Michigan's recreational cannabis industry has filed a second lawsuit challenging the constitutionality of the state's controversial 24% wholesale marijuana tax, creating a two-front legal battle that could reshape road funding for years to come.
The new lawsuit, filed on March 28, 2026, with the Michigan Cannabis Industry Association (MiCIA), grower Mitten Distro X LLC, and retailer Refine Michigan Co. as plaintiffs, targets the Michigan Department of Treasury. This marks a significant escalation in the legal fight over the tax that took effect on January 1, 2026, as part of Governor Gretchen Whitmer's road funding plan.
Two Different Legal Arguments
While the first lawsuit, filed in 2025, argues that the Legislature and Governor lacked the supermajority required to amend voter-initiated laws, the second lawsuit makes a fundamentally different constitutional claim: that the 24% wholesale tax creates "tax pyramiding" that effectively imposes a sales tax on consumers higher than the 6% cap set in the Michigan Constitution.
Rose Tantraphol, a spokeswoman for MiCIA, explained the industry's position: "So, what's happening here is a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders." She argued that the wholesale tax "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%."
Under Michigan law, when voters approved recreational marijuana in 2018, they permitted a 10% excise tax on retail sales, which goes to municipalities and tribes. That excise tax sits on top of the constitutionally-mandated 6% sales tax. But the new wholesale tax adds another layer: a 24% tax on the wholesale price of marijuana before it reaches retail.
The Math Behind the Claim
The lawsuit argues that the tax structure compounds levies and inflates the revenue the 6% sales tax will generate. According to the filing, a $100 marijuana sale from a processor to a retailer would now grow to $124 under the wholesale tax, then have $12.40 added on under the 10% excise tax and another $7.44 tacked on with the 6% sales tax. Without the wholesale tax, the sales tax revenue would have been limited to $6.
"This type of tax pyramiding imposes an unlawful burden on consumers, and this lawsuit seeks to end that practice," Tantraphol said. The suit alleges that the wholesale tax violates the equal protection clauses of both state and U.S. constitutions because it requires marijuana sellers and purchasers to disproportionately contribute to road funding compared to other taxpayers.
State's Road Funding Defense
The Michigan Department of Treasury, which administers the tax, declined to comment on the new lawsuit. However, the state's position in the first lawsuit is clear: the wholesale cannabis tax is part of a road-funding law that does not touch the language of the 2018 voter initiative. According to the state, the tax is not a marijuana tax but rather part of a broader road funding plan that happens to tax marijuana.
This argument carries "more than a whiff of expansive lawyering," according to Michigan Public Radio, but the Court of Claims has allowed the state to continue collecting the tax while the case is argued. This could signal to the industry that it needs a backup legal strategy, which this second lawsuit provides.
Road Funding at Stake
The financial stakes are significant. The wholesale tax was projected to generate about $420 million annually, though that number has become a running joke in stoner culture. This revenue represents a significant portion of a $2 billion-a-year roads plan negotiated by the County Road Association and other road groups.
Robert Schneider, a senior research associate with the nonpartisan Citizens Research Council of Michigan, noted the road funding implications: "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 added that if the tax is overturned, "that money would not be easily replaced – and fixing that would be a heavy lift in the months remaining of this session of the Legislature."
Impact on Michigan Cannabis Market
The legal battles are occurring against a backdrop of declining sales in Michigan's cannabis market. According to data from Michigan Cannabis Retail Market Update, February 2026 saw projected sales of $206.18 million, the lowest monthly total since November 2022. January 2026 had already seen a sharp decline to $226.8 million, down 8.3% year over year.
The 24% wholesale tax has been identified as the primary driver of this decline. Puff Cannabis co-owner Nick Hannawa described the tax as having "hurt us bad," citing vendor confusion and direct financial strain. Price increases triggered by the tax pushed some consumers out of the legal market, and subsequent price deflation has compressed margins further.
With two lawsuits now pending, the legal uncertainty could continue to squeeze margins statewide. The tax remains in effect during litigation, with quarterly payment obligations due April 20, 2026.
Potential Supreme Court Review
One or both of these cases will likely eventually land with the Michigan Supreme Court. That review would have profound implications for road funding and the state's approach to taxing cannabis.
The first lawsuit is headed to trial in September 2026 after the Court of Claims rejected efforts to block the tax immediately. Judge Sima Patel last year ruled that the 2018 ballot initiative recognized "other taxes" and that wording seemed consistent with the wholesale tax passed by lawmakers.
What's at Stake for Road Funding
The County Road Association, which helped negotiate the wholesale tax, has warned of dire consequences if it's struck down. "That would be a 42% reduction to the neighborhood roads fund, or nearly 50% reduction to the three road groups that are going to benefit by that revenue," said County Road Association Chief Deputy and Legislative Director Ed Noyola.
Noyola added that MDOT and municipalities have been planning on that revenue. "If a court orders an injunction halting the tax, some road projects may be forced to stop in their tracks," he said. "Michigan is desperately in need of that additional revenue if we're going to continue making our roads and bridges safe for the motoring public."
Political Fallout
The legal battles are also creating political tensions. Democratic gubernatorial hopeful Chris Swanson came out strongly in opposition to the 24% cannabis tax, calling it "key to Whitmer's road funding plan" but fundamentally flawed. Swanson's opposition reflects broader unease in the Democratic Party about the tax's constitutionality and its impact on Michigan's cannabis market.
The tax has been Whitmer's "last best chance to fully fund her signature campaign promise to 'fix the damn roads,'" according to Michigan Public Radio. If the tax is overturned, the Legislature would face a "heavy lift" to replace that revenue and continue making road improvements.
Ongoing Legal Uncertainty
For now, the 24% wholesale tax remains in effect while both lawsuits proceed. The industry maintains its "unwavering conviction that the 24% wholesale tax is fundamentally flawed or unlawfully imposed," according to MiCIA.
The outcome of these legal challenges will determine whether the tax burden that has depressed sales since January continues, shrinks, or results in refunds. Every adult-use retailer in Michigan is affected because the tax applies on wholesale transfers to retail.
As the legal battle heats up, Michigan's roads and its cannabis market both await the courts' decision on whether the wholesale tax can stand.
Sources
- Another lawsuit challenges Michigan's new marijuana wholesale tax — https://www.michiganpublic.org/politics-government/2026-04-03/another-lawsuit-challenges-michigans-new-marijuana-wholesale-tax
- Cannabis industry files new legal challenge to Michigan's 24% marijuana wholesale tax — https://www.michiganpublic.org/politics-government/2026-03-30/cannabis-industry-files-new-legal-challenge-to-michigans-24-marijuana-wholesale-tax
- Michigan marijuana industry files another lawsuit to stop 24% wholesale tax — https://wwmt.com/news/state/michigan-marijuana-industry-lawsuit-stop-wholesale-tax-legal-court-pot-weed-economy-business-wwmt
- Michigan Cannabis Retail April 2026 Market Update — https://www.cann.dev/michigan-cannabis-retail-april-2026/