Michigan Cannabis Industry Files Second Lawsuit Over 24% Wholesale Tax, Industry Groups Challenge Constitutionality

Michigan Cannabis Industry Files Second Lawsuit Over 24% Wholesale Tax

The Michigan cannabis industry has filed a second lawsuit challenging the state's 24% wholesale tax on marijuana products that took effect in January 2026. The Cannabis Industry Association argues the tax is unconstitutional and effectively over-taxes Michiganders.

The lawsuit comes after the Michigan Department of Treasury began collecting the wholesale tax on marijuana products purchased by dispensary operators. The tax was added as part of a road-funding deal approved by the Legislature and signed by Governor Gretchen Whitmer.

The Constitutional Challenge

The core of the lawsuit argues that the 24% wholesale tax creates an unconstitutional over-taxation situation. Rose Tantraphol, with the Michigan Cannabis Industry Association, explained the problem:

"So, what's happening here is a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders. It effectively functions as a sales tax, creating a situation where cannabis is taxed multiple times, resulting in something called tax pyramiding."

Under Michigan law, the state constitution caps sales tax at 6%. The cannabis industry argues that when you add the 24% wholesale tax on top of the 10% excise tax and the 6% sales tax, consumers end up paying more than what the constitution allows.

Multiple Tax Layers

The taxation structure creates three separate tax layers on cannabis products:

1. 1.A 10% excise tax enacted by the Legislature as part of the 2018 marijuana legalization initiative
2. 2.A 24% wholesale tax added to fund roads
3. 3.The standard 6% state sales tax

The industry group says this results in tax pyramiding, where each tax is applied to the previous tax, creating a compounding effect that exceeds constitutional limits.

Constitutional Separation Powers Argument

In a separate legal challenge pending before the Michigan Court of Claims, the cannabis industry is arguing that the wholesale tax violates the state constitution because it was adopted by simple legislative majorities rather than the supermajorities required to alter voter-approved initiatives.

The 2018 marijuana legalization initiative was approved by Michigan voters. The state constitution requires three-fourths supermajorities in both the House and Senate to amend voter-approved initiatives. However, the state argues the wholesale tax is part of a road-funding law that doesn't directly touch the language of the voter-approved initiative.

The Michigan Department of Treasury, which administers and collects the tax, declined to comment on the lawsuit.

Governor's Road-Funding Plan

The 24% wholesale tax was one of several revenue sources included in Governor Whitmer's road-and-transportation funding proposal. The proposal also included more revenue from a business tax aimed at large technology companies and unspecified budget cuts.

The tax was designed to generate additional revenue for Michigan's roads and infrastructure projects. The state's position is that the wholesale tax is separate from the voter-approved marijuana initiative and serves a different legislative purpose.

Industry Pushback

This is not the first legal challenge the Cannabis Industry Association has brought against the tax. The group has been actively litigating the constitutionality of the wholesale tax since it was implemented.

The Michigan governor candidate running for office has also vowed to repeal the cannabis tax as part of his campaign platform, citing concerns about the burden it places on local businesses.

What This Means for Michigan Businesses

For cannabis dispensary operators across Michigan, including those in West Michigan, the tax represents a significant ongoing cost. The wholesale tax applies to every purchase of marijuana products from manufacturers or distributors, affecting the bottom line of retail businesses throughout the state.

The legal challenge could ultimately determine whether this revenue stream continues to fund Michigan's roads or if the tax must be repealed or modified. The outcome of these cases could reshape marijuana taxation in Michigan for years to come.

Upcoming Court Hearings

Legal questions surrounding the tax have already prompted court hearings, with the Michigan Cannabis Industry Association seeking a resolution that would eliminate or reduce the wholesale burden on businesses. The cases could have significant implications for the cannabis industry's operations and profitability across the state.

As the legal battle unfolds, Michigan businesses and consumers will be watching closely to see whether the 24% wholesale tax can withstand constitutional scrutiny.