Michigan will tax an additional 24% on wholesale cannabis under a new state law that goes into effect Jan. 1, allocating revenue toward Michigan roads and construction projects.
The tax will be added to the existing 10% excise tax and 6% sales tax for cannabis sales at regulated dispensaries. Estimates by Michigan Advance say the new tax could raise up to $420 million. Michigan Gov. Gretchen Whitmer has advocated raising taxes on marijuana as part of her initiative to repair Michigan’s roads.
“After voters legalized marijuana, the industry has grown exponentially thanks in part to Michigan’s industry-friendly taxes, the fourth-lowest in the nation,” Whitmer’s office said earlier this year.
When the state of Michigan legalized marijuana in 2018, Hillsdale city officials passed two ordinances to prohibit the sale and public use of marijuana within city limits.
Because of this, Hillsdale does not receive tax revenue from marijuana sales. Ward 4 councilman Joshua Paladino said he is frustrated that the state gives additional tax revenue to municipalities that allow marijuana dispensaries within city limits.
Paladino said he would like to see Michigan House Republicans distribute money from marijuana taxes evenly, rather than giving municipalities with dispensaries more revenue to improve their roads.
“I don’t think the state should be holding this over our head as a funding mechanism,” Paladino said. “The city doesn’t get additional gas tax revenue for each gas pump; we don’t get additional tax revenue for the cigarettes or alcohol we sell in the city. It creates a system of perverse and vice-encouraging incentives that I don’t think the state should be encouraging.”
Paladino said he thinks allowing marijuana dispensaries might not be in Hillsdale’s best interest.
“In the cities that have done this, their downtowns do not look particularly healthy,” Paladino said. “There’s an argument to be made that Hillsdale stands out for not having marijuana, and that might actually be a benefit to the downtown, to have it be more family-friendly.”
In the 2024 fiscal year, Coldwater received $757,000 in taxes from marijuana sales. Coldwater City Manager Keith Baker told The Collegian in March that the city benefited from the marijuana tax revenue.
“We also collect a $5,000 licensing fee every year from each of these establishments, which brings about another $60,000-$70,000, depending on licenses that year,” he told The Collegian in March.
Ashley Davis, founder and co-owner of the Stoned Goat dispensary in Osseo, said the tax increase will affect her business significantly.
“What’s frustrating is that cannabis is already one of the most unfairly taxed industries, and adding more on top hurts the little guys, not the big corporations,” Davis said. “It feels like the legislature pushed through a major change without proper input, and that upsets me not only as a dispensary owner but as a registered Michigan voter.”
Davis said a large portion of customers at the Stoned Goat use marijuana for medical reasons due to the high cost of other medications.
“Insurance rates are so high and pharmaceuticals have a lot of negative side effects,” Davis said. “People are choosing a more natural remedy, and the government is finding a way to make money off of people just trying to help themselves feel better.”
The marijuana industry in Michigan has been fighting against the tax increase in court, arguing it inhibited voters’ abilities to exercise their rights through ballot initiatives. The Michigan Cannabis Industry Association said the tax violates the Michigan Constitution by amending a statute voters have already approved without a three-fourths majority in the legislature.
“Therefore, while the State may claim an interest in raising revenue to rebuild roads, it cannot use the enforcement of an unconstitutional tax that will destroy businesses and livelihoods to achieve that goal,” the group said in the lawsuit.
