Michigan’s cannabis industry is already struggling from plunging prices, layoffs, and shuttered dispensaries and cultivators.
Now Gov. Gretchen Whitmer is pushing a whopping 24% wholesale tax on marijuana products that business owners warn will accelerate closures and drive customers to the illicit market.
With little to no warning to the cannabis industry or its consumers, the state House on Thursday voted 78-21 to approve the tax, which is projected to raise $420 million a year. But industry leaders say that estimate ignores the inevitable loss in revenue from losing customers, dispensaries, and cultivators.
The tax hike was a bipartisan effort, with 10 Republicans and 11 Democrats voting against it.
As early as Tuesday, the state Senate will take up the bill, and some cannabis business leaders are in Lansing on Monday to urge senators to vote against the tax. They are also planning to protest outside the state Capitol on Tuesday.
“This is going to be a nail in the coffin, especially for mom and pops,” says Tom Farrell, owner of the Refinery dispensaries in New Buffalo and Kalamazoo and Growing Pains, a cultivator. “The industry is in turmoil right now.”
At his Refinery location in Kalamazoo, sales are down 70% over the past 18 months, he says.
“It has been horrendous,” Farrell tells Metro Times. “We had to lay off employees.”
Michigan’s recreational market is already taxed more than any industry in the state. Cannabis consumers pay a 10% excise tax and a 6% sales tax.
If approved, the tax increase will drive people to the illicit market, further harming the legal market and exposing consumers to untested, unregulated marijuana, cannabis businesses say.
“It’s going to make the illicit market more affordable by a wide margin, and the tax revenue will escape the state completely,” Jesse Rose, founder of Exotic Matter, a flower and rosin cultivator, tells Metro Times. “It’s going to create a bigger black market. It’s funny that some politicians would be in support of that.”
In the same week the Michigan House approved the wholesale tax, California Gov. Gavin Newsom signed a bill to roll back a 25% tax increase on recreational cannabis. He approved the measure because the state’s high tax rates have forced thousands of legal businesses to shut down and drove residents to the unregulated market.
A 2024 report by California’s Department of Cannabis Control estimated that licensed growers supplied only about 38% of the cannabis consumed in the state, meaning roughly 62% came from the illicit market.
For whatever reason, state lawmakers aren’t learning from California’s troubles.
“We’ve already seen this story play out. California taxed the crap out of operators,” says Seth Miller, co-owner of Growing Pains. “Wise people are able to learn from others’ mistakes, not their own.”
Miller says the tax increase lacks “foresight” because it will ultimately erode state revenue by leading to a loss in payroll taxes and other sources of revenue.
“It’s going to stifle business, job growth, and income taxes,” Miller says. “I think it’s shortsighted.”
Bill “Chocolate” Anderson, owner of the Refinery dispensary in Detroit and the cultivator Hytek agrees, pointing out that consumers are already under water with inflation and the economy.
“If the 24% tax is approved, it will crater the market,” Anderson says. “We’ll have one of the highest tax rates in the nation. It will slow everything down. Less weed will sell. The market is so fickle. A few dollars to the customer is a big deal.”
Whitmer’s plan to hike cannabis taxes would wreck Michigan’s industry
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While Whitmer and state lawmakers target the cannabis industry, legislators have not touched the 4% liquor tax since it was set in 1985. That may be because the liquor industry has one of the most powerful lobbies and has donated heavily to Whitmer and other lawmakers.
“It seems like they are picking on us because we don’t have the lobbyists that other industries do,” Anderson says. “They aren’t going after alcohol and tobacco.”
The state’s Cannabis Regulatory Agency charges up to $24,000 a year just for a license. The fines for cannabis business violations are also far more punitive than those imposed on the liquor industry. On average, fines against cannabis businesses have exceeded $150,000 a month. By contrast, liquor fines generally don’t surpass $300 because lawmakers capped the penalties in 1998.
The tax hike defies the intent of voters who legalized recreational cannabis in 2018 as part of a ballot measure. The initiative required a 10% excise tax and 6% sales tax on cannabis sales. Cannabis advocates wanted to keep the rate relatively low to undercut the black market and ensure the legal market is thriving.
The proposed tax increase “is a slap in the face to the cannabis industry and voters,” says Nick Hannawa, partner and chief legal counsel of Puff Cannabis, which has 11 dispensaries and a 30,000-plant outdoor grow.
“It’s very sad. They are out of touch,” Hannawa says of lawmakers, noting they “snuck in” the tax increase in the House. “It’s totally unfair to a struggling industry. We are already taxed more harshly than any other industry in the country.”
If the bill is ultimately approved, cannabis business owners plan to file a lawsuit against the state, arguing that lawmakers are barred from imposing a tax increase. Because recreational cannabis was approved as part of a ballot measure, any changes by the Legislature must pass with a three-fourths supermajority in both the House and Senate.
Whitmer is trying to get around that requirement by imposing a tax on wholesalers, instead of cannabis sales. But cannabis business leaders don’t accept that.
“We are not going to roll over and die,” Miller says. “I think this is unconstitutional. I can see this going to the state Supreme Court.”
Cannabis industry experts estimate that a third of the sales in Michigan — or about $1 billion a year — come from border states like Indiana, Illinois, Ohio, and Wisconsin in pursuit of lower prices. But the new 24% tax wouldn’t make the trip worthwhile, cannabis business owners say.
“A lot of Michigan’s revenue comes from these bordering states because we have lower taxes,” Steve Mayo, owner of Mitten Canna Co., a cultivator, says. “This tax increase would give them no incentive to come to Michigan.”
The state’s cannabis excise tax raised about $331 million in revenue last year from $3.3 billion in sales. If the industry loses a third of its customers, that’s $110 million. And that’s not to mention state residents who flock to the illicit market for cheaper prices.
Rose says the tax increase is a betrayal to cannabis businesses owners, many of whom dumped their life savings into the industry based on false promises.
“You put your life savings in an industry, and you build your business around what citizens voted for,” Rose says. “Now they want to add a big tax increase in one day. Find me another industry that has had that kind of tax increase overnight. No one would have done business in Michigan if they thought this was going to happen.”
Miller says he hopes the state Senate understands what’s at stake.
“Hopefully they can use reason and logic and the information we are providing to them,” Miller says.
The state’s cannabis market is struggling because the state doesn’t cap the number of businesses allowed in the market, like it does with liquor. As a result, the market is saturated with cannabis products, causing prices to plummet.
In August, the average price of recreational flower hit a record low of $61.79 per ounce. The average price of an ounce was $82.50 last year, $128 in 2022, and $512 in January 2020, when legal sales began.
The tax hike “is going to cripple the industry,” Mayo says. “It’s going to force a lot of businesses to close.”
Rose says ignoring voters’ intent will only deepen the public’s distrust of elected officials.
“You destroy people’s faith in the government, which is too bad,” Rose says. “People are entrepreneurs, and they took a chance and built a new industry from scratch, and now this is how the state is going to react — to pull the rug out from beneath us?”