Michigan’s legal cannabis sales fell to their lowest level in three years in January, the first month that the state imposed a new 24% wholesale tax, prompting concerns that higher costs will further destabilize the industry and fuel the illicit market.
Recreational cannabis sales fell to $226.4 million in January, an 8.2% decline from a year earlier and the lowest monthly total since February 2023, according to newly released data from the Michigan Cannabis Regulatory Agency (CRA).
It’s an early sign that the six-year-old legal industry could be in serious trouble after Gov. Gretchen Whitmer and lawmakers approved the tax. The market has already lost hundreds of businesses and thousands of workers.
“The last industry you want to raise taxes on is one that already has a robust illicit market,” Hirsh Jain, founder of Ananda Strategy, a cannabis consulting firm in Los Angeles, and an instructor at Oaksterdam University, tells Metro Times. “It’s politically indefensible because it’s at odds with Michigan’s long-standing position on cannabis as medicine. We don’t tax medicine, especially at a moment when federal changes may be on the horizon. There really is an irony here.”
The new 24% wholesale tax took effect on Jan. 1 as part of a road-funding package approved late last year by Whitmer and the Legislature. Unlike the existing 10% retail excise tax and 6% sales tax on cannabis, which is paid by consumers at checkout, the new levy is imposed when cannabis is first sold or transferred from a licensed grower to a dispensary.
Under the law, wholesalers are responsible for paying the tax to the state. But the cost can be baked into the price they charge dispensaries, which in turn may pass some of the increase on to customers. The added layer, industry leaders warned, would raise prices in a market already struggling with oversupply and falling margins.
The Michigan Cannabis Industry Association, which represents more than 400 businesses, sued the state in the Court of Claims in October, arguing the tax is unconstitutional because it amends a voter-approved cannabis law without the required approval from three-quarters of the Legislature.
When voters legalized recreational marijuana in 2018, they solely approved a 10% excise tax to keep legal cannabis competitive with the illicit market.
State leaders have maintained the wholesale tax is legal and necessary to help close budget gaps and fund road repairs. Yet, neither the governor nor the Legislature has touched the 4% liquor tax since it was set in 1985. That’s no surprise to many cannabis advocates because the liquor industry has one of the most powerful lobbies and has donated heavily to Whitmer and other lawmakers.
The cannabis lobby is far less robust and influential.
Whitmer, who also tried in vain to ban nicotine vaping in 2019, has yet to impose a tax on that industry, though she is seeking one this year.
The Whitmer administration has projected the cannabis wholesale tax could generate roughly $420 million annually, but that estimate is based on a robust legal market. And as sales continue to fall, the excise tax revenue that cities and the state rely on to fund roads, education, parks, police and firefighters will shrink.
The impact goes beyond consumer prices and tax collections. The state’s recreational cannabis industry has been one of the fastest-growing job creators in the state.
Licensed medical and adult-use cannabis businesses employ more than 41,200 workers, according to the CRA.
The $3 billion-a-year industry accounted for roughly 52% of net private-sector job creation in Michigan from 2018 through 2024, an impressive feat for a sector that represents about 1% of total private employment, according to Crain’s Detroit Business.
Those jobs include retail staff, cultivation workers, lab technicians, delivery drivers, compliance officers, and security teams, and many of those positions do not require a college degree and offer stable pay.
“This is a very complicated economic phenomenon with several causes,” Jain says. “It’s unfortunate because declining sales mean businesses close and employees get laid off. There are going to be more businesses that close because of this. That means more people are out of work.”
More than 940 cannabis licenses have become inactive since adult-use sales began in 2019. While new operators continue to enter the market, closures are increasing as margins shrink and supply continues to outpace demand.
“If cannabis has been responsible for 52% of net private-sector job creation, that makes it one of the leading job growth engines in the state,” Jain says. “I’m astonished that that can be ignored.”
In 2025, the market posted its first annual decline since recreational sales began in December 2019. Adult-use cannabis sales totaled $3.17 billion last year, down from $3.27 billion in 2024, a 3.1% drop that followed years of robust growth.
Prices have fallen for years as supply has outpaced demand. The average retail price for an ounce of flower was $59.07 in January, down from $66.50 a year earlier and far below the $93 average in January 2024. Prices rose slightly from $58.22 in December, suggesting the wholesale tax has not yet trickled down to consumers.
That’s not surprising because most products on dispensary shelves in January were purchased before the tax went into effect.
“There was some interesting behavior in December, when a significant number of shoppers stocked up,” Jain says. “A lot of that inventory is not subject to the new tax. When February, March, and April come around and all of this inventory is subject to higher taxes, we could see a more pronounced impact on consumer behavior. People were in a rush to get products.”
Even modest price increases could push consumers out of licensed dispensaries, Jain says.
“Cannabis has a really robust and sophisticated illicit market,” Jain explains. “Michigan historically had one of the more robust legal markets because prices were relatively low. Its decision to increase taxes very predictably pushed some consumers back to the illegal market and that will continue to happen.”
Consumers moving to the illicit market don’t just hurt legal businesses and their employees. Illicit operators aren’t required to pay taxes, undergo product testing, or provide worker protections. That means fewer consumer safeguards and less revenue for communities.
The irony, Jain says, is that Michigan was once seen as a model for how to build a competitive legal market.
“I was surprised,” he said. “I thought the direct lesson from California would have persuaded decision-makers in Michigan. This decision was made after California’s economic impact was already clear.”
In the same week the Michigan House approved the wholesale tax, California rolled back a planned cannabis tax increase after high rates drove consumers to the illicit market and forced legal businesses to close.
For months, Whitmer’s administration has declined to answer Metro Times’s questions about the tax increase. On Wednesday, the administration declined to respond to questions about sales falling, what that means for the legal cannabis market and the jobs it creates, and whether the state has a plan to address the problems it created.