New Wholesale Tax Could Hurt Michigan’s Cannabis Industry

Michigan’s new 24% wholesale tax on cannabis now subsidizes the path ahead for its roads and infrastructure. The new Michigan cannabis tax initiative will contribute considerably to much-needed repairs, but what are the other ripple effects of such a substantial rate hike on Michigan’s very successful adult-use program?

Let’s explore this complicated issue from its roots all the way up to the current layout of the new legislation that just started on New Year’s Day 2026.

What Is Michigan’s New Wholesale Tax on Cannabis?

The Michigan state assembly narrowly passed a road and infrastructure funding package for 2024, which will cost an estimated $1.1B. The state’s legal cannabis industry now supports a large portion of that funding, beginning January 1st. According to NORML, the budget package levies a 24% tax on the wholesale cost of cannabis when businesses sell or transfer it to a dispensary. This major rise in wholesale costs gets coupled with an already established 10% tax on retail cannabis and Michigan’s 6% sales tax. 

Why is the New Michigan Wholesale Cannabis Tax So Controversial?

There are a few reasons why this new legislation and tax are very unpopular and controversial, despite providing much-needed funding for the state’s roads. While state lawmakers insist that the new taxes provide infrastructure funding that doesn’t directly impact working families, advocates and industry professionals who lined up in droves to protest at the state capitol beg to differ. 

Tax Law Passed By Some Subterfuge

The Michigan state legislature committed a little bit of subterfuge when it passed the new wholesale tax bill several months ago. According to a lawsuit filed by the Michigan Cannabis Industry Association (MCIA), the state legislature never had the ¾ House and Senate majorities to alter the existing cannabis tax initiatives that were previously passed by voters back in 2018. The MCIA lawsuit also states that lawmakers used a completely different road funding bill to alter the will of the voters.

Cannabis Industry is An Easy Target

The tax revenue for Michigan’s roads sets off a debate about cannabis’s legitimacy and place in the overall marketplace. The idea that working families aren’t affected simply isn’t true. 47,000 legal cannabis industry workers in the state contain a wide range of people in need of a steady income, just like everybody else. Meanwhile, an entire multi-billion dollar industry will no doubt be dealing with the introduction of new factors like multistate operators, less competition, higher prices, and more working against it as a result. 

Power Grab Against Voter Initiatives Sets A Dangerous Precedent 

The Michigan state legislature did a fast one on what voters in the state originally put into law for their brand-new adult-use program back in 2018. Voters elect representatives to represent their own best interests, and in this case, the state legislature argues that they understand what voters’ best interests actually are more than them by changing the law themselves.

 If the state can change voter-approved initiatives in one area of the industry, would anything stop them from potentially altering others? They’re also violating the supermajority process stated in their own constitution. 

MCIA Appeals to Michigan Court of Claims

Arguments in a lawsuit brought by the MCIA against the state of Michigan say that the laws violate numerous areas of the state’s constitution, including rules for amending adult-use cannabis in Michigan. They argued that ¾ of the state legislature must approve any changes to the voter-passed initiative, or it should ultimately be up to voters as well. 

Michigan’s Wholesale Cannabis Tax Begins, But…

In early December, the Michigan Court of Claims mostly denied the MCIA’s attempts to stop the wholesale tax from taking effect on January 1. However, the court will still allow the case to proceed to trial to examine the legality of the amendment and its impact on consumers. The Michigan Appeals Court has stated it will allow the Court of Claims to hear arguments as a precursor to its own inevitable 3-panel ruling soon after. 

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READ MORE: How Will Michigan’s Wholesale Tax Affect The Average Consumer?

The appeals court also denied the state’s request to dismiss the case entirely. This development is a win for cannabis industry advocates and professionals, as it acknowledges the potential imbalances that the new tax law could create.

What Are the Potential Effects On Michigan’s Cannabis Industry? 

Numerous advocacy groups have directly expressed their concerns to state lawmakers. Heavy taxation in a regulated marketplace tends to create a domino effect that ripples through the legal landscape and back into the black market territory. 

Stability Becomes Volatility, Which Becomes Consolidation

One of the most profitable and stable adult-use markets in the U.S.could become more volatile. Cultivators, processors, and wholesalers may pass a much higher tax burden down to the retail level to absorb the impact. A once-stable state industry then potentially sees mass layoffs, especially for smaller grows and companies. 

The impact of those essential companies means competition for better quality would become less and less, until the multi-state operators (MSOs) swoop in and pick the bones of fledgling companies through a slate of mergers and acquisitions. 

MSOs feature unlimited capital and a general overall standard operating principle of profits over quality—i.e., higher prices, shittier weed. These types of capital-minded moves lead many adult-use cannabis consumers back to the black and gray markets—downloading Telegram again and digging the plug’s number up for the latest Runtz variety. 

Consumers Need Accessibility & Safety 

Weed in the black and grey market is abundant and certainly affordable. While the quality may also be off-the-charts, at the same time, it’s still not tested for a number of variables compared to the adult-use market. 

A lot of people say, “Who cares, what’s the big deal, I’ll save so much money,” have never seen a moldy guerrilla grow room full of potentially harmful mycotoxins and other assorted microbial infestations and plant diseases. These grows operate on a large scale and don’t meet the same types of standards. 

The legal market provides safe accessibility to weed, but not if it’s going to hike prices across the board in the case of Michigan’s wholesale tax ripple effect. 

Will the New Wholesale Cannabis Tax Stick Around?

Courts will determine whether the new tax rate remains once the appeal reaches trial. There are some very good points made by the MCIA demonstrating potential violations, while an entire industry absorbs the shock of getting hit with the brunt of state highway funding. 

This shock could create a potential future full of layoffs, consolidation, and a consumer less eager to hand over their hard-earned money when a cheaper black or gray market option exists simultaneously. It’s super critical that roads and bridges get funded and repaired, but fund them unilaterally without potentially disrupting and harming an entire successful and hard-working industry.