Rapidly changing regulations in the cannabis industry are leaving small businesses behind, and their customers frustrated
January 2026
For a budding market, the recreational cannabis industry in the U.S. has hit some major roadblocks. Small businesses across the country trying to capitalize on the legalization of marijuana in their states now find themselves struggling to stay afloat.
New rules, new taxes, a major shift in marijuana’s federal classification, and a tightening of hemp regulations have licensed dealers irate. As a result, some pot users are turning back to the black market, where the unlicensed product is more affordable—and more dangerous.
“It is an unfair sandbox, and there’s no possible way for me to compete,” says Mark Eide, owner of a Minneapolis, Minnesota store called In-Dispensary.
Three years ago, Eide was selling hemp-derived products at music festivals and fairs. But he says it didn’t take long to realize his one-man venture could become a serious commercial enterprise once the state legalized recreational marijuana in August 2023.
“It kinda just started out as a fun thing to do, and then I thought I could make something of this,” Eide says.
To grow his company, Eide bought an 1,800-square-foot downtown space and followed state requirements by installing a safe room to store his inventory and cameras to monitor customers. In-Dispensary soon became the 11th licensed store of its kind in Minnesota. There are now more than one hundred.
In-Dispensary owner Mark Eide explains that he’s only able to keep some THC drinks and edibles in stock. His selection dwindled after Minnesota law prohibited dispensaries from selling products made out-of-state.
“I sunk a lot of money into getting the license,” Eide says.
Fast-forward to 2026 and Eide’s business, he says, is on the verge of going under—because he still can’t actually sell pot. He blames the problem on what he calls the state’s “ridiculous processes.”
Dispensaries like Eide’s are licensed to sell all marijuana products, but most can currently only stock edibles, THC drinks and paraphernalia. They cannot legally sell the bud or “flower” of a marijuana plant yet because supply is limited. A new Minnesota law that took effect January 1 requires all marijuana flower to be cultivated in the state—and as a result there is not enough being grown yet.
Flower is the most potent part of the cannabis plant, where most of the active compounds (cannabinoids like THC and CBD) are concentrated.
Even though marijuana flower is now legal to grow and smoke on an individual level in Minnesota, for years it was only legal for the state’s medical dispensaries to sell it. Medical marijuana became legal in Minnesota in 2014, and it was originally only available to people enrolled in the state’s medical cannabis program. As of September 2025, however, the 16 medical marijuana dispensaries licensed by the state can now sell to any consumer over 21.
“When you put all of that together, I basically understand that the government is telling me ‘we don’t care about you,’” Eide says. “How could I think of it any other way?”
Minnesota’s regulatory system for commercial marijuana sales only began issuing business licenses in June 2025. The state says it needed more time to create and implement a comprehensive licensing system.
In-Dispensary, known as “In-D” for short, calls itself “a boutique recreational retail cannabis store” that offers “one of the largest selections of THC products and accessories in the Midwest.” Yet the store is tucked away on the second floor in the downtown Minneapolis, Minnesota skyway system, projecting a low-profile image.
This involved developing rules for cultivators (people who grow cannabis), manufacturers (people who make and package cannabis products) and retailers (people who sell those products), such as product testing and seed-to-sale tracking.
As of January 2026, Minnesota’s Office of Cannabis Management (OCM) had approved 124 cannabis licenses (the majority of which are retail licenses), and approximately 1,400 businesses have “pre-approved” status and are expected to enter the market eventually.
In approving licenses, Josh Collins, the communications director for OCM, says the state also needs to consider the “supply-demand equation” when establishing a legal cannabis market.
If there’s too much legal cannabis product on the market, he says, then the price “falls through the floor” and legit businesses can’t meet profit margins. Conversely, if consumer demand outweighs product availability then prices skyrocket, and consumers will return to the illicit market.
A RETURN TO THE BLACK MARKET FOR SOME
Matthew Foley, 44, who lives in the Minneapolis suburb of Edina, says he started smoking marijuana as a teenager.
“It was pretty scary sometimes having to try and buy a bag in a parking lot or some sketchy dealer’s apartment,” Foley said. “I would drive down to Minneapolis and go pick up weed from kids who were like five years younger than me. That was pretty fucked up.”
Today, he legally purchases flower at a medical dispensary, and says he never goes to shops like Eide’s.
The Rise Dispensary located in Eagan, Minnesota is one of 16 medical marijuana dispensaries in the state.
“Ten milligrams per gummy or drink is fine if you’re new,” Foley explains, “but for crying out loud I’ve been doing it for almost 30 years that I need to eat a whole bag.”
