Michigan Approves New 24% Wholesale Tax on Recreational Cannabis

News Summary

Michigan lawmakers have approved a new 24% wholesale tax on recreational cannabis, set to take effect on January 1, 2026. This tax aims to generate approximately $420 million annually for road construction and repairs. However, the Michigan Cannabis Industry Association (MCIA) has filed a lawsuit, arguing that this tax violates state rules regarding changes to voter-initiated laws. The new tax could impact the cannabis market by driving consumers back to the illicit market and complicating existing contracts, raising concerns over the future of the legal cannabis industry in Michigan.

Lansing, Michigan — A new 24% wholesale tax on recreational cannabis was approved by Michigan lawmakers, and it is set to take effect on January 1, 2026. This tax aims to raise an estimated $420 million annually to fund road construction and repairs across the state. However, the Michigan Cannabis Industry Association (MCIA) has filed a lawsuit against the state following the tax’s approval by Governor Gretchen Whitmer. The lawsuit contends that the tax violates Michigan’s constitutional rules regarding changes to voter-initiated laws, which necessitate a three-fourths legislative vote to modify or repeal such laws.

The introduction of the wholesale tax will bring Michigan’s total cannabis tax burden to the second-highest in the nation, only behind California. Currently, recreational marijuana use was legalized by voters in Michigan back in 2018, and the initial legislation includes a 10% excise tax on all sales. Revenue generated from the previous taxes has already contributed over $331 million for Michigan schools and municipalities in 2024. The funds generated from the forthcoming wholesale tax are intended to bolster road funding as part of the overarching state budget.

The MCIA has expressed concerns that the new tax could drive consumers back to the illicit market, ultimately jeopardizing an already struggling legal cannabis industry. Some industry leaders suggest that this tax will force businesses to either increase retail prices or face potential shutdowns due to untenable operating conditions. The Senate Fiscal Agency has indicated that the revenue projections of $420.7 million might be overly optimistic and lack substantial backing.

Debates regarding the implications of the new tax have taken place among state legislators, with some expressing trepidation over potential shrinkage of the cannabis industry, which may be coupled with job losses. While Republican House Speaker Matt Hall defended the tax as crucial for maintaining road repair funding, he emphasized that the proposed tax is “lower than a lot of other states.”

The MCIA’s lawsuit also includes objections related to the potential disruption of existing contracts between growers, processors, and retailers as a result of the alterations in tax calculations. Proponents of the tax, including Governor Whitmer and various legislators, have justified it by drawing comparisons to existing taxes levied on tobacco and alcohol, despite the fact that cannabis businesses are subjected to different federal tax restrictions.

Policymakers prioritized the passage of this tax during budget discussions to avert a government shutdown and ensure continuous funding for state operations as part of a comprehensive budget agreement. This move has sparked significant attention within the state as members of the cannabis industry prepare for its implications.

In summary, the new wholesale tax on recreational cannabis set to begin in 2026 has sparked a legal challenge from the MCIA. Lawmakers argue it is necessary for road funding and as part of the state’s budget requirements, but industry experts fear adverse effects on the legal cannabis market. As the situation develops, both sides will closely monitor the implications of this new financial burden on the cannabis industry in Michigan.

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