Michigan Cannabis Industry Files Second Lawsuit Challenging 24% Wholesale Tax as Unconstitutional

Michigan Marijuana Industry Escalates Legal Battle Against State Tax

LANSING — Michigan's recreational cannabis industry has filed a second lawsuit challenging the constitutionality of the state's controversial 24% wholesale marijuana tax, making a new argument that the tax structure effectively overtaxes consumers in violation of Michigan's constitutional sales tax cap.

The lawsuit, filed Friday in the Michigan Court of Claims by the Michigan Cannabis Industry Association alongside marijuana grower Mitten Distro X LLC and retailer Refine Michigan Co., marks a significant escalation in the ongoing legal battle over the tax that took effect on January 1, 2026.

A Tax on a Tax?

In this new filing, the industry argues that the 24% wholesale tax creates what it calls "tax pyramiding" — a situation where the state's constitutionally capped 6% sales tax is applied to a price base that already includes the wholesale tax, inflating the effective tax burden on consumers beyond what the Michigan Constitution allows.

"So, what's happening here is a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders," said Rose Tantraphol, a spokeswoman for the Michigan Cannabis Industry Association. "This type of tax pyramiding imposes an unlawful burden on consumers, and this lawsuit seeks to end that practice."

The legal team contends that the wholesale tax "in substance" functions as a sales tax because the economic burden ultimately falls on consumers. If that's true, it would violate Michigan's constitutional provision that caps the state sales tax at 6%.

For example, according to the lawsuit, a $100 marijuana sale from a processor to a retailer would become $124 under the wholesale tax. Then the 10% excise tax would add $12.40, and the 6% sales tax would tack on another $7.44 — bringing the final price to $143.80. Without the wholesale tax, the sales tax revenue would have been limited to just $6.

"On its face, the challenged tax structure authorizes and requires a tax-on-tax regime that results in an effective rate above 6%," the lawsuit states.

A Second Line of Defense

This new lawsuit appears designed as a strategic backup in the industry's broader legal campaign. The industry has already filed one lawsuit challenging the wholesale tax, arguing that the Legislature lacked the required supermajority to amend the voter-initiated 2018 recreational marijuana law.

That first challenge is headed to trial after Michigan Court of Claims Judge Sima Patel last year rejected efforts to immediately block the law. Judge Patel determined that the ballot proposal recognized "other taxes" and that the wording seemed consistent with the wholesale tax passed by lawmakers.

The second lawsuit is "significantly different" because it challenges the legality of the tax structure itself rather than the constitutional process through which it was established, according to Tantraphol.

"This lawsuit focuses on the tax structure itself," Tantraphol explained. "The first lawsuit focuses on the constitutional process through which that 24% tax was established."

Road Funding in the Balance

The wholesale tax was created as part of the state's Comprehensive Road Funding Tax Act (CRFTA), which passed last year with hopes of generating approximately $420 million annually for road infrastructure. The tax was a key component of Governor Gretchen Whitmer's campaign promise to "fix the damn roads."

"If the tax were to be eliminated by the courts, that would put a big dent in the long-term outlook for road funding," said Robert Schneider, a senior research associate with the nonpartisan Citizens Research Council of Michigan.

The official estimated revenue of about $420 million per year — a number that has become something of a running joke in stoner culture — represents a significant portion of the state's nearly $2 billion annual roads plan.

The Michigan Department of Treasury, which is tasked with collecting the excise taxes under the CRFTA, was named as the defendant in the latest lawsuit. A Treasury spokesperson told the Detroit News that the department had no comment to share at that time.

Industry Impact

The tax has already had measurable effects on the Michigan cannabis market. According to data from the Michigan Cannabis Regulatory Agency, overall recreational adult-use sales dropped more than 15% in January, with a slight rebound in February.

While sales slumps have become common in Januarys past, this was the largest drop in recorded overall sales since recreational adult-use sales legally began in December 2019.

Some observers have worried whether higher costs under the tax could push more Michigan consumers toward illicit markets. Others have expressed concern about what the end result could be for retail sales and jobs in the burgeoning industry.

Legislative Backlash

The tax has drawn sharp criticism from lawmakers, with some calling for its repeal. In February, State Sen. Jonathan Lindsey (R-Coldwater) introduced Senate Bill 810 to repeal the tax, garnering bipartisan support.

"This is about reining in the government's constant attempt to get just a little bit more out of people," Lindsey said of the bill at the time. "Lansing must realize that growing government by taxing businesses into oblivion has never been, and will never be, a way to encourage a healthy Michigan economy."

The Road Ahead

One or both of these cases will likely eventually land with the Michigan Supreme Court, according to legal experts. If the tax is overturned, that revenue would not be easily replaced — and fixing that would be a heavy lift in the months remaining of this 2026 legislative session.

"This is 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,'" the Michigan Public reported.

The Michigan Cannabis Industry Association has made clear that it won't stop fighting. While the first lawsuit focuses on the constitutional process of how the tax was established, this new challenge attacks the structure itself, creating what the industry calls a "backstop legal play."

In what appears to be a comprehensive legal strategy, the industry now has two separate arguments to defend against the wholesale tax — giving the state multiple potential legal defeats to overcome.

As the Michigan Court of Claims proceeds with the case, one thing is clear: the fate of Michigan's roads funding plan may ultimately be decided in the courtroom, with the Michigan Supreme Court potentially serving as the final arbiter in this contentious battle over marijuana taxation.