The situation grew worse for Minnesota’s non-medical dispensaries this past July when the state raised taxes on all marijuana products by 5%—meaning products that used to have a 10% state tax rate are now taxed at a 15% rate.
This, in turn, has raised dispensaries’ expenses, reduced their revenue, and further shrunk the amount of available legal products on the market.
“You’re setting yourself up for the black market when your taxes are so high,” complains Dale, a 48-year-old St. Paul, Minnesota resident. He’s one of several Minnesota pot smokers interviewed for this story who asked us not to use their last name. They all say there’s still a stigma about pot use in some circles and point to the fact that cannabis is still federally illegal.
Dale says he checked out In-Dispensary to purchase edibles, but the new taxes have sent him back to unlicensed dealers because, he claims, they’re cheaper. He says he doesn’t like going to the medical dispensaries either because the prices are too high for him there, as well. For example, an ounce of flower currently costs on average $350 at Minnesota’s 16 medical dispensaries.
Several recreational pot users The Reporters Inc. contacted about the cost of marijuana, including Dale, say the going rate for an ounce from unlicensed dealers (the black market) in Minnesota is much less—between $125 and $250, depending on who and where the seller is.
Still, Dale admits, “I am concerned about what could be in the [unlicensed] product. That could be anything from DDT [an insecticide] to fentanyl.”
The U.S. Drug Enforcement Administration (DEA) cites several present-day dangers associated with buying marijuana “from the street (the illicit market)” compared to regulated sources, such as “unknown and inconsistent potency.”
The DEA says marijuana that isn’t subjected to standardized testing “can lead to unpredictable effects and potential adverse reactions, such as paranoia, anxiety, or psychosis, especially with high-potency products.”
It may also contain harmful substances, “including pesticides, heavy metals, mold, fungus, or bacteria (like E. coli or salmonella). Inhaling or ingesting these contaminants can lead to serious health issues, including respiratory infections or other illnesses.”
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And the DEA validates Dale’s concerns, warning that street drugs in 2026 may be laced or cut with “other dangerous substances like synthetic cannabinoids (like K2 or Spice) or even more dangerous drugs like fentanyl or xylazine, which significantly increase the risk of overdose and death.”
“Lacing is a risk,” says Karen O’Keefe, the director of state policy at the Marijuana Policy Project, a national lobbying organization dedicated to legalizing cannabis in the U.S. “There’s definitely been reports, but it’s hard to know how widespread.”
CONFUSION AND CONTRADICTION BETWEEN STATE LAWS
In 1996, California became the first state to allow the use of marijuana for medical purposes. Since then, 40 other states, three U.S. territories, and the District of Columbia have also enacted comprehensive laws and policies allowing for and regulating medical marijuana.
Colorado and Washington were the first states to legalize recreational marijuana, both in 2012. Today, 24 states, two territories, and the District of Columbia now allow recreational marijuana use.
Before states started legalizing, substance control laws were relatively uniform and mirrored federal law regarding the production, distribution, and possession of marijuana. Now, as states repeal or limit prohibitions, marijuana regulations vary significantly.
Some states have major restrictions. Pennsylvania, for example, has a medical cannabis law but it hasn’t decriminalized possession of marijuana without a medical license, and it doesn’t allow reciprocity, which means a person from a different state with a medical cannabis license or registration card cannot possess cannabis in Pennsylvania.
According to O’Keefe, “You have to be a Pennsylvania resident who’s registered in Pennsylvania to use medical cannabis, and they’re very restrictive in the products. People might think that it’s legal for them to just possess cannabis that they bought in neighboring New Jersey or Delaware or Ohio, and smoke it, but they can end up with a criminal conviction.”
O’Keefe works with state legislators and grassroots groups to help them establish policies and protocols. She says cannabis manufacturing companies create products that must comply with state laws. So, some products made in Minnesota might not be available in other states, or a product’s serving size might be higher or lower.
“Even if it’s the same brand, it might not be exactly the same because it was manufactured in a state compliant with each state’s rules,” O’Keefe explains. “People have to be careful, so they don’t take a gummy thinking it’s what they’re used to.”
John, a St. Paul, Minnesota native in his late 40s, believes the difference in product is definitely noticeable between states.
In Las Vegas, he says, the dispensary prices are lower, and the quality is better than in Minnesota.
“The potency, the taste and the curb appeal are better,” he says. “It was just a much easier experience.”
O’Keefe says states require warning labels on products to try and prevent people from over consuming cannabis, especially since edibles can often take 45 minutes or longer to take effect.
Labels need to clearly inform consumers how much a serving is, so they can avoid unpleasant or traumatizing experiences, like hallucinations.
