The Michigan cannabis industry, a major player in the state’s economy, is now on the defensive. A newly enacted 24% wholesale tax on marijuana, intended to fund road repairs, has been met with a lawsuit. Industry leaders argue the measure is not only economically disastrous but also unconstitutional. As businesses and consumers await the outcome of the tax, the legal battle highlights the tension between state revenue needs and the stability of the cannabis market.
The tax, part of the Comprehensive Road Funding Tax Act (CRFTA) signed into law on October 3rd, is set to take effect on January 1st. This new levy would be stacked on top of the state’s existing 10% retail excise tax and 6% sales tax. It would push the total tax burden for consumers to around 40%. Such a move would make Michigan’s marijuana among the most heavily taxed in the nation.
An Unconstitutional “Slap in the Face”
The core of the legal challenge, filed by the Michigan Cannabis Industry Association (MCIA) and others, centers on how the tax bill was passed. The original law legalizing recreational marijuana, the Marijuana Regulation and Taxation of Marijuana Act (MRTMA), began as a voter-led ballot initiative in 2018. According to the Michigan Constitution, any amendment to a voter-initiated law requires a three-fourths supermajority in both the House and Senate.
The CRFTA, however, passed the state Senate by a narrow 19-17 vote. The lawsuit, filed on October 29th as first reported by MLive, argues that this is “legislative gamesmanship.” It claims the act was designed to subvert the will of the voters.
The plaintiffs claim lawmakers engaged in “legislative sleight of hand” by framing the bill as a road funding initiative. They argue this effectively amends the voter-approved marijuana law without the required supermajority support.
Stuart Carter, founder of the Detroit Cannabis Industry Association, called the measure a “slap in the face” to the industry and the voters who established it.
The lawsuit alleges other constitutional violations as well. It claims the bill did not remain in each legislative chamber for the required five days before passage. Additionally, it argues the “Comprehensive Road Funding Tax Act” title failed to clearly reflect its purpose of taxing cannabis, thereby misleading the public and legislators.
Economic Storm Clouds on the Horizon
The push for the new tax comes at a precarious time for Michigan’s cannabis market. While it stands as the second-largest in the U.S. behind California, recent data shows signs of a slowdown.
According to MJBizDaily, Michigan’s cannabis sales dropped by 11.3% in September compared to the previous month. This follows a trend of volatility, including a 13.25% sales decline from December 2023 to January 2024.
Industry operators argue the market is already saturated, and with retail prices for cannabis flower dropping, profit margins are shrinking. Adding a massive new tax, they warn, could destabilize the entire industry.
Robin Schneider, director of the MCIA, cautioned that a significant tax hike would drive customers “straight back to the illicit market.” This isn’t just speculation; California recently had to repeal a similar tax increase. Such measures had crippled legal businesses and fueled unregulated sales.
The state government projects the 24% tax will generate about $420 million annually for road repairs. However, cannabis industry insiders believe this figure is inflated.
It fails to account for the likely drop in sales as prices increase. This is particularly true in border communities that thrive on sales to out-of-state buyers. Even the Michigan Senate Fiscal Agency projects a potential 14.4% drop in cannabis sales due to the higher tax.
A Flawed and Unfair Approach
The logic of singling out the cannabis industry to fix Michigan’s roads has been widely questioned. There is no direct link between cannabis consumption and road wear and tear. This is unlike gasoline taxes which are directly tied to road usage.
The 2018 law that legalized recreational marijuana already dedicates 35% of its excise tax revenue to roads and bridges. This contribution amounted to nearly $116 million in 2024 alone.
Furthermore, burdening a product that many residents rely on for medicinal purposes with such a high tax is ethically questionable. Forcing patients and consumers to pay significantly more or turn to the unregulated market undermines the foundation of a safe, legal cannabis industry.
The MCIA has asked a judge to pause the implementation of the tax while the legal challenge proceeds. In their filing, they argue that the damage to their members would be “immediate and irreparable” if the tax is allowed to take effect.
They stated, “while the State may claim an interest in raising revenue to rebuild roads, it cannot use the enforcement of an unconstitutional tax. Such enforcement will destroy businesses and livelihoods to achieve that goal.”
Fighting Against Unfair Tax
The legal battle over Michigan’s “pot-for-potholes” tax is more than just a dispute over numbers. It’s a fight for the future of a legal market that has provided jobs, generated revenue, and offered a safe alternative to the illicit trade.
By pursuing what many see as an unfair and unconstitutional tax grab, lawmakers risk undoing years of progress.
As the industry fights back, the outcome will determine whether Michigan can maintain a balanced and stable cannabis market. Otherwise, it may become a cautionary tale of over-taxation and legislative overreach.
