U.S. state Minnesota has passed a bill banning the in-state operation of prediction markets such as Kalshi and Polymarket.

On May 19, IT outlet Engadget reported that Minnesota Governor Tim Walz signed a bill containing public safety provisions. The bill also includes a clause banning the in-state operation of such markets. The measure is set to take effect on Aug. 1.

Opposition has already been raised ahead of implementation. Minnesota appears to be the first case of choosing legislation rather than lawsuits to regulate prediction markets, but it is unclear whether the measure will take hold immediately.

Several U.S. states have launched legal action against prediction markets such as Kalshi and Polymarket. But the court battles have not gone smoothly. Three states that began legal disputes were sued in return by the U.S. Commodity Futures Trading Commission (CFTC). The CFTC argues that only it has the authority to oversee prediction markets.

A federal regulator recently submitted an opinion to another lawsuit underway in Ohio. In the process, the conflict became clearer over whether oversight authority lies with state governments or at the federal level. Minnesota's move is not free from the same issue.

But the CFTC's rebuttal to the Minnesota law differs in tone from other state cases. This time, rather than focusing only on oversight authority, it took issue with the possibility that the law could block farmers' weather-related prediction trades. The commission sees such a structure as potentially restricting agriculture-related trades aimed at hedging the risk of crop losses.

The Minnesota bill began as a measure to restrict prediction markets broadly, but it has become more likely that, at the implementation stage, it could be adjusted to recognize exceptions for some uses such as agriculture. NPR reported that an amendment creating an exception for agriculture-related trades could be approved. In that case, some concerns raised by the federal regulator could also ease.

The move also shows a shift in how prediction markets are regulated in the United States. Until now, clashes between state governments and operators have mainly led to lawsuits, but Minnesota chose to limit operations through the law itself. Still, federal regulators have already intervened in several lawsuits, and changes to the Minnesota law are being discussed even before it takes effect, making it necessary to watch how far the regulatory framework will be recognised.

Prediction markets have rapidly expanded their influence with a structure that involves betting on outcomes of various events such as elections, economic indicators, sports and weather. Against that backdrop, Minnesota's ban is expected to be a test of whether state-level regulation can expand from a lawsuit-centred approach to a legislation-centred one. For now, the key points to watch are whether it will take effect in August and whether an agricultural exception clause will be reflected in the final bill.