Michigan Marijuana Industry Files Second Lawsuit Challenging Wholesale Tax as Constitutional Crisis Deepens

In what appears to be a coordinated legal strategy, Michigan's recreational cannabis industry has filed a second lawsuit against the state, this time making a fresh constitutional argument that the 24% wholesale marijuana tax violates the Michigan Constitution by effectively imposing a higher sales tax rate than what the state's highest court has authorized.

The new lawsuit, filed with the Michigan Court of Claims, represents a significant escalation in the ongoing legal battle over Governor Gretchen Whitmer's controversial marijuana tax that took effect in January 2026 as part of a road-funding package.

"The so, what's happening here is a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders," Rose Tantraphol with the Michigan Cannabis Industry Association told Michigan Public Radio. "It 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%."

The industry's argument hinges on the mathematics of the tax structure. The new 24% wholesale tax is applied to the first sale of marijuana products, and that tax is then embedded in the retail price. When consumers purchase marijuana at dispensaries, they pay the embedded wholesale tax plus the 10% excise tax mandated by the 2018 voter-approved legalization initiative, plus the 6% state sales tax.

According to the Michigan Cannabis Industry Association, this layered taxation creates what legal experts call "tax pyramiding" — a situation where each tax layer compounds the next, ultimately resulting in a consumer burden that exceeds the constitutional ceiling on sales taxation.

"This is also on top of the 10% excise tax that was already in place under the initiative to legalize recreational marijuana approved by voters in 2018," the lawsuit states. The industry contends that the combination of taxes effectively sets a rate higher than the 6% sales tax rate established in the Michigan Constitution, which has been upheld by the Michigan Supreme Court in previous decisions.

The timing of this second lawsuit is strategically significant. The Michigan Cannabis Industry Association had previously filed a separate challenge arguing that the wholesale tax violated the state's initiative clause — the provision that requires three-fourths supermajorities in both the House and Senate to alter voter-approved laws. That earlier lawsuit contends the wholesale tax was adopted by simple legislative majorities, violating the Michigan Constitution's initiative clause.

The state's defense in that first lawsuit has been that the wholesale marijuana tax is not a marijuana tax at all, but rather part of a broader road-funding law that does not touch the language of the voter-approved legalization initiative. In this argument, the state is claiming the tax is genuinely a road-funding mechanism that happens to tax marijuana products.

Legal analysts note this is a case of "expansive lawyering" on the state's part — stretching the definition of what constitutes a marijuana tax to defend the Legislature's action. But the fact that the Court of Claims is allowing the state to collect the tax while the case is argued could be a signal that the industry needs backup legal strategies.

The new lawsuit could serve that purpose. If courts ultimately reject the state's road-funding argument and rule that the wholesale tax violates the initiative clause, the industry would still have the constitutional over-taxation argument as a fallback position.

"The purpose of this new lawsuit could be to serve as a secondary defense in case courts don't go along with the industry's initial argument," according to Michigan Public analysis. "One or both of these cases will likely land eventually with the Michigan Supreme Court."

The stakes of this legal battle are enormous for Michigan's budget and transportation infrastructure. The Department of Treasury estimates the wholesale marijuana tax will generate approximately $420 million annually — a figure that has become a source of dark humor in Michigan political circles given the number's significance in cannabis culture.

"This is something of a legacy issue for Whitmer since it is a key portion of her last best chance to fully fund her signature campaign promise to 'fix the damn roads,'" said Robert Schneider, a senior research associate with the Citizens Research Council of Michigan. "If the tax were to be eliminated by the courts, that would put a big dent in the long-term outlook for road funding."

Schneider noted that the $420 million in annual revenue represents a significant portion of Whitmer's $2 billion-a-year roads plan. Without that revenue, the state would face a heavy lifting task to replace the funding in the months remaining of the current legislative session.

The legal strategy behind filing two separate lawsuits reflects the complexity of the issue and the industry's determination to protect its business interests. If the Court of Claims allows the state to continue collecting the tax while the cases are argued, the industry is essentially hedging its bets — maintaining pressure on the courts while ensuring there's a backup legal strategy if the first argument fails.

One or both of these cases will likely eventually reach the Michigan Supreme Court, which would provide the final interpretation of whether the wholesale tax violates either the initiative clause or the sales tax provisions of the state constitution.

The outcome could have far-reaching implications not just for the cannabis industry, but for the state's approach to taxation and budgeting going forward. If the tax is overturned, the state would face the challenge of finding alternative revenue sources for its road-funding plan — a task that could prove politically difficult in the remaining months of the legislative session.

The Michigan Cannabis Industry Association has made clear that the industry will continue to fight what it views as an unconstitutional over-taxation that threatens the viability of Michigan's recreational cannabis market. The filing of this second lawsuit demonstrates the industry's resolve and its willingness to pursue every legal avenue available to protect its interests.

As the legal battle continues, Michigan's courts will be called upon to interpret complex constitutional provisions and determine whether the state's taxation of marijuana products respects the boundaries established by the Michigan Constitution and the will of the voters who approved the legalization initiative in 2018.

The outcome of this legal battle could reshape Michigan's approach to cannabis taxation and could serve as a precedent for other states grappling with similar issues. For now, the industry's strategy of pursuing multiple legal challenges suggests it expects to prevail, regardless of which constitutional argument ultimately succeeds.