Michigan adds new cannabis tax to «fix those damn roads»

Governor of Michigan, Gretchen Whitmer, has signed a new tax of 24% on the wholesale cannabis between producers and dispensaries, a measure designed to finance his long-standing project to «fix the damn roads», in his words (damn roads).

The measure, which is part of the state's $81 billion budget for fiscal 2026, is expected to bring in approximately 420 million dollars per year to support Michigan's $1.8 billion road improvement initiative.

«When I took office, I promised to fix these damn roads so Michiganders could get to their destinations faster and safer,» Whitmer said in a video. The governor signed the budget in a closed-door session after months of partisan negotiations that nearly led to a government shutdown.

Under the new system, the wholesale tax applies to transactions between producers, processors and retailers. It is in addition to the 10% excise tax and 6% sales tax already imposed on cannabis products since their legalization in 2018.

According to the’Michigan Senate Fiscal Agency, This additional tax could push up prices and lead to a legal sales down 14.4%, consumers can turn to the illicit market for cheaper alternatives. Adam Hoffer, Director of Tax Policy Tax Foundation, warned that «this massive tax increase is really going to hurt the legal market in Michigan».

Industry fears and constitutional challenges

Just a few minutes after the governor's signature, the Michigan Cannabis Industry Association (MCIA) has filed a lawsuit against the State, arguing that the new tax violated the Michigan Constitution. The association claims that Michigan Regulation and Taxation of Marihuana Act (MRTMA), approved by voters in 2018, can only be amended by a three-quarters vote of the legislature.

«This constitutional requirement protects voter-initiated laws from legislative interference,» says the MCIA complaint. The group has requested a preliminary injunction to block the tax, which is due to come into force on January 1, 2026, while the case is being examined by the court.

The MCIA also argues that legislators engaged in a «bait and switch» procedural maneuver, introducing the wholesale tax only after the original bill to create the Global Highway Fund had been passed. The association further argues that the measure violates the contractual clause by modifying existing supply agreements between cannabis companies.

Industry players warn that this tax could have catastrophic consequences. Stuart Carter, founder of Detroit Cannabis Industry Association, called the measure a «slap in the face» for smallholders, criticizing legislators for pushing ahead with the measure without sufficient public consultation. Andrew Sereno, President of Glacial Farms, a local cannabis producer, said the tax was «absolutely horrible», adding, «I'm not sure many cannabis wholesalers have the margins to support this. It's not 2020 anymore.»

House Speaker Matt Hall defended the measure, explaining its structure: «We had to do it this way, with a lower threshold, to implement a wholesale tax. But we looked at the situation in other states, and we actually think this threshold is lower than in many other states, because the value of a product is much lower at wholesale than at retail.»

If implemented, the combined tax burden on cannabis in Michigan would become the’one of the highest in the United States, just behind California, where taxes reach around 40%.

Ironically, the Governor of California, Gavin Newsom, recently cancelled a similar excise tax of 25% at a time when the state's legal market is already crumbling under the weight of heavy taxation.