Cannabis industry fights Michigan’s 24% tax in court

The Michigan Court of Claims heard arguments Tuesday over the constitutionality of a new 24% wholesale tax on cannabis products, a measure that has sparked significant backlash from the state’s legal marijuana industry.

The tax, set to take effect on Jan. 1, was passed as part of Michigan’s fiscal 2026 budget to raise $420 million to fund road repairs and infrastructure projects.

However, critics say the tax, timed with an oversupply of cannabis and a saturated retail market, could send the second-biggest legal market in the U.S. into a tailspin.

Judge Sima Patel, who presided over the hearing, said she expects to issue a decision soon.

The case is expected to progress to the Michigan Supreme Court, regardless of the outcome.

Cannabis tax violates state constitution

In its lawsuit, the Michigan Cannabis Industry Association argued the tax violates the state constitution by amending the 2018 voter-approved Michigan Regulation and Taxation of Marihuana Act, according to Michigan Advance.

The act established a 10% excise tax on recreational cannabis sales. The MCIA contends that any changes to the law requires a supermajority vote, which the new tax did not receive.

“Michigan voters made their voices heard loud and clear in 2018 when they passed a citizen ballot initiative legalizing cannabis, and this 24% wholesale tax was imposed in violation of the provisions in the state’s constitution,” MCIA spokesperson Rose Tantraphol said in a statement after the hearing.

Tantraphol said the tax jeopardizes 47,000 jobs and risks driving consumers back to the unregulated market.

The state, represented by the Michigan attorney general, countered that the wholesale tax is a separate measure and does not amend the original law.

Michigan’s $3.2 billion annual cannabis market is the country’s second largest behind California.

Cannabis tax revolts gain momentum nationwide

Michigan’s legal battle over cannabis taxation is part of a broader trend of industry pushback against what operators see as unsustainable tax burdens.

Across the U.S., cannabis businesses are challenging state and local governments over tax levies they say stifle growth and fuel the illicit market.

In Los Angeles, retailers recently staged a “tax revolt,” refusing to pay local taxes in protest of high rates and inadequate enforcement against unlicensed operators.

Meanwhile, federal nonpayment of Section 280E – a tax code provision that prevents cannabis businesses from deducting standard expenses – continues to exacerbate financial pressures on the industry.

States like New York and Illinois also have faced criticism for imposing steep cannabis taxes, with operators warning that such policies hinder the transition toa regulated market.