Michigan’s cannabis prices will spike upward starting on Jan. 1.
Michigan Court of Claims Judge Sima Patel rejected an attempt by industry stakeholders to block a new 24% adult-use cannabis wholesale tax from going into effect next month, issuing a Dec. 8 order denying a motion for a preliminary injunction.
In her 28-page decision, Patel said the new tax that Gov. Gretchen Whitmer signed into law in October as part of an $81 billion state budget is “consistent” with the Michigan Regulation and Taxation of Marihuana Act (MRTMA) that voters passed to legalize adult-use cannabis in 2018.
The Michigan Cannabis Industry Association (MiCIA), one of the plaintiffs in Monday’s decision, argued that the new tax is unconstitutional because the state requires the Legislature to have a three-fourths supermajority to change citizen-initiated statutes. Specifically, MiCIA argued that the 2018 voter-approved statute only allows a 10% excise tax on cannabis dispensary sales “in addition to all other taxes” already in place, such as the state’s 6% sales tax.
The judge did not see it that way.
“Plaintiffs contend that the phrase ‘all other taxes’ in MCL 333.27963(1) refers only to generally applicable taxes, like the 6% sales tax imposed on all retail sales,” Patel wrote. “ If that were true, however, the initiative could have simply said that. Instead, the initiative stated plainly that the 10% retail excise tax was in addition to ‘all other taxes.’ And the phrase ‘all other’ is broad and expansive.”
This opinion paves more bumps on the road for Michigan’s licensed cannabis operators in the state’s unlimited license market, where oversupply has led to some of the lowest prices in the nation: The average price for adult-use cannabis flower at retail was less than $62 per ounce in October, according to the state’s Cannabis Regulatory Agency.
But the new 24% wholesale tax could mean fewer bumps on the road for Michigan drivers. The state projects the tax will provide roughly $421 million per year in tax revenue that will go toward the governor’s $1.8 billion annual funding plan to improve roads, bridges and other infrastructure.
“Here’s what it means for you: safer, smoother roads to drive on, thanks to the biggest roads deal in Michigan history, so we can keep fixing all those damn roads, state and local, and keep your car in good shape, too,” Whitmer said when she signed the budget two months ago.
Patel ruled that this new law, the Comprehensive Road Funding Tax Act (CRFTA), is consistent with the voter-approved legalization statute from 2018.
While Patel denied the preliminary injunction, it wasn’t a slam-dunk for the defendants, including the governor’s office and the Michigan Department of Treasury, which published guidance on the new tax last month.
The judge said there remain “questions of fact” regarding whether the 24% wholesale tax “contravenes the purposes” of the voter-approved measure. As such, she granted in part and denied in part the defendants’ motion for summary disposition of the plaintiff’s claims that the wholesale tax was unconstitutional.
“Specifically, plaintiffs assert that the electorate purposefully selected the 10% excise tax on retail sales to keep retail prices reasonable and to ensure the reduction or elimination of the illicit market,” Patel wrote. “Plaintiffs continue that experience has shown that if the taxes on marijuana products are too high, purchasers continue to resort to the illegal marijuana market, undermining the entire purpose of marijuana legalization.”
As one example of Michigan being a consumers’ market, many Ohioans still travel to Michigan to purchase their cannabis products two years after legalization in the Buckeye State because many products up north are one-third the cost. As a result, Michigan has a $3-billion adult-use cannabis market compared to Ohio’s roughly $1-billion market in 2025.
Furthermore, Michigan industry stakeholders estimate that roughly 75% of cannabis sales occur in the licensed marketplace, according to the lawsuit. This compares to roughly 38% of sales in California, which incorporates a much more burdensome tax structure.
MiCIA Executive Director Robin Schneider, who helped draft Michigan’s 2018 legalization language, argued in the lawsuit that a 24% wholesale excise tax added on top of the 10% retail excise tax and the state’s 6% sales tax would reduce or eliminate MRTMA’s success in driving consumers from the unregulated to regulated marketplace, where products are tested for safety.
“This is not a legal issue, but a question of fact,” Patel wrote. “The court must consider the intentions of the MRTMA drafters and the impact of the new wholesale excise tax on the purposes of the MRTMA. The court may not resolve such factual questions at the summary disposition phase. Discovery will be required to develop the evidence needed to support the parties’ positions in this regard.”
The court directed the parties to appear for a scheduling conference on Jan. 13 to proceed toward trial. However, Patel predicted both sides will likely seek appeals to the Dec. 8 decision with the Court of Appeals.
