The Michigan court of appeals heard Tuesday the Constitution of a new 24% tax on cannabis products, a measure that has already sparked a significant backlash in the state’s state capital industry.
The tax, set to go into effect on Jan. 1, was passed as part of Michigan’s 2026 budget to raise $420 million to fund road repairs and infrastructure projects.
However, critics say the tax, timed with cannabis and a full retail market, could send the second legal market in the US into a tailspin.
Judge Sima Patel, who presided over the hearing, said he expected to issue a decision soon.
The case is expected to advance to the Michigan Supreme Court, regardless of status.
A cannabis tax violates the state constitution
In its defense, the Michigan Industry Association said the tax violates the state constitution by amending Michigan’s approved MASHIGAAN law.
The law established a 10% sales tax on recreational cannabis. The MCIA argues that any changes to the law require a strong vote, which the new tax did not accept.
“Michigan voters made their voices heard loud and clear during the 2018 election when they officially passed the Citizen Vote Initiative,” 24% spokeswoman Roma Tantraphol said in a statement after the hearing.
Tantraphol said it taopardizes the 47,000 tax and risks driving consumers back to an unregulated market.
The State, represented by the Michigan Attorney, prohibits the total tax at a different rate and does not repeal the original law.
Michigan’s $3.2 billion annual cannabis market is the second largest after California.
Cannabis tax breaks are gaining momentum across the country
Michigan’s legal battle over the cannabis tax is part of a broader trend of industry lobbying against what operators see as unsustainable tax burdens.
Outside the US, cannabis businesses have challenged federal and local governments over taxes they say stifle growth and fuel the illegal market.
In Los Angeles, merchants have recently “rebelled the tax,” refusing to pay local taxes in protest of high prices and insufficient illegal enforcement.
Subscribe to MJBIZ TRCROCK
Exclusive industry data and analysis to help you make informed business decisions and prevent costly missteps. All facts, no hype.
What you will get:
- Monthly and quarterly updates, with new data and insights
- Financial Forecasts + Financial Investment Trends
- A state-by-state guide to the state of regulations, taxation and market opportunities
- Annual survey of cannabis businesses
- Consumer understanding
- And more!
Meanwhile, Federal nonpayment of section 280e — a provision of the tax code that prevents cannabis businesses from deducting general expenses — continues to increase financial pressures on the industry.
States such as New York and Illinois have also faced criticism for draconian cannabis taxes, with activists warning that such policies stifle the market for toa control.
