- The law says growers pay it. Growers pass it to stores.
- Stores pass it to consumers. Or they cut staff instead.
- The money that should go into better products and worker raises.
- 62 workers in Webberville already lost their jobs because of it.
- The first payment is due April 20. The court case is still open.
On January 1, 2026, Michigan added a new tax on cannabis. Every time a grower or processor sells cannabis to a store, the state now takes 24 cents out of every dollar. It is called the wholesale marijuana tax, and it sits on top of taxes that were already there.
The law puts the bill on the grower. But a tax on a business does not stay with that business. It moves. And in Michigan’s cannabis supply chain right now, it moves in one direction — toward you.
How the money moves
Step 1: The grower gets the bill. The law says cultivators and processors owe the tax on every sale to a store. They are legally on the hook no matter what.
Step 2: The grower charges the store more. Michigan Treasury’s own rules confirm growers can pass the tax cost to retailers. Most do. So every dispensary is now paying more per pound than it did before January 1. That extra cost goes straight into the price of goods; not into the grow facility, or into the workers who run it.
Step 3: The store passes it to you. Or it tries to. Michigan’s cannabis market is flooded right now. Prices have dropped from over $500 an ounce in 2020 to about $60 today because there are too many growers and Amazon-style market compression tactics happening simultaneously. Stores cannot just raise prices and expect people to keep coming. So many stores are absorbing part of the cost themselves. That means less revenue coming in — which means less money for staffing, less money for improvements, and no room for anything extra.
Step 4: Workers take whatever is left over. When a business is squeezed from every direction, wages freeze first. Benefits disappear next. Then, when the owner decides the math just does not work anymore, jobs get cut. C3 Industries named the wholesale tax directly when it filed WARN notices for 62 workers at its Webberville grow facility. The company said the tax made the building impossible to run at a profit. They are not the only one making that call.
What this tax is actually taking away
Here is the part nobody is talking about. Every dollar that goes to the state in wholesale taxes is a dollar that does not go back into the business. And in cannabis, what that means in practice is specific and serious.
It means grow facilities that: needed new lighting, better climate control, and expert info in controlled environments to produce cleaner, more consistent flower – are not getting those upgrades. The equipment stays old, the product stays inconsistent (and also old) and the contamination risks that drive recalls stay higher than they need to be.
This means workers who have spent years developing real skills – growing cannabis, running extraction equipment, managing dispensary operations – are not getting raises that reflect that experience. Cannabis workers already face financial barriers that most workers in other industries do not. Only 11% of banks in the US serve cannabis businesses, which means many employers still rely on cash to run payroll. For workers, that cash dependence makes it harder to establish credit, qualify for a car or home loan, or build savings. Because without a clear direct deposit history tied to a traditional bank account, the financial system largely does not see you. A raise would help those workers start to build something. The wholesale tax makes raises harder to justify for operators who are already losing money on paper.
It means health benefits, which were already rare in this industry, are getting rarer. When a business’s margins shrink, the first benefits to go are the ones that cost the most to offer. Health insurance is at the top of that list.
The new 24% wholesale tax sits on top of a 10% tax on retail sales and a 6% sales tax already in place. Add all three and Michigan cannabis now carries a total tax burden of about 40%. Alcohol is taxed at about 9% in Michigan. Tobacco at about 32%. Prior to the new tax, Michigan had the 2nd lowest tax rate on cannabis in the country; now it is the 2nd highest. The product Michigan voters approved in 2018 – with the explicit promise that it would grow jobs, generate revenue for schools, and build a stable legal market – now carries the heaviest tax load of almost anything sold in the state. And unlike a corporate tax that takes a cut of profit, this tax hits regardless of whether the business is profitable. A grower losing money still owes those taxes.
The consumer at the register and the worker on the floor are both paying for roads they did not agree to fund. The money that should be flowing back into the industry, into better products, safer facilities, and living wages, is leaving instead.
How this tax got passed, and why it is in court
Michigan voters approved cannabis legalization in 2018. That vote set the tax rules for the industry. Under Michigan’s constitution, lawmakers need a three-quarters majority vote in both the House and Senate to change a law that voters passed. That requirement is there on purpose — to protect what voters decided from being quietly undone.
The wholesale tax passed with a 19-17 Senate vote at 3am on October 3, 2025. Governor Whitmer signed it the same day. The Michigan Cannabis Industry Association filed a lawsuit hours later arguing the vote violated the state constitution. Courts have not blocked the tax while the case plays out. It took effect January 1 as planned.
