Michigan’s legal cannabis industry is facing a significant challenge after a judge denied a request to block a new 24% wholesale tax set to take effect on January 1. The ruling means cannabis businesses and consumers will soon face one of the highest tax rates in the nation, a move that many fear will destabilize the market and undermine the goals of legalization.
On December 8, Michigan Court of Claims Judge Sima G. Patel denied motions for a preliminary injunction filed by several cannabis businesses and the Michigan Cannabis Industry Association (MCIA). The lawsuit sought to stop the implementation of the tax, which was passed as part of the Comprehensive Road Funding Tax Act (CRFTA). The plaintiffs argued the new tax is an unconstitutional amendment to the state’s voter-approved marijuana legalization law.
While the judge’s decision allows the tax to proceed for now, the legal battle is far from over. The court noted unresolved questions about whether the tax hike violates the original intent of voters who legalized cannabis in 2018. The case will now move to trial, putting the future of Michigan’s cannabis market in jeopardy.
The Court’s Ruling and the Industry’s Argument
The basis of the legal challenge is focused on how Michigan’s recreational cannabis market was established. In 2018, voters passed the Michigan Regulation and Taxation of Marihuana Act (MRTMA), a citizen-led initiative that set a 10% retail excise tax.
According to the state’s constitution, any amendment to a voter-initiated law requires a three-fourths supermajority in the Legislature. The CRFTA, which introduced the new 24% wholesale tax, did not meet this high threshold.
Cannabis industry advocates argued that the new tax is a form of “legislative gamesmanship” designed to circumvent the will of the voters. They argue that by adding a new, separate tax instead of amending the existing MRTMA, lawmakers found a loophole to impose a massive tax increase without the required support.
However, Judge Patel ruled that the plaintiffs were unlikely to succeed on the merits of this argument. She noted that the CRFTA does not technically change the wording of the original voter initiative. The state successfully argued that the new tax’s primary purpose is to raise revenue for road repairs—an estimated $421 million annually—not to regulate cannabis. Therefore, the court concluded, it may not be a direct amendment to the MRTMA.
Despite this setback for the cannabis industry, Judge Patel acknowledged the plaintiffs’ concerns about the tax’s impact. She wrote that there are still “questions of fact” about whether the 24% tax “contravenes the purposes” of the original legalization measure.
This point is important, as it leaves the door open for the industry to argue at trial that such a high tax rate undermines the primary goal of eliminating the illicit market.
A Blow to Michigan’s Legal Cannabis Market
The implementation of this new tax is a significant blow to a market that many considered a national success story. Michigan has seen cannabis sales flourish, with an estimated 75% of all sales in the state occurring within the licensed, regulated marketplace. Many attribute this success to the state’s reasonable 10% retail tax, which kept prices competitive with the illicit market.
With the addition of the 24% wholesale tax, Michigan’s total effective tax rate on cannabis will be among the highest in the country, approaching 40% when combined with the existing 10% retail excise tax and 6% sales tax. This drastic increase is expected to have severe consequences.
Industry leaders warn that such a high tax burden will inevitably lead to price hikes for consumers. Robin Schneider, Executive Director of the MCIA and a drafter of the 2018 legalization initiative, explained that they carefully chose the original 10% tax to “draw individuals from the illicit market into the regulated system.”
She warned that the new tax will make legal products prohibitively expensive for many, pushing them back to the unregulated, unsafe illicit market.
This concern is not just speculation. The Michigan Senate Fiscal Agency itself projected a potential 14.4% drop in legal cannabis sales as a direct result of the tax increase. This forecast suggests that even state analysts recognize the risk of undermining the legal market that has been successfully built over the past several years.
The Perilous Future for Cannabis Businesses
For the businesses that have invested heavily in Michigan’s legal cannabis industry, the new tax poses an existential threat. Many operators are already dealing with razor-thin profit margins in a highly competitive and saturated market. In recent months, retail prices for cannabis have plummeted, with the average price for an ounce of flower dropping to less than $62 in October.
Adding a 24% wholesale tax into this environment forces businesses into an impossible choice: absorb the cost and risk going out of business, or pass it on to consumers and risk losing them to the illicit market. Consequently, industry leaders predicted in affidavits submitted in the lawsuit that many businesses might have to shut down.
Stuart Carter, founder of the Detroit Cannabis Industry Association, called the measure a “slap in the face” to the industry and the voters who supported legalization. The MCIA argued that its members would face “immediate and irreparable” damage if the tax remains in place.
What Lies Ahead for Michigan Cannabis?
While the injunction was denied, the fight is not over. The court has directed the parties to appear for a scheduling conference on January 13, 2026, to proceed toward trial. This will give the cannabis industry another opportunity to prove that the new tax violates the spirit and purpose of the voter-approved law. The parties will likely appeal the case, which could reach the Michigan Supreme Court.
In the meantime, Michigan’s legal cannabis industry is bracing for impact. The new tax threatens to reverse the progress made in establishing a safe, regulated market.
If the state makes legal cannabis less accessible and affordable, it risks strengthening the illicit market that legalization aimed to eliminate. The outcome of this legal battle will have lasting implications not just for Michigan, but for cannabis legalization efforts across the country.