Packaging also needs to be child proofed
“You’ve heard of people that take a little bit, and it doesn’t have any effect. And then they take more, and they end up way too intoxicated,” O’Keefe says.
State laws also differ greatly on several other issues:
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- How much a person can legally carry in public versus at home
- If, and how much, marijuana an individual can grow at home
- And what type of marijuana-related products an individual can purchase and possess.
O’Keefe says Minnesota is “generally more permissive than most states on cannabis.” Only Idaho, Kansas, Nebraska, and American Samoa prohibit the use of all marijuana products.
Penalties for violating state marijuana laws vary widely as well.
For example, in California, where both medical and recreational marijuana usage is legal, adults 21 years and older are allowed to possess one ounce of flower. Anyone caught in possession of a larger amount is charged with a misdemeanor and can receive up to six months’ jail time or a $500 fine.
Comparatively, Minnesota allows adults 21 and older to possess up to two ounces of flower in public but up to two pounds at home. Those caught with more than two ounces (but less than two pounds) in public are charged with a misdemeanor and can face up to 90 days in jail. More than two pounds (but less than 11 pounds) in public can land you anywhere from five years behind bars to a fine of $10,000.
Mark, a 64-year-old Plymouth, Minnesota resident, says he doesn’t understand how the state plans to enforce its new home-growing cannabis laws. Since recreational cannabis was legalized in August 2023, residents can grow eight plants per household in an enclosed space inaccessible to the public, but they can only keep two pounds of flower at home.
“If your plants are successful, you might end up growing more than you’re allowed to,” Mark says.
O’Keefe says many of the laws simply go too far. “In the U.S., we pride ourselves on our freedom,” she says. “You can do things that might not be the healthiest thing in the world to do. You can ride a motorcycle, you can go rock climbing, you can sit around on the couch all day and eat unhealthy food. Grown-up adults with proper education and information and safety rules should be able to choose if they want to relax with cannabis, if they want to grow cannabis, if they want to possess cannabis, and there shouldn’t be really onerous rules and restrictions on being allowed to use it.”
MARIJUANA USE IS GROWING…
In 2022, the National Survey on Drug Use and Health estimated roughly 61.9 million people over the age of 12 used marijuana in the United States, with 42.3 million reporting they had used it within the past month.
Between 2008 and 2022—when many states legalized medical or recreational marijuana—there was a steady increase from 6.1% of individuals reporting they used marijuana within the last month to 15.9%.
“One of the goals of legalization is to do away with the illicit market as much as possible so that people are getting legal, regulated cannabis,” O’Keefe explains. “But if you have large pockets where you have no legal access, then of course the illicit market is going to persist. It’s been seen in those [areas] that have opted out that the illicit market is more prevalent. People don’t just stop using marijuana.”
Even in Minnesota the illicit market remains persistent despite legalization.
Ira Mitchell, the owner of Green Duck Dispensary in Eagan, Minnesota, says he believes his biggest competitors will continue to be unlicensed dealers. “It’s never been a better time to be a drug dealer in this state because you can walk around with two ounces on you at all times and not be breaking the law,” Mitchell claims.
…BUT FEDERAL MARIJUANA LAWS OFTEN CONFLICT WITH STATE REGULATIONS, RAISING EVEN MORE QUESTIONS
Marijuana has long been a Schedule I drug under the Controlled Substances Act (CSA), which means many cannabis-related activities that comply with state laws still violate federal law.
In December, however, President Donald Trump issued an executive order directing the Department of Justice (DOJ) and the DEA to reclassify cannabis to a Schedule III drug. This lower schedule puts it alongside drugs with accepted medicinal use and a lower potential for abuse, like Tylenol with codeine, ketamine and some anabolic steroids.
Green Duck Dispensary is a “small, low-dose, hemp-derived” THC boutique, according to its owner. Tucked into an Eagan, Minnesota strip mall next to a nail salon, the hope is to expand the business into a larger space.
This order does not mean marijuana is now federally legal for adult use, but it does provide new opportunities for research and lowers the hefty tax burden on cannabis businesses. In fact, it removes the burden of IRS rules that previously barred state-legal cannabis businesses from deducting ordinary business expenses from their federal taxes.
“It’s a small step,” O’Keefe says. “It finally acknowledges the medical value of marijuana.” She hopes this reclassification will soften the stances of the 10 states that haven’t legalized medical marijuana because of its federal status.
Though the order has officially been signed, U.S. Attorney General Pam Bondi and the DEA are still in the process of finalizing the rule as of January 2026.
“I hope they reclassify soon so I can deduct my business expenses,” Eide says. Otherwise, he doesn’t think the reclassification will really change his business.
