Key Takeaways
- Michigan’s 24% wholesale cannabis tax generated only ~$34 million in its first quarter, falling short of the projected $105 million per quarter.
- The cannabis industry warned that high taxes would push consumers back to the illicit market, which is precisely what happened.
- Legal sales have consistently dropped since the tax took effect, with significant layoffs and business closures occurring.
- The cannabis industry was already contributing to road funding under previous tax structures, making the new tax burdensome and ineffective.
- Legal challenges are ongoing, with proposals to repeal the tax as the industry faces a threatening economic climate.
Michigan’s 24% wholesale cannabis tax, which took effect January 1st this year, collected only ~$34 million in its first quarter, less than 33% of the projected $105 million per quarter. Legal sales have dropped across every month since the tax launched, businesses are closing, and the illicit market is quietly winning. The industry warned this would happen. Nobody listened.
Michigan’s 24% wholesale cannabis tax. You know the one the entire Michigan cannabis industry warned would blow up in the state’s face, has officially blown up in the state’s face. According to a Michigan Treasury Department report first covered by Crain’s Detroit Business and confirmed by WLNS, the new tax generated nearly $34 million through the end of April 2026. That’s the first quarter of collections since the tax kicked in on January 1.
The nonpartisan House Fiscal Agency had estimated the tax would haul in about $420 million annually, or roughly $105 million per quarter. The state collected less than a third of that. In a single quarter.
Who could have seen this coming? Well, pretty much everyone who works in cannabis. The Michigan Cannabis Industry Association (MCIA) spent months before the tax passed warning exactly this would happen. Industry economists flagged it. Tax policy experts flagged it. Even some lawmakers flagged it during Senate debate in October 2025, with Sen. Jonathan Lindsey, R-Allen, publicly doubting the tax would generate “anywhere near” $420 million.
And yet here we are.
How Did Michigan End Up With the Cannabis Wholesale Tax in the First Place?
Let’s take a look back. Last September, the Michigan House passed House Bill 4951. formally titled the “Comprehensive Road Funding Tax Act” in a 78-21 vote. The Senate followed with a narrow 19-17 vote in early October. Governor Gretchen Whitmer signed it into the state’s $81 billion budget on October 7.
The pitch was simple: Michigan’s roads are a disaster, the state needs money, and cannabis is a growing industry generating consistent revenue. Stack a 24% wholesale tax on top of the existing 10% retail excise tax and 6% sales tax, and boom—you’ve got yourself a road-funding solution.
What the pitch glossed over was the economics. When you push the total effective tax burden on cannabis to nearly 40%, you don’t just slow down an industry. You actively hand customers back to the illicit market. And that’s exactly what happened.
The Numbers Don’t Lie. But the Projections Apparently Did
The Michigan Treasury’s monthly financial report for April 2026 made the situation clear. The state had hoped to collect $315 million from the wholesale tax across the final nine months of fiscal year 2026 (since the tax didn’t start until January 1). Through April—four months in—it had collected only $33,999 thousand, or just under $34 million.
Meanwhile, legal recreational cannabis sales reported to the Cannabis Regulatory Agency (CRA) have come in below year-ago levels every single month since January:
- January 2026: $226.4M (vs. $246.6M in January 2025)
- February 2026: $234.2M (vs. $241.3M in February 2025)
- March 2026: $255.1M (vs. $276.3M in March 2025)
- April 2026: $258.2M (vs. $270M in April 2025)
The numbers tell a consistent story. Legal sales are down. Tax revenue is down. The only thing heading in the right direction is the illicit market.
The Illicit Market Doesn’t Charge 40% in Taxes, Funny How That Works
Here’s the uncomfortable part of this equation that Michigan lawmakers seem to have forgotten. Cannabis legalization works when legal products are competitively priced against illegal alternatives. That’s the entire foundation of the system.
Michigan actually understood this before. The 2018 voter-approved Michigan Regulation and Taxation of Marihuana Act (MRTMA) set a reasonable 10% retail excise tax, which helped Michigan build one of the stronger legal cannabis markets in the country, with an estimated 75% of all cannabis sales happening within the licensed, regulated marketplace.
The MCIA’s Robin Schneider explained it plainly at the time: “Everyone knows that a large increase in cannabis taxes drives customers straight back to the illicit market.”
Sure enough, legal cannabis sales in January 2026 dropped nearly 16% compared to December—falling from $270 million to approximately $227 million. That’s $43 million in lost legal sales in a single month. Sales by weight fell from 681,819 pounds in December to just 518,000 pounds in January, a drop of around 24%.
December’s numbers were artificially high because consumers stockpiled before the tax hit. Once January arrived and the price hikes kicked in, the market corrected fast and hard.
Adam Hoffer, director of excise tax policy at the Tax Foundation, had warned as much before the tax passed: “This massive tax increase is really going to hurt the legal market in Michigan. The higher the tax, the greater the incentive for consumers to seek cheaper, unregulated product.”
The Michigan Senate Fiscal Agency itself projected a potential 14.4% drop in legal cannabis sales, which we see is playing out in real time.
This Isn’t Just a Revenue Problem
It’s important to remember that these numbers highlightt more than just state revenue. The cannabis industry in Michigan employs thousands of people. Dispensary staff. Cultivators. Delivery drivers. Compliance specialists. When legal sales drop 16% in a month, layoffs and closures follow.
