How Will Michigan’s Wholesale Tax Raise Affect The Average Consumer?

On October 7th, Michigan Governor Gretchen Whitmer signed a bipartisan $81 million budget plan into place with the intention of improving state infrastructure. The bill includes expanding free school lunches, fixing roads, boosting funding to public universities, and repairing parts of the airport. 

The Governor’s most ambitious goal with the new plan was road repairs – something the state desperately needs.  

“Big news, Michigan. I signed my seventh balanced bipartisan budget,” Whitmer said in a press release shortly after the bill’s passage. “And here’s what it means for you: safer, smoother roads to drive on, thanks to the biggest roads deal in Michigan history, so we can keep fixing all those damn roads, state and local, and keep your car in good shape, too.”

The state has unfairly forced the cannabis industry to shoulder the cost of road repairs. Now retailers, growers, and consumers must deal with the consequences of a staggering new 24% wholesale tax on recreational cannabis goods.

Understanding the New Tax Law 

Michigan first legalized recreational cannabis in 2018, when voters passed Proposal 1 with 55.9% of the vote. It made Michigan the 10th state in the country to legalize adult-use weed. 

The state’s market experienced explosive growth, quickly turning into one of the largest in the United States and generating over $3 billion in 2023 alone. Interestingly, Michigan also became the state with the cheapest legal cannabis market, on par with Oregon’s, while beating out Washington and Colorado in price per ounce. 

Since legalization, Michigan has imposed a 10% cannabis excise tax and 6% sales tax. The excise tax charges consumers 10% of a product’s retail price, and the sales tax adds a standard fee to the final total. Although these taxes are considered fairly normal for cannabis, they have still generated more than $1 billion in state revenue since 2019. The state typically uses the excise tax revenue to fund roads and schools.

Now, however, the new 24% wholesale tax threatens to upend the entire industry. It doesn’t merely raise the current 16% tax – it adds on to it, bringing the total tax on cannabis products to 40%. With it, Michigan will overtake Washington as the state with the highest cannabis taxes in the country. 

Three million dollars in tax revenue will go toward roads in 2026, with an additional $500,000 allotted for each year after that. 

What Does This Mean For Michigan’s Cannabis Market? 

The cannabis wholesale tax law will take effect on January 1, 2026, giving the market little time to adjust. Now, cannabis retailers are scrambling to figure out how to avoid massive hits to their revenue. 

First, we need to look at the tax itself – which is far more than just a simple excise tax. The bill defines the “wholesale price” as the amount a retailer pays, including any taxes or fees, so the tax compounds on itself. Instead of a simple 24% increase, each step creates a new, higher taxable base. By the time the cost moves through the supply chain, a $500 wholesale product can generate nearly $175 in new taxes alone. It’s a tax on a tax. 

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The tax will also unfairly target smaller cannabis businesses, who aren’t able to shoulder the new high costs, as well as larger companies. Michigan’s cannabis market already runs on thin margins, so many retailers don’t pay for products upfront: they buy on terms. Under the new model, growers and processors would have to pay the wholesale tax immediately, which forces them to require cash-on-delivery payment from retailers. Many independent, smaller retailers will not be able to meet this demand. 

READ: Becoming a Medical Cannabis Patient In Michigan

This will lead to a ripple effect. Retailers will close, growers will have to undercut their prices to compete for less shelf space, and jobs will be lost. The entire cannabis market in Michigan could end up destabilized, a mere shell of its former self. 

And the worst part? The hundreds of millions in tax revenue promised by Michigan’s government are far from guaranteed. If the market collapses, that tax revenue will only dry up further. It may also lead to a resurgence in the legacy market, which generates no tax revenue at all and is far less safe for consumers. 

The Industry Fights Back 

Although anyone who lives in Michigan agrees that the roads need work, the cannabis industry is not happy with the Governor’s decision. 

The same day the budget plan was signed, the Michigan Cannabis Industry Association (MiCIA) filed a lawsuit against the state government. They argued that the new law is unconstitutional because it did not pass with three-fourths of the legislature’s vote, which is the standard for altering voted-in laws like cannabis legalization. 

“Article 2, Section 9 of the Michigan Constitution requires a three-quarters vote, rather than a simple majority vote, to amend any law enacted by citizen initiative, as was the Michigan Regulation and Taxation of Marihuana Act, which passed on the 2018 election ballot,” MiCIA said in a statement. “The lawsuit details how the last-minute, late-night process occurred in violation of a range of other constitutional provisions. The association is asking the court to strike the tax in its entirety.” 

Attorneys representing Michigan’s treasurer were dismissive of the claim, arguing back that the state’s decision did not place “undue burden” on voters’ rights. They insist that the law legalizing cannabis in 2018 “created a targeted tax on retail adult-use marijuana sales and specifically allowed that all other taxes would still apply.” 

Other groups, including cannabis cultivator Holistic Research Inc., are also attempting to fight back against the budget bill. The case remains in a murky legal gray area for now, but a judge will hear arguments from both sides on November 25.

Final Thoughts 

This case is an unfortunate reminder that the cannabis industry is still an underdog in American society. Cannabis businesses are often expected to provide revenue for roads, schools, and other government functions, while still not being able to receive any actual government assistance themselves in tough times. 

Is it fair to continue to demand more from an industry that is not eligible for federal loans, public trading, or grants? More so, is it fair to vote in such high taxes in the dead of night, when representatives from said industry are not there to argue their side? 

While the exact outcome of this fight remains to be seen, the wholesale tax could change Michigan’s cannabis scene forever if it goes into effect as planned. The market in the state is already struggling, and many are worried that this may make it bottom out completely. 

Ultimately, Michigan consumers may soon feel the weight of a tax meant for road repairs rather than the cannabis community itself. Whether lawmakers (or the courts) reconsider will determine if the state preserves its legal industry or pushes consumers back into the illicit, underground market they once used.