Unauthorized possession of marijuana in the U.S. currently results in a minimum fine of $1,000 and up to one year in prison, according to the Congressional Research Service, whereas the distribution of large quantities of marijuana carries a 10-year prison sentence and a minimum $10 million fine.
O’Keefe says the reclassification does not directly affect possession charges. “The question,” she says, “is if nonenforcement is going to continue.”
AND NOW, STILL MORE NEW RESTRICTIONS
Mark Eide’s cash cow, the low-potency THC edibles and drinks that are made out-of-state—and that he says have been keeping his business alive—were no longer legal to sell in Minnesota as of January 1. The new laws require him to only purchase and sell products from a state licensed cannabis grower and manufacturer.
“We’re holding on but it’s negative still,” Eide says.
The window to become licensed to create those products in-state just opened in October. Green Duck Dispensary’s Mitchell says cultivation licenses should have been rolled out early last year. He expects it will be another year before there’s a steady supply of flower.
It can take anywhere from three to eight months for a marijuana plant to fully mature depending on the strain of the plant, growing conditions, and the cultivation method. That means it could take at least half a year or more for there to be a stable supply of flower on the market in Minnesota, given the state’s new regulations.
“We’re hoping that we can get enough to keep people happy, but we know it’s going to be a challenge,” Mitchell says. “We are not selling flower right now.”
Minnesota cannabis businesses are also required to use state licensed labs for quality control testing. However, only three labs are currently licensed, and only two of them can conduct all necessary tests.
Meanwhile, Minnesota’s decision last year to enact a new 5% tax hike on all cannabis products now gives the state the fifth-highest cannabis tax rate in the country, trailing behind Arizona (16%), Oregon (17%), California (19%), and Washington (37%).
This new tax also comes atop several other existing taxes: a 7% state sales tax in Minnesota, and any applicable county and city taxes. In Minneapolis that comes to a total effective tax rate of 31% for cannabis products sold.
“I think the idea to raise taxes on this stuff was super short-sighted,” says Mitchell. “Raising your taxes is just going to have more people be like, ‘Why would I want to pay all that tax when I’ve got a guy down the street who has a giant tree in his backyard?’” he says, referring to unlicensed dealers.
O’Keefe agrees that these high barriers in the marketplace create conditions ripe for unlicensed dealers offering low-cost alternatives. “Things that unnecessarily drive-up costs on consumers and businesses make them less competitive with the illicit market,” she explains.
Mitchell adds, “Everybody’s just trying to hang on.”
Yet according to information on the Minnesota House of Representatives website, the 15% cannabis tax rate is projected to increase the state’s coffers by $76 million in the next two years.
ADDITIONAL CHANGES AHEAD
A new federal definition of hemp, enacted in late 2025, is scheduled to take effect in November 2026. It changes the legality threshold from “delta-9 THC” to “total THC” and imposes a strict limit of 0.4mg of THC per container, effectively banning many currently popular hemp-derived intoxicants like Delta-8 and THCA flower.
This would outlaw Minnesota’s popular 5mg-per-serving hemp beverages and edibles currently sold in liquor stores and breweries. It would not prevent state-licensed dispensaries from selling these products, but it would make business more complicated.
Eide says he’s concerned that manufacturers he’s partnered with may choose to shut down operations. “It may make it harder to obtain,” he explains. “But we’re going to continue to sell those products we enjoy.”
Lawmakers could still delay, repeal, or modify the new provision, including carving out exceptions for low-dose products.
“The hemp ban was a horrible thing they did,” Mitchell says. “I’m really upset about that.”
THE FUTURE REMAINS UNCLEAR
“I’m mad,” Eide says. “I don’t know how long I can keep going on my own.” Last fall, Eide let go of all his employees, was running his store by himself, and was currently working on an exit strategy.
Mark Eide, the owner of In-Dispensary, says he used to employ two people to man the front desk of his store but due to recent changes in state law he had to let them go, and he now runs the store alone.
Eide’s sales the week after medical dispensaries were allowed to sell adult-use last September were $30 collectively. Store traffic went from an average of 20 customers a day to, at most, two. Before, his average daily sales were roughly $450, which was only enough to break even.
“Now I have to literally send them to the competition, because the competition has [the smokeable] products they actually want,” Eide says.
Eide’s sales have remained relatively the same into the new year.
Mitchell says his sales had dropped by about 30%. “The medical dispensaries being allowed to sell their medical stuff as recreational has blown me away,” he says. “I think it’s just been a real kick in the teeth.”
He adds, “The people that are hardest hit by this, really are the very folks that should have been the beneficiaries.”
Olivia Hines can be reached at oliviaannette2@gmail.com
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