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

Second Legal Challenge Targets Michigan's Marijuana Wholesale Tax Structure

Michigan's recreational marijuana industry has filed a second lawsuit challenging the state's 24% wholesale cannabis tax that took effect in January. The industry group argues the new wholesale tax 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, said Rose Tantraphol with the Michigan Cannabis Industry Association. This effectively functions as a sales tax, creating a situation where cannabis is taxed multiple times, resulting in something called tax pyramiding, she told Michigan Public Radio. This imposes a sales tax on consumers that's higher than the legal rate of 6%.

That is also on top of the 10% excise tax enacted under the initiative. In a separate lawsuit pending before the Michigan Court of Claims, the cannabis industry also argues the tax is unconstitutional because it was adopted by simple majorities of the Legislature and not supermajorities required to amend voter-initiated laws.

The marijuana legalization initiative was adopted by voters in 2018. It takes three-fourths supermajorities in the House and the Senate to alter a voter-approved initiative. But the state argues the wholesale cannabis tax is part of a road-funding law that does not touch the language of the initiative.

The Michigan Department of Treasury, which administers the tax and is named as the defendant in the new lawsuit, declined to comment.

Tax Structure Creates Revenue Pyramiding

The second lawsuit filed Friday is significantly different from that suit because it challenges the legality of the taxing structure set up by the state, which the cannabis association says will create a pyramiding tax structure in which the state's 6% sales tax will be applied to the base sales price plus the wholesale tax, inflating the revenue the 6% sales tax will pull in.

What has happened here is a tax levied on a tax, which results in an unconstitutional over-taxation of Michiganders, Tantraphol said. This type of tax pyramiding imposes an unlawful burden on consumers, and this lawsuit seeks to end that practice.

The suit draws other parallels between the marijuana wholesale tax and the 6% sales tax similarities that they argued supported the conclusion that the marijuana wholesale tax was alternatively acting as a stand-in and overinflating the constitutionally-capped sales tax.

Like a sales tax, the wholesale tax is based on the transfer of ownership in tangible property where the sale is in the ordinary course of the seller's business and is made for the purpose of the buyer's consumption, the suit argued. Further, the lawsuit said, the wholesale tax is based on the selling price similar to a sales tax whereas excise taxes usually are applied on a per-unit basis.

Prior to the wholesale tax, which went into effect in January, the state already levied on marijuana the 6% sales tax on gross proceeds and the 10% excise tax on the sales price. The new tax adds a 24% tax on the wholesale price of marijuana, which would greatly expand the revenue the state pulls from the 6% sales tax.

For example, the lawsuit said, a $100 marijuana sale from a processor to a retailer would 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. If the wholesale tax weren't applied, the sales tax revenue would be limited to $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 said.

The suit also alleges violations of the equal protection clauses of the state and U.S. constitutions because the wholesale tax requires marijuana sellers and purchasers to disproportionately contribute to road funding.

The state has not demonstrated a need to treat taxpayers who sell and purchase marijuana differently from all other taxpayers, the suit said.

First Lawsuit Already Proceeding to Trial

The lawsuit is the second filed by the Michigan Cannabis Industry Association in the wake of the Legislature's vote last year to impose a 24% sales tax on marijuana, a fee lawmakers estimated would generate about $420 million for roads annually.

The first lawsuit focused on the allegation that the Legislature's passage of the law in late 2025 lacked the supermajority in support needed to amend a ballot proposal. The 2018 ballot initiative legalizing recreational marijuana set a 10% excise tax at that time on retail sales.

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

The Michigan Cannabis Industry Association filed the new lawsuit in the Michigan Court of Claims on Friday. The suit names as defendants the Michigan Department of Treasury and State Treasurer Mike Egnar.

Industry Pushes for Tax Repeal

The Michigan Cannabis Industry Association has become increasingly vocal about the wholesale tax since it began being collected in January. The association argues the tax structure fundamentally misunderstands how excise taxes and sales taxes function under Michigan law.