On March 23, 2026, the state asked the Michigan Supreme Court to take over the case and rule by September 1. A repeal bill – Senate Bill 810, filed February 26 – is also moving through the legislature. Neither has changed anything yet. The first quarterly payment is due April 20.
Michigan cannabis businesses are paying a tax right now that may or may not survive a court challenge. Workers in those buildings are not getting the raises, the benefits, or the job security that money could have paid for. And every week the case drags on is another week that cost stays exactly where it landed — on the people who can least afford it.
FOR OPERATORS, ACCOUNTANTS, AND RISK ANALYSTS
The technical breakdown
How the tax is calculated
The 24% rate applies to the “wholesale price” as defined by the CRFTA. For arm’s-length transactions between unaffiliated parties, the wholesale price is the actual invoice price, including any taxes or fees already on the invoice, but not the wholesale tax itself. The law explicitly bars any reduction through rebates, trade allowances, or discounts. Promotional pricing does not reduce tax liability.
For affiliated transactions, the Treasury uses a published average wholesale price updated each quarter, applicable to any operator sharing more than 50% common ownership, including vertically integrated seed-to-sale operators. The Q1 2026 average for flower is $600 per pound. So a microbusiness packaging one pound into retail units owes $144 in wholesale tax on that pound regardless of what it actually sells for at retail.
One unresolved structural issue: because the wholesale price definition includes all fees and taxes on the invoice, there is a recursive calculation problem. Legal analysts at Dickinson Wright calculate the effective rate is closer to 32% than 24% when read as written. Treasury has not formally addressed this interpretation.
Filing and payment timeline
Quarterly returns are required. Payments are due April 20, July 20, and October 20 for Q1 through Q3 of 2026. The full annual return is due January 20, 2027. Treasury has announced a transition-year penalty waiver: operators paying at least 75% of estimated liability for Q1 through Q3 will not face penalties or interest even if the final reconciliation shows underpayment. This applies to 2026 only.
Interaction with 280E and existing tax structure
The CRFTA sits on top of Michigan’s existing cannabis tax stack: 10% retail excise under MRTMA and 6% sales tax at point of sale. The wholesale tax is not deductible under federal 280E, which already bars cannabis businesses from deducting ordinary business expenses (except for Trulieve). The 24% wholesale tax compounds 280E exposure rather than offsetting it. Operators are paying tax on revenue they cannot offset at the federal level either. The combined effect on reinvestment capacity is severe — operators are being taxed on gross revenue while being blocked from deducting the costs of running the business that generated it.
Credit exposure and counterparty risk
The wholesaler stays legally liable for the tax even if the retailer never reimburses it. Treasury guidance states explicitly there is no bad debt deduction available under the CRFTA. If a retail customer defaults before reimbursing the tax amount, the wholesaler still owes Treasury the full amount. This creates direct credit exposure for cultivators and processors extending standard trade terms to retailers already showing distress signals: missed payments, inventory drawdowns, or license surrender activity.
Risk profile for insurance and financial counterparties
The 40% combined tax burden, collapsing wholesale prices, shrinking margins, deferred capital investment, active constitutional litigation, and a repeal bill in committee represent a materially elevated risk profile for the Michigan cannabis market in 2026. The deferred investment angle is particularly relevant for product liability underwriters: facilities that cannot fund equipment upgrades, industry specific standardization protocols or enhanced testing procedures carry higher contamination and recall exposure than their pre-tax risk profiles suggest. Cultivation operators with high fixed costs carry the most solvency exposure. Vertically integrated operators face additional complexity under the average wholesale price calculation. The key date to watch is May 1 — the deadline by which the state has asked the Supreme Court to rule on its motion to fast-track the case.
The constitutional question
The MiCIA lawsuit argues the CRFTA unconstitutionally amended MRTMA without the three-fourths majority required under Article 2, Section 9 of the Michigan Constitution. The state argues a wholesale excise tax is structurally distinct from MRTMA’s retail excise tax and therefore does not amend it. On March 23, the state asked the Supreme Court to assume jurisdiction and rule by September 1. If the court grants that motion, lower court proceedings will be stayed pending a final ruling.
Two outcomes: if the tax is upheld, Michigan’s cannabis cost structure stays at 40% with no near-term relief unless SB 810 passes. If struck down, operators who collected it will need guidance on overpayment treatment, and the state faces a $420 million annual gap in its road funding plan. Both outcomes carry significant downstream implications for workforce stability, operator solvency, reinvestment capacity, and lender or investor exposure in the Michigan market.
Sources: Michigan Treasury · Revenue Administrative Bulletin 2026-3 · Cannabis Business Times · MITechNews · FOX 2 Detroit · Dickinson Wright · HBK CPA · Cann.dev
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