The calendar has turned to January 1, 2026, and while many Michiganders are recovering from New Year’s Eve celebrations, the state’s cannabis industry is waking up to a harsh new reality. As of this morning, the controversial 24% wholesale excise tax is officially in effect.
This massive levy, passed under the guise of the Comprehensive Road Funding Tax Act, is a massive shift in the state’s approach to regulated marijuana. For years, Michigan had been viewed as a model of a functioning, competitive cannabis market.
Today, however, consumers and business owners alike are left wondering if the state has just paved over the progress of the last decade in a misguided attempt to fill ‘potholes’.
This tax increase is not just a small adjustment to the cost of doing business. It is a fundamental restructuring of the market’s economics that places an unprecedented burden on a single industry to fund general infrastructure.
By stacking this new wholesale tax on top of the existing 10% retail excise tax and the standard 6% sales tax, lawmakers have effectively created one of the most punitive tax regimes for cannabis in the country.
The result is a sharp departure from the voter intent of 2018, threatening to dismantle the legal market and breathe new life into the illicit trade that legalization sought to destroy.
The Mechanics of The Price Hike
To understand the gravity of today’s change, it is necessary to look at how this tax actually functions. Unlike the retail excise tax, which is added at the point of sale, this 24% tax is levied at the wholesale level.
This means that before a product even reaches the dispensary shelf, its cost has been significantly inflated. Retailers, already operating on razor-thin margins due to market saturation and competition, have little choice but to pass these costs down to the consumer.
The compounding effect of these taxes is severe. When a cultivator sells to a retailer, that transaction is now taxed at 24%. The retailer then marks up the product to cover their overhead and the new tax cost.
Finally, the consumer pays the 10% excise tax and the 6% sales tax on that higher retail price. The effective tax rate for the end consumer is skyrocketing, transforming cannabis from an affordable legal good back into a luxury commodity.
This pricing surge comes at a time when the industry was finally finding equilibrium. Prices had stabilized, making legal cannabis competitive with street prices. This competitiveness was the primary driver behind Michigan’s success in transitioning consumers from the illicit market to the legal one.
By disrupting this balance, the state is effectively penalizing consumers for choosing the legal route and punishing businesses for operating within the law.
Failed Legal Battle to Stop New Michigan Wholesale Cannabis Tax
The road to today’s implementation was paved with legal challenges and opposition from industry advocates. The Michigan Cannabis Industry Association and others fought tooth and nail to prevent this tax from taking effect, arguing that it violated the state constitution.
Their primary argument centered on the 2018 voter-approved Michigan Regulation and Taxation of Marihuana Act (MRTMA). Under Michigan law, amending a voter-initiated law requires a three-fourths supermajority in the Legislature, a threshold the Comprehensive Road Funding Tax Act did not meet.
Advocates argued that the new tax was a legislative loophole designed to circumvent the will of the voters. They contended that by imposing a new tax without the necessary supermajority, lawmakers were effectively amending the MRTMA through the back door.
The industry sought a preliminary injunction to halt the tax, hoping to pause its implementation while the constitutional questions were resolved in court.
However, on December 8, 2025, Court of Claims Judge Sima Patel denied the request for an injunction. In her ruling, Judge Patel accepted the state’s argument that the new levy was a “separate tax” rather than a direct amendment to the legalization law.
She pointed to language in the 2018 initiative that referenced “all other taxes,” suggesting that the voters had left the door open for additional taxation.
The judge acknowledged that questions remain about whether this tax interferes with the purpose of the legalization act. However, she decided that the state’s need to collect revenue for road repairs outweighs the immediate harm to the cannabis industry. This ruling cleared the path for the tax to go into effect today, leaving businesses with no legal shield against the financial impact.
Funding Roads on The Backs of Michigan Cannabis Users
The justification for this tax hike is as contentious as the tax itself. Proponents of the legislation argue that Michigan’s crumbling infrastructure requires immediate and substantial funding.
The Citizens Research Council estimates that this new wholesale tax will generate approximately $417 million in its first year alone. This revenue directly funds road repairs, addressing a constant frustration for Michigan residents tired of dodging potholes.
