A key point to emphasize is that “black market risk” directly impacts the health, safety, and welfare of all Michigan residents and was a primary reason for establishing a legal cannabis market under the Medical Marihuana Facilities Licensing Act (MMFLA) and MRTMA. Large tax hikes increase price differentials with illicit sellers, encouraging diversion and eroding product testing standards. California’s experience, with high combined regulatory burdens and excessive taxes, led to a persistent (and violent) illicit market – a cautionary tale.

What Should You Do Today?

1. Activate your network. This will not only impact growers, but all licensees and those tied to the industry (i.e., landlords, suppliers, service providers, etc.) Encourage these individuals to contact their senators and the Governor’s office to express their discontent with the proposed excise tax. Emphasize job stability, small-business viability, black market competition, and the “revenue paradox” (i.e., over-taxation yields lower total collections).
2. Engage your public coalition. Customers, local governments relying on stable legal markets, and advocacy groups. If you are not a member of the Michigan Cannabis Industry Association (MICIA), it is encouraged to join immediately. To the extent you are part of other advocacy groups and can encourage other coalitions to contact the Senate and the Governor’s office, it would be prudent to do so. Your best chance for immediate relief is through a political solution, not a legal one.

Potential Legal Challenges if Enacted

The strongest near-term strategy is legislative. Some attorneys may encourage seeking immediate legal challenges, but those are likely to fail for two reasons:

1. There has been no injury because the law has yet to go into effect; and
2. There is no ‘irreparable harm’ present because the damage is overwhelmingly monetary in nature.

Rushing headlong into litigation without adequate due diligence may also lead to negative outcomes for future challenges. However, if the bill becomes law, several litigation theories may be considered, including:

Michigan Constitution — Uniformity Clause (Art. IX, § 3). This clause expressly governs ad valorem property taxation. Plaintiffs could analogize that a punitive, industry-specific excise tax with arbitrary intra-class valuation rules (e.g., “average wholesale price” for affiliates regardless of real prices) lacks a rational basis and functions as non-uniform taxation within a defined class. A Uniformity-based challenge is novel and uphill, but can be paired with equal protection/due process arguments, especially if evidence shows the rate is confiscatory or arbitrary in application.

Michigan’s constitutional and statutory process checks and balances. Depending on the outcome of the legislature, arguments regarding tie-bar compliance could be raised, i.e., if any tie-barred bills fail or are later invalidated, the act cannot take effect or could be vulnerable. Likewise, the bill could be challenged on the basis that it conflicts with the MRTMA; i.e., the MRTMA imposes a 10% retail excise tax, and HB 4951 adds a separate wholesale excise without directly amending the MRTMA. A challenge may also claim that the 24% wholesale tax frustrates MRTMA’s purposes (safe legal access, displacement of illicit market) and thus functions as an indirect amendment, which was never intended by the voters.

Challenging parties could also raise an equal protection and/or substantive due process arguments (under the U.S. and Michigan Constitutions) that the 24% rate and the “average wholesale price” rule for affiliates are arbitrary and punitive, not tied to regulatory costs or legitimate objectives, and will foreseeably extinguish many compliant operators, undermining the stated goals (roads) by shrinking the tax base. In effect, making arguments that this excise tax is unfair.

It is important to recognize that pursuing legal challenges to the proposed excise tax would be a significant undertaking. Litigation is often time-intensive, requiring substantial resources for legal fees, expert analysis, and the collection of evidence. The process would likely take years to reach a resolution, and outcomes are inherently uncertain, especially in areas where courts have historically given broad deference to legislative tax policy decisions. For most operators, legislative advocacy and coalition-building may offer a more practical and timely path to relief than relying solely on the courts.

Increased Regulatory, Law Enforcement Oversight, and Uncertainty

Before representing cannabis clients, Varnum worked significantly with clients falling under the Tobacco Products Tax Act (TPTA). The TPTA levies a 32% excise tax against wholesale tobacco and is primarily a tax enforcement statute, which includes felony punishment for individuals for minor violations. From our professional experience, this resulted in licensees – not just at the wholesale level, but also at the retail level – receiving significant scrutiny from the Michigan State Police and the Michigan DOT, with interactions that were much more adversarial and exclusively focused on tax compliance. This often resulted in significant audit pressure, search warrants, asset seizure and forfeiture, and criminal tax charges. See e.g., People v. Beydoun, 283 Mich. App. 314, 327 (2009) (“the TPTA is at its heart a revenue statute, designed to assure that tobacco taxes levied in support of Michigan schools are not evaded.”).

The TPTA is a significant departure from the MMFLA, MRTMA, and Rules, which primarily govern licensing, and rules aimed at cannabis integrity for human consumption. Likewise, enforcement in the cannabis industry is generally focused on the health, safety, and welfare aspects of the business and tracking in METRC, rather than revenue generation. Moreover, enforcement of the MMFLA and MRTMA is primarily carried out by regulatory agents of the Cannabis Regulatory Agency (CRA), who have specialized training on compliance. With the excise tax on cannabis closely aligning with the excise tax on tobacco, it is foreseeable that enforcement will shift toward law enforcement (i.e., the Michigan State Police) and away from regulatory enforcement. This will be challenging for cannabis companies and will open a new level of exposure to tax and criminal liability.

Conclusion

HB 4951 would alter Michigan cannabis economics by layering a 24% wholesale excise over existing taxes, with risk of accelerating illicit activity, destabilizing compliant operators, and potentially reducing net state revenues over time. If enacted, limited litigation avenues exist – particularly arguments grounded in uniformity principles, equal protection/due process, and statutory-process defects. The strongest path remains legislative modification: lower rates, phased adoption, targeted exemptions/credits, and reinvestment in enforcement and market health.