Michigan Gov. Gretchen Whitmer signed an $81 billion budget on Oct. 7 that puts her road improvement funding plan on the backs of cannabis businesses and consumers via a new 24% wholesale tax.

The wholesale tax, which will be levied on cannabis transferred from cultivators and manufacturers to retailers, will start on Jan. 1, 2026, barring any court injunctions. This is in addition to the state’s 10% cannabis excise tax at retail and 6% sales tax.

In any state, higher cannabis taxes inevitably increase dispensary prices, which often drives consumers to unregulated sources.

This wholesale tax provision of Michigan’s budget, which the state Senate narrowly passed in a 19-17 vote on Oct. 3, is projected to increase state revenue by approximately $420.7 million per year, according to a fiscal analysis of the legislation. This revenue will go toward the governor’s $1.8 billion annual funding plan to improve roads, bridges and other infrastructure.

“Big news, Michigan. I signed my seventh balanced bipartisan budget,” Whitmer said in a video on Tuesday. “And here’s what it means for you: safer, smoother roads to drive on, thanks to the biggest roads deal in Michigan history, so we can keep fixing all those damn roads, state and local, and keep your car in good shape, too.”

The new law, the Comprehensive Road Funding Tax Act (CRFTA), will create a “Comprehensive Road Funding Fund,” allocating $3 million of tax revenue to the fund in fiscal 2026 and $500,000 in each following year.

The remainder of the tax revenue collected under the 24% wholesale tax will be allocated to the Neighborhood Road Fund, with $100 million from this fund going to local bridges, and the remaining revenue allocated to county road commissions, cities and villages.

While the governor’s signature may signal a done deal for the 24% wholesale tax, the Michigan Cannabis Industry Association (MiCIA) filed a lawsuit on Oct. 7, challenging the new tax on cannabis, Crain’s Detroit Businessand FOX 17reported.

The 22-page suit filed in the Michigan Court of Claims argues that the new tax is unconstitutional because the state Legislature failed to gain a three-fourths vote required to change citizen-initiated statutes. Michigan voters legalized adult-use cannabis with a 56% majority in the November 2018 election.

The voter-approved initiative implemented the Michigan Regulation and Taxation of Marihuana Act (MRTMA) to govern a commercial marketplace for adult-use cannabis businesses.

“The lawsuit details multiple ways in which the legislators acted unconstitutionally in the passage of this tax,” according to an MiCIA statement. “Notably, Article 2, Section 9 of the Michigan Constitution requires a three-quarters vote, rather than a simple majority vote, to amend any law enacted by citizen initiative, as was the Michigan Regulation and Taxation of Marihuana Act, which passed on the 2018 election ballot. The lawsuit details how the last-minute, late-night process occurred in violation of a range of other constitutional provisions. The association is asking the court to strike the tax in its entirety.”

MiCIA argues in the lawsuit that MRTMA set the cannabis excise tax rate at 10% at retail, and that the new 24% wholesale tax signed by Whitmer constitutes a new excise tax that’s specific to the industry.

“While other taxes may generally apply to marihuana, such as the sales tax, MRTMA is the exclusive mechanism for imposing excise taxes,” according to the lawsuit. “Legislative authority over marihuana excise taxes is exclusive to MRTMA; no other statute may intrude upon or duplicate the marihuana excise tax. Thus, additional excise taxes require a direct amendment to MRTMA itself.”

The plaintiff argues that the 24% wholesale tax legislation that state lawmakers sent to the governor pulled statutory definitions for cannabis program terms directly from MRTMA, meaning the Michigan Department of Treasury must specifically rely on MRTMA to implement and enforce the new tax.

Leading up to the 2018 election, when Whitmer was elected governor, Michigan Public asked the then-candidate what she would do to ensure a successful rollout of an adult-use program if both she were elected and voters passed MRTMA.

Whitmer voted in favor of the initiative.

“Our leaders frequently ignore the will of the public,” she said. “That happened on medicinal marijuana; They … never wanted to make it successful, and so they did not promulgate rules to ensure that it was and that the rule of the people was respected. And that’s why, when this passes, I will take it very seriously and push forward to make sure that we do it right, so that it stays out of the hands of kids, to ensure that the dollars actually go where they’re supposed to go, into our infrastructure and our schools.”

The revenue from the 10% cannabis excise tax that voters approved in 2018 was dedicated to implementing an adult-use program, clinical trials, schools, roads and municipalities where licensed businesses operate.