While no one denies the poor state of Michigan’s roads, the decision to single out the cannabis industry to foot the bill raises serious questions about fairness and fiscal policy.
Cannabis businesses are still currently denied standard tax deductions at the federal level due to IRS Code 280E, making their effective tax rate significantly higher than any other legal business.
To pile on an additional state-level wholesale tax effectively treats the industry as a piggy bank for legislative shortfalls rather than a legitimate economic sector.
There is a distinct lack of logic in tying road funding specifically to cannabis consumption. Unlike gas taxes, which operate on a user-fee basis where those who drive more pay more for road maintenance, cannabis users do not impose any unique wear and tear on the state’s highways.
This tax effectively redistributes the cost of public infrastructure onto a specific subset of the population, based solely on their choice of a legal product.
It sets a dangerous precedent where lawmakers can target specific industries to plug budget gaps, regardless of whether that industry has any connection to the funded project.
Gift to The Illicit Market?
The most alarming consequence of today’s tax hike is the likely resurgence of the illicit market. The primary goal of the 2018 legalization drive was to dismantle the unregulated trade of marijuana, ensuring product safety and eliminating the criminal element associated with the drug.
For the past several years, Michigan has been winning this battle. As legal prices dropped and quality improved, consumers migrated away from illicit dealers.
Economics dictates that when the price of a legal good rises significantly above its illicit substitute, consumers will return to the illicit market. The illicit market does not pay a 24% wholesale tax. It does not pay a 10% excise tax or a 6% sales tax. It does not pay for compliance testing, security systems, or licensing fees.
By artificially inflating the price of legal cannabis, the state has handed an immense competitive advantage to unregulated dealers.
Even the state’s own analysts foresee this outcome. The Senate Fiscal Agency projected a potential 14.4% drop in legal cannabis sales as a direct result of this tax increase. This is not just a loss of revenue for businesses; it represents a migration of activity back into the shadows.
Consumers who are priced out of the legal dispensaries will not simply stop consuming cannabis. They will turn to sources where the price is lower, even if it means sacrificing the safety assurances of tested products. In doing so, the state undermines the public health and safety mandates that were the foundation of the legalization movement.
Squeeze on Small Michigan Cannabis Businesses
While consumers face higher prices, cannabis business owners face an existential crisis. Large multi-state operators, hundreds of small businesses, social equity applicants, and family-owned cultivators make up the industry.
These smaller operators are particularly vulnerable to the shock of a 24% tax hike. They lack the economies of scale to absorb such a massive increase in operating costs.
For many of these businesses, the margins were already unsustainable before today. The market correction over the last two years saw wholesale prices plummet, forcing operators to become leaner and more efficient.
Now, just as the market was stabilizing, the state has intervened with a heavy hand. The fear is that this tax will trigger a wave of closures and consolidation, wiping out the diverse ecosystem of small businesses that Michigan pride itself on.
If small cultivators and retailers shut down, a few large corporations will inevitably take control of the market and dominate it as an oligopoly.
This would reduce consumer choice and further detach the industry from the local communities it serves. Fiscal policy that prioritizes short-term revenue over long-term sustainability is undermining the vision of a vibrant, inclusive cannabis industry.
Looking Down The Road For Michigan Cannabis Industry
As the first transactions ring up today under this new tax regime, the mood in the Michigan cannabis community is one of frustration and uncertainty. The legal battle is not entirely over, as the underlying lawsuit regarding the constitutionality of the tax will proceed to trial.
However, the damage begins now. This tax extracts dollars directly from consumer pockets and business payrolls, diverting funds to fill potholes that have nothing to do with the plant.
The implementation of the 24% wholesale tax is a ever-present reminder that legalization is an ongoing process, not a singular event. Advocates must remain vigilant to ensure the state honors the voters’ will and maintains a viable market.
By treating cannabis as a cash cow rather than a legitimate industry, Michigan risks undoing years of progress. If the goal is a safe, regulated, and profitable market that benefits the entire state, placing a punitive toll on the road to legalization is the wrong way to get there.
