LANSING – Michigan’s legal cannabis market may have just posted its worst monthly sales performance in more than two years — a decline many industry operators say is tied to the state’s controversial new 24 percent wholesale marijuana tax.

Preliminary industry data from cannabis analytics firm Headset.io projects Michigan cannabis sales dropped to about $206.18 million in February, a 14.8 percent decline from February 2025. If confirmed later this month by the Michigan Cannabis Regulatory Agency, it would mark the lowest monthly cannabis sales total since November 2022, when the state recorded $203.4 million in revenue.

Michigan’s cannabis market has been one of the fastest-growing in the country since adult-use legalization took effect in 2019, eventually surpassing $3 billion in annual sales. But the latest data suggests the industry could be entering a more volatile phase as new taxes, falling wholesale prices, and market oversupply reshape the sector.

The projected slowdown comes just weeks after Michigan implemented a 24 percent wholesale marijuana tax, a policy designed to generate hundreds of millions of dollars for road repairs but now facing both legislative pushback and a court challenge from the cannabis industry.

Industry executives say the tax has created confusion across the supply chain and is squeezing businesses already operating on thin margins.

According to reporting by Crain’s Detroit Business, some cannabis operators say the new tax has already affected sales.

“The legislature hurt us bad with the tax,” Nick Hannawa, co-owner of Puff Cannabis, which operates 13 retail stores in Michigan, told Crain’s Detroit Business. “A lot of vendors of ours are feeling the pain and there’s also a lot of confusion surrounding the tax.”

Hannawa did not specify how much Puff’s sales had declined.

Why Michigan’s Cannabis Tax Is So Controversial

Michigan marijuana businesses now face three layers of taxation:

• 10% excise tax on adult-use cannabis sales
• 6% Michigan sales tax
• 24% wholesale tax on transactions between processors and retailers

Industry groups argue the structure effectively taxes cannabis multiple times before it reaches consumers, squeezing businesses already facing falling wholesale prices.

Supporters in Lansing say the tax could generate more than $400 million annually for road repairs, making it a key piece of the state’s infrastructure funding strategy.

The tax is now being challenged in court and faces a separate repeal effort in the Michigan Legislature.

Prices Still Among the Lowest in America

What makes the slowdown particularly unusual is that retail cannabis prices have barely increased despite the new tax.

Michigan continues to have some of the lowest marijuana prices in the United States, largely because years of aggressive cultivation expansion created a significant supply glut.

According to data from the Cannabis Regulatory Agency, the average retail price for an ounce of marijuana flower increased only slightly in January, rising about 1.5 percent to $59.07.

That suggests many cannabis processors and retailers may be absorbing the tax costs themselves rather than immediately passing them on to consumers.

Still, some industry leaders believe consumer perception may be playing a role. Even if prices have not significantly increased, customers may assume cannabis products are more expensive and reduce purchases.

Michigan’s harsh winter weather earlier this year may have also slowed retail traffic in January and February, though industry analysts say that alone does not explain the projected sales decline.

Data from Headset indicates sales were down across nearly every major product category:

  • Flower: down 17.5 percent year over year

  • Vape cartridges: down 16.2 percent

  • Edibles: down 14.3 percent

  • Concentrates: down 20.5 percent

A Tax Designed to Fund Roads

The wholesale cannabis tax was approved by Michigan lawmakers as part of a plan to generate additional revenue for the state’s transportation infrastructure.

Michigan already taxes marijuana through a 10 percent excise tax on adult-use cannabis sales along with the state’s 6 percent sales tax. Those taxes are collected at the retail level when consumers purchase cannabis products.

The new tax adds another layer by taxing transactions between cannabis processors and dispensaries before the product even reaches store shelves.

Supporters in Lansing argue the policy could generate more than $400 million annually, helping address long-standing funding gaps for road repairs and infrastructure improvements.

But cannabis industry groups say the tax places additional pressure on a market already dealing with falling wholesale prices and intense competition.

Michigan’s cannabis industry has expanded rapidly since legalization, with hundreds of licensed growers, processors, and retailers now operating across the state.

That expansion has driven wholesale marijuana prices sharply lower over the past several years as supply outpaced demand.

Lawmakers Push to Repeal the Tax

The backlash has already reached the Michigan Legislature.

State Sen. Jonathan Lindsey (R-Coldwater) recently introduced bipartisan legislation that would repeal the wholesale cannabis tax.

Supporters of the repeal effort argue the tax could accelerate business closures and push some consumers back toward Michigan’s illicit marijuana market.

However, repealing the tax would also eliminate a major source of projected road funding, making the proposal politically complicated in Lansing.

Industry Challenges Tax in Court

At the same time, the tax is facing a legal challenge.

The Michigan Cannabis Industry Association, which represents roughly 400 licensed cannabis businesses across the state, filed a lawsuit arguing the wholesale tax violates Michigan’s voter-approved marijuana legalization framework.

Industry groups argue the 2018 ballot initiative legalized cannabis with a specific tax structure, and lawmakers exceeded their authority by creating a new wholesale tax not included in the original law.

The case is currently working through the Michigan Court of Claims, where portions of the challenge have been allowed to proceed.

Both the cannabis association and the Michigan Attorney General’s office are now asking the Michigan Court of Appeals to provide clearer guidance on the tax’s legality.

A final ruling could take months.

Industry Warns of Market Shakeout

If the February sales projection proves accurate, the decline could have significant implications for Michigan’s cannabis market.

The Michigan Senate Fiscal Agency previously estimated the wholesale tax could reduce statewide marijuana sales by about 14.4 percent in 2026.

If sales continue at the current pace, Michigan’s cannabis market could fall below $2.6 billion in total revenue this year — roughly $578 million less than 2025 levels.

Industry leaders warn the new tax could accelerate consolidation across the sector.

“This is just the beginning of the mess the governor created with the wholesale tax, and it’s going to get much worse,” Dave Morrow, president and CEO of Lume Cannabis Co., told Crain’s Detroit Business.

For now, Michigan’s cannabis industry faces a period of uncertainty.

Retail prices remain low, consumers have not yet seen major tax-driven price increases, and the courts have yet to determine whether the wholesale tax will survive legal scrutiny.

Whether the market stabilizes — or continues to slide — may depend on what happens next in both Lansing and Michigan’s courts.