, Minnesota’s progress has been bumpy, with its first cannabis czar recalled for background improprieties, and its licensing schedule extended following a court challenge to a 2024 lottery.

Lotteries this June and July have resulted in 324 new cannabis licenses, mostly to social equity applicants. These businesses must obtain approval by their local jurisdiction, pass criminal background checks, and strike a labor agreement with an approved labor organization before obtaining final approval from the state.

But the most optimistic predictions are that 150 applicants will have businesses open and operating by the end of 2025. And the recent increase of the cannabis excise tax by the state’s legislature from 10% to 15% will place Minnesota’s cannabis tax rate among the highest in the nation, further disincentivizing legal cannabis businesses and pushing consumers toward the illicit market.

Originally, 20% of excise taxes collected were slated to go to the municipalities and counties where the businesses were located. Now, the legislature has directed that 100% of excise taxes go to the state’s coffers.

This has local governments worried about an unfunded state mandate but may work to the advantage of those cannabis businesses that move fast to obtain a location. Minnesota’s municipalities and counties are prohibited from banning adult-use cannabis businesses (one retail licensee must be allowed per 12,500 residents), but with no funding from the state, they may limit each region to only one location.

New cannabis businesses need to be aware of potential competition from businesses that sell low-dosage, hemp-derived edible THC products. While these products are taxed at the same 15% rate as cannabis sales, the barrier to entry is much lower. Licensing is virtually unlimited (there were nearly 4,000 hemp businesses registered as of 2024), and licensing requirements and fees are negligible ($250 per retail location).

Competition from retail and cultivation operations owned by American Indian tribes adds another wrinkle unique to the Minnesota market. State cannabis laws allow tribes to operate cannabis businesses outside reservation land, and 10 of the state’s 11 tribes are negotiating agreements with the Office of Cannabis Management, or OCM.

Each tribe is allowed five off-reservation retail stores and up to 30,000 square feet of plant canopy, and there are no caps on the amount of cannabis that may be grown on tribal land and sold off-reservation. Ten tribes equate to 50 retail stores—a significant presence in a state that will only have 150 non-tribal retail licensees.

The tribes are also exempt from rules against vertical integration and will be overseen by tribal government versions of the OCM rather than by the OCM itself. The ability to vertically integrate could lower per unit costs, giving the tribes a competitive advantage, while the self-policing of their cannabis businesses could lead to less strict oversight, possibly leading to further competitive advantages.

The language in the OCM agreements only states that tax agreements between the tribes and the Minnesota Department of Revenue “may” be negotiated in the future. Though it isn’t yet clear whether the tribes will have to pay the same taxes as non-tribal licensees, many licensees and some lawmakers are concerned these compacts will give the tribes an unfair advantage over non-tribal licensees.

Smart Business Practices

Minnesota’s adult-use cannabis businesses will have to face high taxes and competition from hemp sales, tribal nations’ dispensaries and cultivation, and the illicit industry, each of which have certain advantages. Success will hinge on four points.

Choosing a good location. In addition to the obvious pluses, such as high foot traffic and reasonable rent, consider your location as part of your destination “package” for your customers. You’ll be competing against door-to-door delivery services. Your location should be a place people want to get out and visit, in an area where people enjoy spending time.

Efficient operations. This includes smooth flow from purchase to sale through strong internal organization, from the processing of incoming products, to storage, to efficient stocking of your retail front area. Strong internal bookkeeping is also a must.

Superior customer service. This means understanding and optimizing your customer’s experience from initial walk-in through to the next sale. Educated budtenders with good “soft” skills combined with an attractive decor and exciting “vibe” will lead to customers returning soon and often.

Use METRC tracking data to understand and cater to your customers. This will be an advantage over hemp and illicit sellers, and possibly tribes, who may not have such detailed information. For example, since you will know your customers and what they normally purchase, you can tailor individual offers to their personal tastes.

Reasons for Optimism

With 5.7 million people, Minnesota’s population is similar to Colorado’s, which may suggest similar possible sales for Minnesota once its retail cannabis market matures. Colorado currently has around $1.3 billion in yearly retail cannabis sales.

Also, Minnesota is bordered by four states without adult-use cannabis and with an estimated 1.9 million people living within a 50 mile radius of Minnesota. This means dispensaries won’t have nearby out-of-state competition and will benefit from out-of-state purchases.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Abraham Finberg is principal at AB Fin and has worked in the cannabis sector since 2009, counseling clients in all phases of business advisory and tax.

Simon Menkes supports accounting firms, their clients, and advisers through accounting and advisory services.

Reproduced with permission. Published Aug. 13, 2025, 4:30 AM EDT. Copyright 2025 Bloomberg Industry Group 800-372-1033. For further use please visit https://www.bloombergindustry.com/copyright-and-usage-guidelines-copyright/