The tax that was supposed to fill Michigan’s roads is not filling the state’s coffers
Michigan’s controversial 24 percent wholesale tax on marijuana is generating less revenue than legislators expected, and the shortfall is rippling through Traverse City and other communities that have grown dependent on cannabis sales.
The tax took effect January 1, with the first payment due April 20. According to Crain’s Detroit Business, early signs point to the new tax falling short of the revenue projections that lawmakers used to justify it as part of a road funding deal.
Traverse City stores in the crossfire
Traverse City is home to several licensed cannabis retailers, including locations operated by House of Dank, one of the state’s largest multi-store operators.
"Obviously, some of these stores and grows are not going to make it in these small communities," said Mike DiLaura, chief corporate officer at House of Dank and a member of the Michigan Cannabis Industry Association board. "But that failure still brought investment and economic activity."
House of Dank operates 15 stores across Michigan, including locations in Traverse City and New Buffalo. DiLaura told Bridge Michigan that the company’s investments often include buying and remodeling vacant properties, which benefits local economies even if individual stores eventually close.
A tax on top of a tax
The new 24 percent wholesale tax sits on top of an existing 10 percent excise tax and a 6 percent sales tax already levied on marijuana in Michigan. Industry leaders argued the combined tax burden was too high when the measure passed.
The Michigan Cannabis Industry Association has filed two lawsuits challenging the new tax.
"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," said Bill Knudson, a professor at Michigan State University’s Department of Agricultural, Food, and Resource Economics.
Rural communities feel the pinch first
Rural Michigan communities were among the earliest to allow cannabis businesses, and they have been the biggest beneficiaries of tax revenue sharing.
According to data from the Michigan Department of Treasury and the MI Community Financial Dashboard, two-thirds of the municipalities that first legalized cannabis had populations under 10,000 and contained nearly half of the state’s retail licenses.
Ironwood, a city of roughly 5,000 near the Wisconsin border, has received more than $783,000 in marijuana tax revenue sharing since its first retail stores opened in 2022. That money grew the city’s general fund by 66 percent.
"I have to admit I was concerned about the (new) tax when I heard about it," said Tom Bergman, Ironwood’s community development director.
In Baldwin Township, a community of roughly 1,600 in Iosco County, the township has received nearly $900,000 from the state’s annual marijuana tax distributions since 2020. That boosted the general fund by 78 percent and funded capital projects including a bike path connecting Tawas Point State Park to the Iron Belle Trail.
The township once had five dispensaries. It now has two.
Lawmakers defend the tax
Supporters of the tax argue that market saturation, not the tax itself, 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 voted in favor of the new tax. "I don’t think we are better off as a people for having more addictive substances available for less money."
McBroom said the new tax puts Michigan in the middle of the pack compared to other states’ cannabis tax rates.
What comes next
Stephanie Leiser, director of the Center for Local, State and Urban Policy at the University of Michigan, warned that the impact on small towns will be acute.
"If you have 30 or 40 (marijuana business) licenses, losing one license is not a big deal," Leiser said. "But if you only have five, losing one is a pretty big deal."
The two lawsuits challenging the tax are expected to play out in coming months. In the meantime, Traverse City and other Northwest Michigan communities will watch to see whether the revenue shortfall forces more closures or whether the market stabilizes.
Michigan’s more than 800 cannabis retail stores sell roughly $3 billion a year. But with prices already compressed by oversupply and competition from neighboring states, the industry’s ability to absorb the new tax remains an open question.
Derek Norman, founder of Humblebee, a Frederic-based live resin producer, said the tax is hitting operators at a vulnerable moment.
"Michigan is dealing with oversupply and a very open licensing structure, which has already compressed margins across the industry," Norman said. "So this isn’t happening in a vacuum. It’s hitting operators at a point when many are already under significant financial pressure."