Michigan’s experiment in funding road repairs through cannabis taxation has hit its first major ‘pothole’. Just weeks after the state’s controversial 24% wholesale cannabis tax took effect on January 1st, the results are in—and they’re exactly what industry experts warned would happen.
Legal cannabis sales in Michigan dropped nearly 16% in January compared to December, falling from $270 million to approximately $227 million, according to data from the Michigan Cannabis Regulatory Agency (CRA). That’s a loss of roughly $43 million in a single month, contradicting state projections that the new tax would generate $420 million annually for infrastructure improvements.
The math isn’t just bad—it’s predictable. When you stack a 24% wholesale tax on top of an existing 10% retail excise tax and 6% sales tax, you create a cumulative burden approaching 40%. At that rate, cannabis stops being a regulated commodity and starts becoming a luxury good that many consumers simply can’t afford.
The Stockpiling Effect: A Temporary Illusion of Success
December’s $270 million in sales painted a misleading picture. Those numbers were artificially inflated as consumers rushed to dispensaries to stockpile products before the tax took effect. Retailers reported surges in traffic during the final days of 2025, with customers buying in bulk to avoid the impending price hikes.
“Past couple of days, people have been stocking up, anticipating the price increases,” Pharmhouse Wellness Assistant Manager Trent Mingerink told FOX 17 in late December.
Once January arrived and the tax kicked in, reality set in. Cannabis product sales by weight fell from 681,819 pounds in December to just 518,000 pounds in January—a drop of nearly 164,000 pounds, or about 24%. The correlation between the tax rate and the sales decline is impossible to ignore.
The fundamental problem is that politicians are treating cannabis like an endless ATM. But unlike alcohol or tobacco, which have had decades to establish mature, stable markets, the legal cannabis industry is still relatively young. It’s also competing directly with an illicit market that pays no taxes, follows no regulations, and undercuts legal prices at every turn.
The Real Cost of Overtaxation
Governor Gretchen Whitmer and supporters of the Comprehensive Road Funding Tax Act (CRFTA) sold the 24% wholesale tax as a solution to Michigan’s infrastructure crisis. The state’s roads are undeniably in terrible shape, and the need for funding is legitimate. But using cannabis as the primary funding mechanism is both unfair and unsustainable.
Cannabis businesses already operate under significant financial disadvantages. Due to IRS Code 280E, which prohibits businesses trafficking in Schedule I controlled substances from taking standard tax deductions, cannabis operators face effective tax rates far higher than traditional businesses. They can’t deduct rent, salaries, utilities, or most other operating expenses. Now, add a 24% wholesale tax on top of that.
Small and mid-sized cannabis businesses are particularly vulnerable. Unlike large multi-state operators that can absorb losses across multiple locations and leverage economies of scale, smaller businesses operate on razor-thin margins. The Michigan Senate Fiscal Agency itself projected a potential 14.4% drop in legal cannabis sales as a direct result of the tax increase—a forecast that’s playing out in real time.
Why Cannabis Shouldn’t Shoulder the Burden Alone
Here’s the uncomfortable truth: Michigan’s roads were crumbling long before cannabis was legalized. The state’s infrastructure problems are the result of decades of underinvestment, harsh winters, and competing budget priorities. Pinning the solution on a single industry—especially one that’s only been legal for recreational use since December 2019—is shortsighted policy.
The 2018 Michigan Regulation and Taxation of Marihuana Act (MRTMA) already allocated 35% of cannabis excise tax revenue to roads and bridges, contributing nearly $116 million in 2024 alone. That’s a substantial contribution from a nascent industry. Adding a 24% wholesale tax doesn’t diversify the funding stream—it just squeezes one industry harder while giving a pass to others.
Consider Michigan’s liquor tax, which has remained at 4% since 1985. No politician has seriously proposed raising it, likely because the liquor industry has one of the most powerful lobbies in the state and donates heavily to campaigns. Cannabis, meanwhile, is still building its political infrastructure and lacks the same level of organized influence.