Rose Tantraphol, a spokeswoman for the Michigan Cannabis Industry Association, has consistently maintained that the wholesale tax creates an unconstitutional burden on consumers. The association has called on state lawmakers to repeal the tax and restore the original structure of marijuana taxation that voters approved in 2018.

State Revenue Implications

The wholesale tax was included in the state's 2026 budget deal as a funding source for roads and transportation infrastructure. Lawmakers estimated the tax would generate approximately $420 million annually, which represented a significant portion of the new revenue needed to balance the state's budget.

The Michigan Department of Treasury released guidance in March outlining how the 24% wholesale tax works and what cannabis businesses need to know as quarterly payments begin this year. The tax applies to the first sale or transfer of adult-use marijuana from a licensed marijuana establishment to a marijuana retail licensee.

The guidance notes that the tax is intended to fund road construction and maintenance, addressing what the state describes as critical infrastructure needs. However, the industry lawsuit argues that the tax structure fundamentally misapplies state constitutional tax limitations.

Legal Arguments Center on Sales Tax Cap

The core legal argument in the second lawsuit centers on the Michigan Constitution's limitation on sales taxes. The state Constitution allows a sales tax of up to 6% on gross proceeds from the sale of tangible personal property.

The marijuana industry argues that the wholesale tax effectively functions as a sales tax because it is applied at the point of transfer of ownership and is based on the selling price. When combined with the existing 6% sales tax on retail sales, the layered tax structure creates an effective sales tax rate that exceeds the constitutional cap.

The lawsuit contends that Michigan's 2018 voter initiative for recreational marijuana legalization established a specific tax structure with a 10% excise tax on retail sales. The wholesale tax, passed by the Legislature in 2025, adds a new layer of taxation that the industry argues violates the constitutional sales tax limitation.

Political Ramifications

The second lawsuit adds to an already contentious political debate about Michigan's marijuana tax structure. Several gubernatorial candidates have weighed in on the issue, with some vowing to repeal the wholesale tax if elected.

A county sheriff running for governor has said he'll undo the new 24% wholesale cannabis tax as operators file another lawsuit seeking repeal. This has put additional pressure on state lawmakers to address the legal challenge and consider the broader implications for Michigan's marijuana market.

The Michigan Cannabis Industry Association has indicated it will seek immediate relief to prevent the wholesale tax from being enforced pending resolution of the legal challenge. The association argues that continued enforcement of the tax structure would impose an unconstitutional burden on Michigan consumers and marijuana businesses alike.

The state's position remains that the wholesale tax is a legitimate exercise of the Legislature's authority to set tax policy, particularly in the context of road funding. State officials maintain that the tax does not violate constitutional limitations and serves an important public purpose in funding state infrastructure.

What Comes Next

The Michigan Court of Claims will now hear arguments in the second lawsuit challenging the wholesale tax. Judge Sima Patel will decide whether to accept the new arguments and potentially grant immediate relief pending trial.

The timing of the second lawsuit is significant because it adds a new legal dimension to the already complicated marijuana tax challenge. While the first lawsuit focused on the procedural question of whether the Legislature had sufficient supermajority support to pass the tax, the second lawsuit raises substantive constitutional questions about the tax structure itself.

The outcome of these legal challenges could have significant implications for Michigan's marijuana market, state revenue, and the broader political debate about marijuana taxation in the state.

Sources:

• https://www.michiganpublic.org/politics-government/2026-03-30/cannabis-industry-files-new-legal-challenge-to-michigans-24-marijuana-wholesale-tax
• https://www.cpapracticeadvisor.com/2026/03/30/michigan-marijuana-industry-files-second-lawsuit-over-24-tax/180500/
• https://www.crainsdetroit.com/cannabis/cdb-michigan-cannabis-wholesale-tax-lawsuit-20260330/