DETROIT – The Michigan Court of Claims heard arguments Nov. 25 over the constitutionality of a new 24% wholesale tax on cannabis products, a measure that has sparked significant backlash from the state’s legal marijuana industry.
The tax, set to take effect on Jan. 1, was passed as part of Michigan’s fiscal 2026 budget to raise $420 million to fund road repairs and infrastructure projects.
However, critics say the tax, timed with an oversupply of cannabis and a saturated retail market, could send the second-biggest legal market in the U.S. into a tailspin.
Judge Sima Patel, who presided over the hearing, said she expects to issue a decision soon.
The case is expected to progress to the Michigan Supreme Court, regardless of the outcome.
Cannabis tax violates state constitution
In its lawsuit, the Michigan Cannabis Industry Association argued the tax violates the state constitution by amending the 2018 voter-approved Michigan Regulation and Taxation of Marihuana Act, according to Michigan Advance.
The act established a 10% excise tax on recreational cannabis sales. The MCIA contends that any changes to the law requires a supermajority vote, which the new tax did not receive.
“Michigan voters made their voices heard loud and clear in 2018 when they passed a citizen ballot initiative legalizing cannabis, and this 24% wholesale tax was imposed in violation of the provisions in the state’s constitution,” MCIA spokesperson Rose Tantraphol said in a statement after the hearing.
Tantraphol said the tax jeopardizes 47,000 jobs and risks driving consumers back to the unregulated market.
The state, represented by the Michigan attorney general, countered that the wholesale tax is a separate measure and does not amend the original law.
Michigan’s $3.2 billion annual cannabis market is the country’s second largest behind California.
Michigan Cannabis Industry Association Seeks Injunction
The MiCIA and Holistic made oral arguments Tuesday.
Both lawsuits were consolidated into one.
If you want to read the various arguments from MiCIA, Holistic Research Group, the State of Michigan and the Michigan Treasury Department they are listed below.
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF – 10-07-2025
PLAINTIFF’S MOTION FOR LEAVE TO FILE FIRST AMENDED COMPLAINT – 11-07-2025
FIRST AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF – 11-07-2025
PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION AND SUPPORTING BRIEF – 11-10-2025
DEFENDANTS’ RESPONSE TO PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION – 11-14-2025
Tax Earmarked For Road Improvements
Michigan lawmakers unveiled and approved a long-awaited budget that makes funding cuts to many state agencies while allocating an extra $1.1 billion to the Michigan Department of Transportation, which is responsible for fixing state roads and bridges, supported by a 24 percent wholesale tax on cannabis.
Shortly after 3 a.m. on Oct. 3, after days of protests and lobbying and arm twisting for and against the measure, the Senate voted 19-17 to impose the wholesale tax. The House earlier passed the same legislation on Sept. 25, meaning the controversial bill now goes to Gov. Gretchen Whitmer for her signature.
The budget proposals, taken up during a session that began Oct. 2 and stretched into Oct. 3, totaled $51.8 billion for general government and $24.1 billion for education, for a $75.9 billion budget total. But a House Fiscal Agency report shows that total artificially reduced by the way billions in federal funding is accounted for, by moving Medicaid money to contingency funds where they are not included in the budget total. It’s not yet clear how the total topline number will compare to the 2025 fiscal year’s $82.5 billion total.
The spending plans for general government and school aid were approved with unanimous bipartisan votes in conference committees charged with resolving differences between the House and Senate. They then received strong bipartisan votes in the House and Senate on Oct. 2 and Oct. 3.
Tax Would Benefit Cannabis Black Market
But questions lingered on the morning of Oct. 3, amid a marathon legislative session, about the fate of a controversial proposed 24% wholesale tax on marijuana, which is a key element of the road funding plan reached between Whitmer and lawmakers from both parties.
But the measure, House Bill 4951, passed in a narrow vote.
Sen. Jeff Irwin, D-Ann Arbor, who opposes the tax, said its passage is good news for illegal drug dealers, who he said will see their business increase. “This is going to drive Michigan customers out of the legal market,” Irwin told the Senate.
“Local governments will lose revenue and gain blight and crime.”
But Sen. Ed McBroom, R-Vulcan, said in the Senate he supports the tax and takes the opposite view about its effects.
“I have communities in the U.P. (Upper Peninsula) that are overrun with stores, overrun with dispensaries,” McBroom said. “We have an industry that is out of control (and) too large,” and possibly the tax will result in “some right-sizing,” he said.
Under the Michigan Constitution, citizen initiatives can only be changed through three-fourths majority votes in the Legislature. The House fell five votes short of that 83-vote threshold last week.
The cannabis association is consulting with attorneys, and if they feel strongly the new tax would amend the 2018 initiative, a lawsuit “would be our next step,” said Executive Director Robin Schneider.
“Certainly, we don’t want to have to get there.”
