Michigan Cannabis Industry Files Second Lawsuit Against 24% Wholesale Tax As Legal Battle Escalates

Michigan's recreational cannabis industry is escalating its legal challenge to the state's controversial 24% wholesale tax with a new lawsuit filed Monday in the Michigan Court of Claims.

The second legal action argues the wholesale tax creates an unconstitutional spiral that effectively sets a higher rate on marijuana sales than the 6% sales tax rate set in the Michigan Constitution.

"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 local reporters.

"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 lawsuit was filed by marijuana grower Mitten Distro X LLC, retailer Refine Michigan Co., and the Michigan Cannabis Industry Association in the Michigan Court of Claims. The Michigan Legislature created the 24% wholesale tax last year to generate an estimated $420 million annually for roads and infrastructure funding.

The new legal challenge comes alongside an earlier lawsuit already filed in the Michigan Court of Claims. That first lawsuit contends the Legislature's passage of the law in late 2025 lacked the supermajority in support required to amend a ballot proposal.

The 2018 ballot initiative legalizing recreational marijuana set a 10% excise tax at that time on retail sales. Under the state constitution, laws adopted by voters can be amended by the Legislature—but doing so requires a three-quarters supermajority vote.

The Michigan Senate approved the wholesale tax measure by a narrow 19-17 vote, while the House passed it 78-21, according to legislative records. Those margins fall well short of the supermajority requirement.

"The wholesale tax was adopted last year by the Legislature and signed by Governor Gretchen Whitmer as part of a roads-funding plan," Michigan Public reported.

That is the central argument in the earlier lawsuit: the wholesale cannabis tax is not a marijuana tax but part of a road funding law that does not touch the language of the initiative.

"In that earlier lawsuit, the cannabis industry argues the tax is unconstitutional because it was adopted by simple majorities of the Legislature and not the supermajorities required to amend voter-initiated laws," Michigan Public stated.

The state's position is that the wholesale cannabis tax is part of a road-funding law that does not touch the language of the initiative.

The new wholesale tax on cannabis simply doesn't add up for the Michigan voters who made cannabis legal, Tantraphol said.

"The first lawsuit contended that the Legislature's passage of the law in late 2025 lacked the supermajority in support required to amend a ballot proposal," Michigan Public noted.

That is the central argument in a separate lawsuit already filed in the Michigan Court of Claims. To sum up the argument: the new wholesale tax on cannabis is not a marijuana tax but part of a road funding plan that happens to tax marijuana.

The lawsuit could serve as a secondary defense in case courts don't go along with the industry's initial argument that the Legislature violated the substance of the Michigan Constitution's initiative clause when it adopted the wholesale tax.

"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," Michigan Public stated.

"If the tax were to be eliminated by the courts, that would put a big dent in the long-term outlook for road funding," Robert Schneider, a senior research associate with the nonpartisan, not-for-profit Citizens Research Council of Michigan, told reporters.

The official estimated revenue of about $420 million a year is a significant portion of a $2 billion-a-year roads plan, Schneider said.

One or both of these cases will likely land eventually with the Michigan Supreme Court. 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.

Cannabis activists have been protesting the tax at events like Ann Arbor's Hash Bash. "When you do the math, the state's 24% wholesale tax on cannabis simply doesn't add up for the Michigan voters who made cannabis legal," Tantraphol said at a recent demonstration.

The tax increase will increase the price of marijuana, which many activists and patients use medicinally.

"I'm not happy at all. As a cannabis patient, it is going to affect me," Tammy Abbott of Brighton held, who grows and processes marijuana at home.

"It makes it harder to make medicine," Abbott said.

The wholesale cannabis tax is projected to generate roughly $420 million annually for road and infrastructure funding, according to nonpartisan fiscal analysis cited in prior reporting.

Losing that revenue would leave a major gap lawmakers would need to address in future budgets. Industry advocates have argued that layered taxes have compressed margins and contributed to financial strain across the sector.

Consumer Impact

Lower wholesale costs could translate into more stable or reduced retail prices, though analysts caution that pricing will still depend on competition, local taxes, and regulatory costs.

Why the Tax Exists: A Revenue Strategy Under Pressure

The cannabis tax emerged as part of Michigan's ongoing effort to fund road repairs — an issue that has challenged lawmakers for years.

Efforts to raise fuel taxes, long viewed as a primary funding mechanism for infrastructure, have repeatedly faced political resistance. In 2015, Michigan voters rejected a proposal that would have increased fuel taxes to fund roads.

"At one point, proposals to raise Michigan's gas tax by as much as 45 cents per gallon became part of the broader road-funding debate, but those ideas failed to gain the political support needed to move forward," MITechNews reported.

At the same time, lawmakers turned to alternative revenue sources, including taxes on emerging industries such as cannabis, as part of broader budget negotiations.

Economists generally view broad-based taxes, such as fuel or income taxes, as more efficient because they spread costs across a wider population, while narrower, industry-specific taxes concentrate the burden on a smaller group.

In practice, however, targeted taxes are often more politically viable, particularly when broader tax increases face strong voter resistance.

In Michigan, that dynamic has played out repeatedly: while fuel tax increases have stalled, lawmakers have approved more targeted revenue measures to help fill funding gaps.

What Comes Next: Two Possible Paths

The court's decision could send Michigan in very different directions.

"If the Tax Is Overturned," MITechNews noted, "lawmakers may need to identify alternative revenue sources. Infrastructure funding debates could intensify. Broader tax proposals — including fuel taxes — could re-emerge."

"If the Tax Stands," the publication stated, "the cannabis industry may continue to face margin pressure. Market consolidation could accelerate. Additional legal or legislative challenges could follow."

A Broader Test of Voter Power

Beyond cannabis, the case raises a fundamental question about governance in Michigan: How far can lawmakers go in modifying laws approved directly by voters?

"If the court determines the wholesale tax improperly altered a voter-initiated law, it could set a precedent limiting legislative authority in future cases," MITechNews stated.

"If the tax is upheld, it may affirm broader flexibility for lawmakers to adjust voter-approved policies," the publication noted.

Either way, the ruling is likely to shape not only the future of Michigan's cannabis industry — but also the balance of power between voters and the Legislature.

The outcome could determine whether lawmakers crossed a legal line — and what limits exist when the Legislature seeks to modify laws passed directly by voters.