Michigan Lawmakers Pass 24% Cannabis Wholesale Tax, Dealing Devastating Blow to Industry

Michigan has some of the cheapest cannabis prices in the nation, but that might soon change under a controversial bill lawmakers passed Oct. 3 as part of the state’s budget deal.

The Michigan Senate voted, 19-17, on Oct. 3 to pass House Bill 4951, the “Comprehensive Road Funding Tax Act,” which aims to impose a 24% excise tax on the wholesale price of cannabis starting Jan. 1, 2026. The bill intends to raise an estimated $420.7 million annually to fund road and bridge repairs.

The House passed the legislation in a 78-21 vote on Sept. 25. It now heads to Gov. Gretchen Whitmer, who is expected to sign it as part of the state’s $75.9 billion budget for fiscal 2026.

“I ran for office in large part because I wanted to fix the damn roads,” Whitmer said in a press release on Friday. “Over the past seven years, we’ve made historic progress, fixing 24,500 lane miles and 1,900 bridges. With this budget, we’re locking in a significant, bipartisan investment to fix state and local roads for decades to come, creating and protecting thousands of jobs in the process. I’m proud to deliver on my promise and look forward to driving on safer, smoother roads long after my time as governor.”

Passing H.B. 4951 was one of the last pillars for lawmakers to avoid a state government shutdown, according to party leaders.

The Senate’s passage of the new cannabis wholesale tax came with bipartisan support and opposition in the 19-17 vote. The 24% wholesale tax will be in addition to the state’s 10% cannabis excise tax at retail and 6% sales tax.

Sen. Jeff Irwin, D-Ann Arbor, spoke in opposition to the bill’s passage Oct. 3 on the Senate floor.

“This is truly a great day for illegal drug dealers and criminal gangs in Michigan,” he said. “That’s because, right now, Michigan has the most functional and successful cannabis market in the United States. We’ve done it right, and because of how we’ve done it right here in Michigan, three out of four cannabis sales happen in the legal market, while out West, in high-tax states like California and Colorado, only one in three sales happen in the legal market.”

The second largest cannabis market in the nation after California, Michigan’s licensed dispensaries sold nearly $3.3 billion in cannabis, including more than 1.1 million pounds of flower, in 2024, according to the state’s Cannabis Regulatory Agency. The average retail price was $82.50 for an ounce of adult-use flower last year.

In California, the end cannabis user is taxed more than 40% in some jurisdictions when accounting for local cannabis business taxes, a 15% state excise tax, and the state’s sales-and-use taxes that vary by region.

While California’s licensed dispensaries sold nearly $4.7 billion of cannabis in 2024, according to the state’s Department of Cannabis Control, a recent economic report commissioned by the state’s regulatory body estimated that only 38% of cannabis consumed in California last year came from the licensed marketplace.

As a result, Michigan’s average cannabis sales per capita of $328 nearly tripled that of California’s average of $119 per capita last year.

“There have been 40,000 jobs created in our state in this market because of how we’ve designed it,” Irwin said. “So, when Michigan legalized cannabis, we had the benefit of learning from states out West that foolishly set high taxes that drove people into the black market. And we learned also that if you set taxes at a level that is reasonable, you set taxes at a level that makes it rational for consumers and producers to meet in the legal market, they’ll do so.”

Sen. Edward W. McBroom, R-Waucedah Township, offered his support for the legislation to adopt the 24% wholesale cannabis tax in Michigan.

In the 15 counties in Michigan’s Upper Peninsula, McBroom said communities are “overrun” with dispensaries to the extent that the people he represents are abandoning their homes because “crime is up” as a result of people traveling from Wisconsin, where even medical cannabis remains illegal, to buy their cannabis in Michigan.

“We have an industry that is out of control, is too large and is failing to deliver on the promises they gave to us when they said they’d come to our state,” he said. “Where’s the massive prosperity? Where’s the community revitalization? Where are the thriving restaurants and businesses that should have come along with this? They’re not there. Instead, we have blight and crime and loss of investment in my communities along the border. Hopefully, this taxation might even do some right-sizing to this.”

Under the legislation, pending the governor’s signature, the 24% wholesale tax will be applied to cannabis sold or otherwise transferred as follows:

• For the first sale or other transfer of cannabis from a cannabis establishment to a cannabis retail licensee, a tax would be levied on the cannabis establishment at the rate of 24% of the wholesale price of the cannabis sold or otherwise transferred.
• For the sale of cannabis that was cultivated and processed for retail sale by the cannabis retail licensee, a tax would be levied on the cannabis retail licensee at the rate of 24% of the wholesale price on the aggregate amount or quantity of cannabis that was cultivated or processed for retail sale by that cannabis retail licensee.
• For the sale or transfer of cannabis from a provisioning center to a cannabis retail licensee, a tax would be levied on the provisioning center at the rate of 24% of the wholesale price of cannabis sold or otherwise transferred to the cannabis retail licensee.

The legislation will create a “Comprehensive Road Funding Fund” and allocate $3 million of tax revenue to the fund in fiscal 2026 and $500,000 in each following fiscal year.

The remainder of the tax revenue collected will be allocated to the Neighborhood Road Fund, with $100 million from this fund going to local bridges, and the remaining revenue from this fund going to county road commissions, cities and villages.

Sen. Jonathan Lindsey, R-Allen, who opposed the legislation, told his colleagues in the upper chamber that he doubted the new tax would generate “anywhere near” the projected $420 million of estimated revenue.

“I’ve been a big fan of the effort to get more funding into roads, especially local roads,” he said. “But I think this tax in particular, and there’s a body of economic literature out there that any of us could have drawn on at any point in time, to come to a very quick conclusion that this is unlikely to raise anywhere near that level of revenue.”

Allen said he understood the argument that the state needs money, and so it has to tax something.

While cannabis has increasingly been an easy target for lawmakers trying to balance state budgets this year, a common question has emerged among industry stakeholders in Michigan: What 24% of nothing?

“I was talking with a gentleman upstairs who was just absolutely heartbroken,” Allen said of a cannabis business owner. “He said, ‘This is probably going to be the end for us if you do this.’”