Government, The Illicit Market’s Best Friend?
Robin Schneider, Executive Director of the Michigan Cannabis Industry Association (MCIA), warned that the new tax would make legal products prohibitively expensive for many consumers, pushing them back to the unregulated, unsafe illicit market. That prediction is already coming true.
When legal cannabis costs $140 for what should be a $100 purchase, consumers start doing the math. The guy down the street with the ziplock bag charges $70, doesn’t collect taxes, and delivers to your door. He’s not testing for pesticides or heavy metals, and he’s not contributing to the state’s tax revenue—but he’s also not charging 40% in taxes.
Legal cannabis was supposed to eliminate the illicit market by offering a safer, regulated alternative. But when the legal option becomes unaffordable, consumers revert to old habits. Every customer who returns to the illicit market represents lost tax revenue, reduced safety, and a failure of the legalization experiment.
The Impact Of Michigan Cannabis Tax Hike on Legal Businesses and Communities
The human cost of this policy extends beyond spreadsheets. Cannabis businesses employ tens of thousands of Michigan residents. Dispensary workers, cultivation staff, delivery drivers, compliance specialists, and security teams all depend on a stable, thriving industry. When sales drop 16% in a single month, layoffs and closures follow.
Between December 2019 and December 2025, hundreds of dispensaries and cultivators in Michigan had already closed due to price compression and oversupply. The new tax accelerates that consolidation, favoring large corporate operators who can weather short-term losses while smaller, locally-owned businesses shut their doors.
A Legislative Process Problem
Beyond the economic arguments, there’s a fundamental question of democratic legitimacy. Michigan voters passed the MRTMA in 2018 as a citizen-led initiative. That law set a 10% retail excise tax and explicitly stated that amending it would require a three-fourths supermajority in the Legislature.
The CRFTA, which introduced the 24% wholesale tax, did not meet that threshold. It passed through standard legislative procedures—not the supermajority the constitution requires for amending voter-approved initiatives. The MCIA and several cannabis businesses filed a lawsuit arguing the tax violated both the MRTMA and the state constitution’s Title-Object Clause.
On December 8, 2025, Michigan Court of Claims Judge Sima G. Patel denied their request for a preliminary injunction. The state argued that the new tax’s primary purpose was to raise revenue for roads—not to regulate cannabis—and therefore didn’t require a supermajority. That legal distinction may technically hold, but it feels like a loophole designed to circumvent voter will.
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. That sentiment is widely shared among cannabis operators who feel they’re being punished for doing what voters asked them to do: build a legal, regulated market.
A Smarter Path Forward
Michigan needs better roads. No one disputes that. But sustainable infrastructure funding requires a diversified approach—not a single-industry shakedown.
A more balanced solution would involve modest increases across multiple revenue streams: slightly higher gas taxes, increased vehicle registration fees, targeted tolls on commercial vehicles, and yes, some contribution from cannabis. But cannabis shouldn’t bear the bulk of the burden, especially when the industry is still establishing itself and already contributes significantly to state coffers.
Politicians need to recognize that cannabis businesses are not piggy banks. They’re employers, taxpayers, and community members trying to build something voters explicitly endorsed. Treating them as an unlimited revenue source is not only unfair—it’s economically counterproductive.
The Bottom Line
Michigan’s 24% wholesale cannabis tax has delivered exactly what industry experts predicted: plummeting sales, declining revenue, and a boost to the illicit market. January’s numbers aren’t an anomaly—they’re a warning sign.
If the goal was to generate $420 million annually for roads, the state is already falling short. If the goal was to support a thriving legal cannabis industry, the policy is a disaster. And if the goal was to protect consumers by keeping them in the regulated market, the tax is actively undermining that objective.
The irony is thick: Michigan politicians wanted to fix potholes, but they’ve created a much bigger hole in the cannabis industry instead. The only question now is whether lawmakers will recognize their mistake before the damage becomes irreversible.
Cannabis was never supposed to be the state’s sole answer to infrastructure funding. It’s time to stop treating it that way.
