As Michigan marijuana tax jumps to 40%, critics worry it’ll fuel black market
October 3, 2025
LANSING, MI – Black market operators are cheering the Michigan Legislature’s vote to more than double marijuana taxes, opponents say.
About 3 a.m. Friday, Oct. 3, the Michigan Senate in a contentious 19-17 vote passed a new 24% wholesale tax on marijuana, that insiders say will decimate business and eventually be passed along to customers. Four Republicans and 15 Democrats supported the bill.
The legislation returned to the House where it quickly passed in the early morning hours, 264-19.
“What we just did is we just adopted California’s high-tax approach that drives people back in the black market,” said Sen. Jeff Irwin, D-Ann Arbor, who voted against the bill and advocated for the ballot initiative that legalized recreational marijuana in 2018. It doesn’t bring cannabis “into a legal space where there is taxes and testing and jobs.”
Set to take effect Jan. 1, 2026 – pending the outcome of expected lawsuits – Michigan marijuana customers will be taxed 40% on marijuana products, including the existing 10% excise, 6% sales and new wholesale tax. Michigan currently has one of the lowest tax rates, but it will now become one of the highest in the nation.
The passage is the result of bipartisan budget negotiations between the Republican-led House, Democrat-majority Senate and Gov. Gretchen Whitmer, who earlier this year floated the idea of a 32% wholesale marijuana tax to generate $470 million in new revenue for road repairs.
A huge chunk of Whitmer’s road funding plan and the passed budget rely on the new marijuana money.
Related: Lawmakers finally approve Michigan’s 2026 budget, adding a 24% marijuana tax
Fiscal analysis of the passed legislation, House Bill 4951, estimates it will generate $420 million in new tax revenue for roads; however, opponents say that number is inflated and doesn’t take into account sales lost to steeper pricing.
Irwin believes politicians saw the $3 billion-plus marijuana industry as one ripe for tax juicing, since consumers are paying among the lowest in the nation, the industry’s lobbying arm is weak and some remain ideologically opposed to marijuana commerce.
The existing excise tax is already lucrative for the state coffers. Of the nearly $331 million raised from marijuana excise tax last year, $116 million apiece went to school, bridge and road funds. That doesn’t include the 6% tax generated from nearly $3.2 billion in marijuana sales.
Karen O’Keefe, director of state policies at the Marijuana Policy Project, wrote in a Bridge Michigan op-ed, that politicians are “singling out cannabis consumers to foot the bill” for their projects.
“Cannabis taxes are already disproportionately high when compared to other goods,” O’Keefe said. “Michigan’s excise tax on beer is only 20 cents per gallon, or well under 1% the price.
“This tax disparity is particularly striking because alcohol is objectively more dangerous and is not used as a medicine.”
Related: Michigan may soon have the nation’s second-highest marijuana tax rate
Crossover Republican voter Sen. Ed McBroom, who represents 15 counties in Michigan’s Upper Peninsula, said the industry that began in December 2019 has brought “blight” and “crime,” while overrunning communities “to the extent that people are leaving.”
“Where are the benefits,” he asked, while speaking in favor of the the new tax at 3 a.m. “I’m told this is going to stop cross-border traffic into my communities.
“Well, tell me another reason to vote yes, because these folks drive in, backups into the streets for miles, hundreds of cars don’t stop at a single store, restaurant, gas station or wayside in my communities and drive out again with their product.”
Related: What happened when marijuana money came to small U.P. towns
When MLive in 2023 visited marijuana stores along the Wisconsin border in Menominee, which is part of McBroom’s district, employees said the majority of their business came from out-of-state customers, some who drove hours for Michigan’s low prices.
The same phenomenon has taken place along Michigan’s southern border, where dozens of shops have opened in cities along the Indiana and Ohio state lines.
Industry insiders, including Michigan Cannabis Industry Association Director Robin Schneider, estimate nearly a third of all Michigan marijuana revenue is generated from sales along the borders.
“Those are the customers who I think we’re going to not see coming to Michigan anymore, at least not in the same numbers,” Irwin said.
McBroom agreed that it “might be possible” new taxes reinvigorate the already pervasive marijuana black market.
“But if I’m not having out-of-state folks come here because it’s too expensive to do business here, they might as well stick with their illegal markets where they live,” he said.
Because the current tax structure and distribution plan were decided by voters who passed the recreational marijuana ballot initiative in 2018, opponents believe the new tax illegally circumvents the constitutional requirement that ballot initiative legislation only be amended by a 3/4 super-majority vote from both branches of the Legislature.
The logic espoused by supporters contends the new tax is separate, additional legislation; it does not infringe upon the will of the voters, and so doesn’t require a super-majority.
McBroom said he originally saw this logic as an “end-around,” but has since changed his stance.
“When you read the initiated law from 2018, you see that it specifically references ‘other taxes,’ specifically, therefore, those who wrote this acknowledge that there are other taxes that can be charged and levied,” McBroom said. “And it doesn’t say that it can only be those that were in place at the time of passage.”
Marijuana is “not the first product or item or property in this state where it is taxed under multiple acts and you have to pay tax on the same thing in multiple ways.”
The legal challenges are already brewing, according to Schneider, who said this week her lobbying organization is discussing a legal strategy to challenge the tax.
It’s expected businesses will file a request for an emergency injunction, which if approved by a judge would halt implementation of the tax until its legality is resolved by the courts.
“They called it a wholesale excise tax, as opposed to just an excise tax, so does adding the word ‘wholesale’ mean that now you sort of get to avoid the constitutional provision that normally protects the citizens’ voice,” Irwin said. “In the past, the courts have stood up for the residents’ rights in the Constitution. Will they this time?
“We’ll find out.”
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