Michigan Cannabis Tax Lawsuit Raises Questions as West Michigan Dispensaries Face Higher Costs

Michigan Cannabis Tax Lawsuit Raises Questions as West Michigan Dispensaries Face Higher Costs

The Michigan recreational marijuana industry has filed a second lawsuit challenging the state's controversial 24 percent wholesale marijuana tax, arguing it creates an unconstitutional over-taxation that effectively sets a higher rate on marijuana sales than the 6 percent sales tax rate set in the Michigan Constitution.

The new legal challenge, filed with the Michigan Court of Claims on April 3, 2026, presents a fresh argument about tax pyramiding that could significantly impact West Michigan's thriving cannabis market, which includes major hubs in Grand Rapids, Kalamazoo, and Holland.

The Tax Challenge

Rose Tantraphol with the Michigan Cannabis Industry Association told Michigan Public Radio that the 24 percent wholesale tax levied on marijuana creates "a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders."

The industry group argues the wholesale tax "effectively functions as a sales tax, creating a situation where cannabis is taxed multiple times, resulting in something called tax pyramiding that imposes a sales tax on consumers that's higher than the legal rate of 6 percent."

This additional burden sits on top of the 10 percent excise tax that was already in place under the 2018 initiative to legalize recreational marijuana, which voters approved in Michigan.

Legal Strategy

The new lawsuit appears designed as a secondary defense in case courts don't accept the industry's initial argument. In a separate lawsuit already pending before the Michigan Court of Claims, the cannabis industry argues the wholesale tax is unconstitutional because it was adopted by simple majorities of the Legislature rather than the three-fourths supermajorities required to amend voter-initiated laws.

The state's position is that the wholesale cannabis tax is part of a road-funding plan that does not touch the language of the voter-approved initiative. The wholesale tax was adopted last year by the Legislature and signed by Governor Gretchen Whitmer as part of a roads-funding plan to repair Michigan's deteriorating infrastructure.

Impact on West Michigan

West Michigan has become a major cannabis market in Michigan, with dispensaries and cultivation facilities concentrated in Kent County, Kalamazoo County, and Ottawa County. The Grand Rapids area alone hosts numerous retail locations, making it one of the most competitive markets in the state.

The Michigan Cannabis Industry Association, which filed the lawsuit, represents businesses across Michigan including West Michigan markets. The association argues the tax structure places an unfair burden on consumers and retailers alike.

Economic Implications

The wholesale tax is estimated to generate about $420 million annually, which represents a significant portion of Governor Whitmer's $2 billion-a-year roads plan. Robert Schneider, a senior research associate with the nonpartisan Citizens Research Council of Michigan, told Michigan Public Radio that "if the tax were to be eliminated by the courts, that would put a big dent in the long-term outlook for road funding."

The tax could face challenges throughout 2026 as the Court of Claims reviews the case. One or both of the cannabis tax cases will likely eventually land with the Michigan Supreme Court, according to legal experts.

What's at Stake

If the tax is overturned, the revenue would not be easily replaced, and fixing that would be a heavy lift in the remaining months of the Legislature's session. The wholesale tax was part of Governor Whitmer's last best chance to fully fund her signature campaign promise to fix Michigan's roads.

The case could have significant implications for Michigan's cannabis industry, which has seen substantial growth since legalization took effect. West Michigan dispensaries have adapted to the tax structure, but the new lawsuit signals ongoing legal challenges to the state's tax approach.

Consumer Impact

Michigan consumers face the highest legal retail price for recreational marijuana in the nation due to the 24 percent wholesale tax combined with the 10 percent excise tax. The Michigan Public Radio Network has reported that the tax structure has made recreational marijuana significantly more expensive than other states.

The lawsuit represents another front in what has become a multi-year legal battle between the state and the cannabis industry over the tax structure. The industry's initial lawsuit argues the Legislature violated the substance of the Michigan Constitution's initiative clause when it adopted the wholesale tax.

The outcome of this legal challenge could reshape Michigan's cannabis market and have lasting effects on West Michigan's dispensaries, which have become key retail locations in the state's recreational marijuana industry.