The MCIA’s Schneider said this in her response to the Q1 revenue data: “Our elected leaders made the cannabis industry a sacrificial lamb in order to have the illusion of a road funding fix. In reality, the only thing they have accomplished is the decimation of a strong industry that served as an economic driver for this state. The result is business closures, jobs lost and tax revenue taken away from local governments.”
That’s not spin. That’s what happens when you stack punishing taxes on an industry operating on thin margins. Small and mid-sized cannabis operators don’t have the financial cushion that large multi-state operators do. They can’t absorb a 24% wholesale hit while simultaneously watching foot traffic decline. Many have had to choose between raising prices and losing customers to the illicit market, or absorbing the cost and losing their business.
Wasn’t the Industry Already Paying Into Roads?
Let’s address the argument that cannabis needed to do “its part” for infrastructure. Cannabis was already doing its part. Under the 2018 MRTMA, 35% of excise tax revenue was already allocated to roads and bridges. That contributed nearly $116 million in 2024 alone.
The state didn’t have a problem with cannabis not paying into roads. The state had a problem with its roads being chronically underfunded across decades—for reasons that had nothing to do with cannabis. Pinning a multi-billion-dollar infrastructure crisis on a legal market that’s been operating for fewer than seven years was always going to be a short-sighted move.
And there’s the question of equity. Michigan’s liquor tax has sat at 4% since 1985. No serious legislative push to raise it. Cannabis, still building its political infrastructure and lobbying presence, got hit with a 24% wholesale tax buried inside an $81 billion budget bill.
The bill’s sponsor introduced it as a “comprehensive road funding tax act” without mentioning marijuana when it was first presented—the cannabis-targeting language was inserted just hours before the House voted.
Transparent? Not exactly.
Legal Challenges Pile Up
The Michigan cannabis industry didn’t roll over. The MCIA filed a lawsuit on the same day Whitmer signed the budget in October 2025, arguing the tax was an unconstitutional amendment to the voter-approved MRTMA. The Michigan constitution requires a three-fourths supermajority to amend voter-initiated laws, a threshold the CRFTA never came close to meeting.
In December 2025, Court of Claims Judge Sima G. Patel denied the industry’s request for a preliminary injunction, allowing the tax to proceed. But the judge acknowledged unresolved questions about whether the tax violates the spirit and purpose of the original legalization measure. That case is headed to trial.
In March 2026, a second lawsuit landed in the Court of Claims. The MCIA, alongside a grower, a retailer, and a consumer, argued the wholesale tax creates unconstitutional “tax pyramiding” applying taxes to amounts already taxed, which the plaintiffs say pushes the effective sales tax rate well beyond Michigan’s 6% constitutional limit. A cannabis purchase that cost $116 under the 2018 structure now costs roughly $143.84.
And in the legislature, State Senator Jonathan Lindsey introduced Senate Bill 810 in February, a bipartisan effort to repeal the 24% wholesale tax entirely. The bill has eight co-sponsors, including five Republicans and three Democrats.
There’s also an unreleased internal analysis hanging over the whole situation. In November 2023, the Cannabis Regulatory Agency sent Governor Whitmer’s office a four-page memo detailing the potential repercussions of a wholesale cannabis tax.
Whitmer’s administration has refused to release it in full, and as of April, a deputy director upheld that decision. One has to wonder what the memo says that Michigan doesn’t want the public to read.
Michigan Had a Cautionary Tale and Ignored It
California implemented heavy cannabis taxes and watched its legal market struggle for years under the weight of illicit competition. The state eventually had to repeal a cannabis cultivation tax in 2022 after realizing it was crushing legal operators. Michigan was handed that lesson on a silver platter and decided to ignore it anyway.
The damage doesn’t reverse itself overnight. Every consumer who returns to the illicit market is a customer potentially lost to the legal market long-term. Every business that closes is a business that won’t reopen when policy eventually corrects. Every job lost is a job that took years to create.
The state wanted to fix potholes. Instead, it created a much deeper hole in the industry it decided to fund them with.
Two lawsuits are working through the courts. Senate Bill 810 is waiting on the legislature. A hidden government memo may or may not confirm the state’s own fears about this policy. And Michigan’s roads are still full of potholes.
At some point, the state will have to wonder whether it wants a thriving legal cannabis market or a short-lived tax experiment that strengthened the illicit market and hollowed out a legitimate industry. The revenue data from Q1 makes it hard to argue the experiment is working.
Frequently Asked Questions
Michigan’s 24% wholesale tax applies to the first sale or transfer of adult-use marijuana from cultivators and manufacturers to retailers. It took effect January 1, 2026, as part of the Comprehensive Road Funding Tax Act (CRFTA), which was included in Governor Gretchen Whitmer’s $81 billion FY2026 state budget.
According to the Michigan Treasury Department’s monthly financial report for April 2026, the tax collected nearly $34 million through the end of April—less than 33% of the projected $105 million per quarter. The nonpartisan House Fiscal Agency had estimated the tax would generate approximately $420 million annually.
The primary reason is that the tax—stacked on top of Michigan’s existing 10% retail excise tax and 6% sales tax—pushes the effective consumer tax burden to nearly 40%. At that level, legal cannabis prices become uncompetitive with the illicit market, driving consumers away from licensed dispensaries. Legal recreational cannabis sales in Michigan have been below year-ago levels every month since January 2026.
Yes. Under the 2018 MRTMA, 35% of cannabis excise tax revenue was already directed to roads and bridges. That contribution totaled nearly $116 million in 2024 alone. The new wholesale tax did not supplement an industry that wasn’t paying its share—it dramatically increased the tax burden on an industry that was already contributing to the state’s infrastructure.
