A Traverse City dispensary owner is watching his business model get tested by a state tax that has already triggered lawsuits, layoffs, and a call from the Michigan Supreme Court for an expedited ruling.
The 24% wholesale tax on cannabis took effect January 1, 2026. It was passed as part of a bipartisan road funding deal and is projected to generate $420 million annually for state infrastructure projects.
But the tax sits on top of an existing 10% excise tax and a 6% sales tax. Industry groups say the combined burden is crushing operators who are already operating on thin margins in a saturated market.
"What we've seen since this additional 24% tax went into effect on Jan. 1 this year has been business closures and layoffs," said Rose Tantraphol, a spokesperson for the Michigan Cannabis Industry Association.
Traverse City in the crosshairs
House of Dank, a cannabis company with 15 stores across Michigan including locations in Traverse City and New Buffalo, is feeling the pressure. Chief corporate officer Mike DiLaura said the company has invested in buying and remodeling vacant properties in small towns, bringing economic activity even if some stores ultimately close.
"Obviously, some of these stores and grows are not going to make it in these small communities," DiLaura told Bridge Michigan.
The impact is uneven. Rural Michigan towns were among the earliest to allow cannabis businesses. According to the Michigan Department of Treasury, two-thirds of the municipalities that first allowed marijuana had populations under 10,000 and held nearly half of the state's retail licenses.
Ironwood, a town of roughly 5,000 near the Wisconsin border, has received more than $783,000 in marijuana tax revenue sharing from the state. That money grew its general fund by 66%.
Baldwin Township in Iosco County, population roughly 1,600, has received nearly $900,000 from state cannabis tax distributions since 2020. Its general fund boomed by 78%. The township used that money to fix a bike path connecting Tawas Point State Park to the Iron Belle Trail without raising taxes.
But Baldwin Township went from five dispensaries to two.
The legal fight
The Michigan Cannabis Industry Association filed two lawsuits challenging the tax.
The first argues the tax violates the 2018 voter initiative that legalized recreational marijuana. The initiative set a 10% excise tax, and the lawsuit claims any additional tax requires a three-fourths vote of the Legislature, which the new tax did not receive.
Court of Claims Judge Sima G. Patel rejected that argument in December, ruling the voter initiative "plainly stated" the 10% tax was "in addition to all other taxes."
A second lawsuit filed in March argues the wholesale tax is a disguised sales tax that creates unconstitutional tax pyramiding. That lawsuit claims the effective sales tax rate for cannabis customers exceeds the state's legal 6% cap.
The Michigan Supreme Court ordered the Court of Appeals to expedite its consideration of the case on April 22.
"The clock is ticking for cannabis businesses that are struggling all across the state, and an expedited consideration of our lawsuit in the Court of Appeals is what we have been fighting for," Tantraphol said.
Who benefits, who bleeds
State lawmakers defending the tax say market saturation, not the tax, is driving closures.
"Everyone knew that that kind of consolidation was bound to happen since the Michigan market is so saturated," said State Sen. Ed McBroom, R-Norway, who represents most of the Upper Peninsula and voted for the tax.
McBroom added that the new rate puts Michigan in the middle of the pack compared to other states' cannabis tax rates.
But researchers say the math is not neutral for small towns.
"In small towns, the impact of a business opening or closing is really acute, because it's a really big swing in revenue when there's a change," said Stephanie Leiser, director of the Center for Local, State and Urban Policy at the University of Michigan.
Bill Knudson, a professor at Michigan State University's Department of Agricultural, Food, and Resource Economics, warned the tax could force operators out of business entirely.
"A lot of them are operating on very thin profit margins, and I could certainly see a scenario where this tax forces some people out of business," Knudson said.
Recreational marijuana sales dropped by $50 million through March compared to the same period in 2025, according to industry data.
The first payment under the new tax was due April 20. The Court of Appeals has not yet set a hearing date.
Until then, Traverse City cannabis operators and their rural counterparts across Michigan are waiting to see whether the courts will keep the tax in place or strike it down.