The cannabis industry has long struggled to prosper in many states, in part thanks to regulatory hurdles and federal tax restrictions. Now, operators in Michigan fear their market could be the next to flounder after lawmakers approved a massive wholesale marijuana tax hike.
RELATED: Federal hemp ban may be coming, lawmakers warn
In a late-night legislative debate, senators voted 19-17 in favor of the increase. Sales of cannabis by producers to retailers will be subject to a 24 percent tax, effective January 1, 2026. House members approved a companion bill last week. The measure is heading for Governor Gretchen Whitmer’s desk. As a proponent of the bill, it’s almost certain she will sign.
The tax increase is intended to help repair the state’s roadways, which have long been in disrepair. Supporters of the measure insist the cannabis tax is fair, noting that tobacco has a wholesale tax in the state of 32 percent.
But cannabis operators have pushed back, arguing the tobacco market doesn’t have the same barriers to success. The Michigan marijuana market already has a ten percent excise tax, while oversupply and federal restrictions are challenging enough.
RELATED: Legal marijuana could (finally) be coming to this state
The wholesale tax increase will almost certainly be passed directly to the consumer. This could lead to a decrease in regulated sales by locals and tourists alike, who will no longer be incentivized to buy their weed in the Great Lakes State.
“It’s going to decimate the industry in Michigan,” Mike DiLaura, chief of corporate operations for House of Dank, told The Detroit News.
DiLaura said the wholesale tax will have major consequences. He pointed to an analysis suggesting Michigan’s market could be reduced by 25 percent, or $800 million.
Senator Jeff Irwin, a democrat from Ann Arbor who opposed the measure, shared DiLaura’s sentiments.
“Businesses will close,” Irwin said. “Employees will lose their jobs. Local communities will lose revenue and gain blight and crime.”
“It’s going to be a big legal battle…”
In California, lawmakers recently reversed a cannabis tax increase after pushback from industry stakeholders. Advocates for Michigan’s market will likely now face the same fight.
RELATED: Questionable additive leads to weed vape recall
Jamie Cooper, a cannabis consultant in Grand Haven, Mich., said the wholesale tax measure will likely be subject to a lawsuit. She explained that the original tax rates on cannabis were part of the original adult-use legalization bill that was passed through a ballot initiative. Michigan law states that any legislation that usurps the voters’ will must get a three-quarters majority vote by lawmakers. Since senators were fairly split on the tax increase, Cooper argues the threshold was not met.
“There’s definitely going to be a lawsuit that will hold [the tax increase] up,” Cooper told GreenState. “It’s going to be a big legal battle; we’re going to have to fight hard.”
Cooper added that, should the increase go into effect, the state and local communities could actually lose revenue due to declining sales and fewer businesses renewing their cannabis licenses.
As a once-thriving market with an abundance of product variety and low retail prices, impending sticker shock could prompt loyal consumers to return to illicit sources. While it remains to be seen when or if the wholesale tax increase will take effect, industry operators are gearing up for a fight.
