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

Michigan's Marijuana Tax Battle Intensifies as Second Lawsuit Filed

The Michigan cannabis industry is taking its fight to the courts again, filing a second lawsuit challenging the state's controversial 24% wholesale tax that took effect in January 2026.

The Michigan Cannabis Industry Association filed the new lawsuit in the Court of Claims, joining other plaintiffs who argue the tax structure itself violates the state constitution. This is a separate challenge from a pending suit that questions whether the Legislature had proper authority to pass the tax without a supermajority vote required for amending voter-approved initiatives.

The Tax Pyramiding Argument

The new lawsuit argues the 24% wholesale tax effectively functions as a sales tax, creating what the industry calls "tax pyramiding." When cannabis is sold at wholesale, the 24% tax is applied to that transaction, then the 10% excise tax applies to the retail price, and finally the 6% sales tax applies to the total amount.

Rose Tantraphol, spokesperson for the Michigan Cannabis Industry Association, explained the structure: "So, what's happening here is a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders." She added that the wholesale tax "effectively functions as a sales tax, creating a situation where cannabis is taxed multiple times, resulting in something called tax pyramiding."

The industry group argues this imposes an effective sales tax rate on consumers that exceeds Michigan's constitutional 6% cap.

Road Funding at Stake

Lawmakers passed the Comprehensive Road Funding Tax Act (CRAFTA) as part of last year's state budget deal, with the expectation it would generate hundreds of millions of dollars annually for road repairs and infrastructure improvements.

The tax went into effect on January 1, 2026, and has already generated significant revenue. However, data from the Michigan Cannabis Regulatory Agency shows marijuana sales dropped more than 15% in January 2026, with a slight rebound in February.

State Sen. Jonathan Lindsey (R-Coldwater) expressed concerns about the broader economic impact, saying: "Lansing must realize that growing government by taxing businesses into oblivion has never been, and will never be, a way to encourage a healthy Michigan economy."

West Michigan Cannabis Industry Impact

The wholesale tax has already begun affecting West Michigan cannabis businesses. Some industry observers report that higher costs are forcing difficult decisions at dispensaries and grow operations across the region.

In Grand Rapids, one dispensary owner noted that the tax structure is making it harder to compete with neighboring states that have lower cannabis taxes. The situation has raised concerns about whether more consumers might turn to illicit markets if prices continue to rise.

State Defends Tax Structure

The Michigan Department of Treasury, which administers the tax, declined to comment on the new lawsuit. State officials maintain that CRAFTA is a road-funding law that does not touch the language of the 2018 marijuana legalization initiative.

Representative Joe Aragona (R-Clinton Township) said if the tax is ruled unconstitutional, road funding would remain untouched and cuts would have to be made elsewhere to balance the state budget.

First Lawsuit Heads to Trial

The first lawsuit filed by the Michigan Cannabis Industry Association focuses on whether the Legislature had proper authority to pass the wholesale tax. That case is scheduled to go to trial in September 2026.

Judge Sima Patel previously ruled that the 2018 ballot proposal language was consistent with the wholesale tax passed by lawmakers, allowing the tax to proceed while the legal challenge continues.

What's Next

If a court orders an injunction halting the wholesale tax, the impact on Michigan's road funding would be immediate. The County Road Association warned that stopping the tax would result in a 42% reduction to the neighborhood roads fund, or nearly a 50% reduction to the three road groups that benefit from that revenue.

Meanwhile, the tax continues to generate revenue for road projects statewide, though industry groups argue the structure itself is unconstitutional and should be struck down regardless of the revenue impact.

The second lawsuit seeks an immediate end to the wholesale tax and reimbursement of taxes already paid to the state treasury.