LANSING – Michigan’s controversial 24 percent wholesale cannabis tax is facing challenges on two fronts — in the Legislature and in the courts — as lawmakers move to repeal the levy just months after it took effect.
A bipartisan group of Michigan legislators has introduced bills that would eliminate the wholesale tax, arguing the measure is already putting pressure on one of the state’s fastest-growing industries.
The tax took effect Jan. 1, 2026, applying a 24 percent levy on marijuana transferred from cultivators to processors and retailers.
Industry leaders say the new tax — layered on top of Michigan’s existing 10 percent cannabis excise tax and 6 percent state sales tax — is squeezing already thin margins in a market where prices have collapsed due to oversupply.
If approved, the repeal would mark a significant policy reversal for state lawmakers who originally adopted the tax as part of a broader effort to generate hundreds of millions of dollars annually for road repairs and infrastructure projects.
Cannabis Industry Says Tax Creates “Triple Taxation”
Cannabis industry groups say Michigan operators now face one of the most complex tax structures in the country.
The new wholesale tax effectively creates a three-layer tax structure:
• 24% wholesale tax on transfers between cannabis businesses
• 10% state excise tax on retail cannabis sales
• 6% Michigan sales tax
Industry advocates argue the wholesale tax disproportionately impacts growers and processors already dealing with a dramatic drop in marijuana prices.
Michigan’s cannabis market has experienced one of the steepest price declines in the nation since recreational marijuana sales launched in 2019.
According to state data, the average retail price of an ounce of marijuana has fallen from more than $500 early in legalization to roughly $90–$120 today, depending on promotions and supply levels.
Lower prices have benefited consumers but have significantly squeezed margins for cultivators and processors.
Lawsuit Filed By Cannabis Industry Association
The tax is also being challenged in court.
The Michigan Cannabis Industry Association filed a lawsuit in October 2025 arguing the wholesale tax violates Michigan’s voter-approved marijuana law.
The case is being heard in the Michigan Court of Claims.
Industry leaders argue the 2018 Michigan Regulation and Taxation of Marihuana Act, which legalized recreational marijuana, established the state’s cannabis tax structure with a 10 percent excise tax at the retail level along with the standard state sales tax.
The lawsuit contends lawmakers cannot impose additional cannabis-specific taxes outside that framework without amending the voter-approved law using the higher legislative vote threshold required for citizen initiatives.
In December 2025, the court denied the industry’s request for a preliminary injunction that would have blocked the tax from taking effect Jan. 1.
However, the judge allowed the case to proceed, meaning the legal challenge continues while the tax remains in place.
Legal analysts say the case could ultimately reach the Michigan Court of Appeals or Michigan Supreme Court, since it centers on whether lawmakers can modify the tax structure of a voter-approved initiative.
Oversupply Continues To Pressure Market
Michigan remains one of the most competitive cannabis markets in the United States.
More than 2,000 licensed cannabis businesses now operate across the state, including growers, processors, testing labs, transport companies and retail dispensaries.
Large indoor cultivation facilities continue to expand production capacity, contributing to persistent oversupply that has pushed wholesale prices sharply lower.
Industry leaders warn the additional wholesale tax could accelerate consolidation in the market, potentially forcing smaller operators to close or sell to larger multi-state cannabis companies.
At the same time, some lawmakers say the tax risks undermining one of Michigan’s most successful emerging industries.
Adult-use marijuana sales in Michigan exceeded $3 billion in 2025, making it one of the largest cannabis markets in the United States.
The industry also supports tens of thousands of jobs, including cultivation workers, retail staff, logistics providers, marketing firms and technology vendors.
Road Funding Question Remains
The repeal effort also raises a major fiscal question for state policymakers: how to replace the revenue originally expected from the wholesale tax.
When the measure was adopted, analysts projected it could generate hundreds of millions of dollars annually once fully implemented.
Michigan has long struggled to find stable funding sources for road maintenance, with lawmakers repeatedly debating new taxes or funding mechanisms for transportation infrastructure.
If the cannabis tax is repealed, the Legislature may need to identify alternative funding sources to offset the lost revenue.
Competition From Neighboring States
Michigan’s cannabis industry is also facing growing competition from nearby states.
Ohio launched recreational marijuana sales in 2024, while Illinois continues to operate a large retail market that attracts customers from across the Midwest.
Despite the new wholesale tax, Michigan still maintains some of the lowest cannabis prices in the region, which has helped attract cross-border buyers.
However, industry leaders warn higher wholesale costs could eventually push retail prices higher, potentially eroding Michigan’s price advantage.
Rapid Growth Since Legalization
Michigan voters approved recreational marijuana legalization in 2018, with the first adult-use sales beginning in December 2019.
Since then, the industry has expanded rapidly.
Annual cannabis sales have climbed from $341 million in 2020 to more than $3 billion in 2025, according to the state’s Cannabis Regulatory Agency.
Local governments have also benefited from marijuana tax revenue tied to the number of licensed cannabis businesses operating within their communities.
More than 270 Michigan cities and townships now allow cannabis retailers.
Those communities shared nearly $90 million in cannabis tax revenue last year, supporting local infrastructure, public safety and municipal services.
What Happens Next
The repeal legislation must move through the Michigan Legislature before reaching the governor’s desk.
Meanwhile, the industry’s lawsuit continues moving through the courts.
Together, the legislative effort and the legal challenge could ultimately determine whether Michigan’s newest cannabis tax survives — or becomes a short-lived experiment in the rapidly evolving marijuana market.
