Is Michigan cannabis tax increase a cautionary tale for other States to beware? Most economists think so.  The facts are that on October 7, 2025, Michigan enacted the Comprehensive Road Funding Tax Act (CRFTA). How does this effect legalization.

CRFTA introduced a significant new tax on Michigan’s adult-use marijuana industry. The law took effect January 1, 2026, and established a 24% excise tax on wholesale sales of recreational marijuana. This new tax comes on top of Michigan’s existing 10% retail excise tax created under the 2018 Michigan Regulation and Taxation of Marihuana Act (MRTMA), as well as the state’s 6% sales tax.

How is the tax processed? The 24% wholesale excise tax is applied to the first sale or transfer of marijuana from a licensed “marihuana establishment” to a Michigan licensed retailer. Marihuana establishments include state-licensed businesses that are regulated by Michigan’s Cannabis Regulatory Agency. This includes growers, processors, retailers, microbusinesses, safety compliance facilities, and secure transporters. Also, the tax applies when a retail business cultivates and processes its own product for sale (often called “seed-to-sale” operations). Additionally, the tax applies when medical provisioning centers transfer marijuana to adult-use retailers. Grow your own.

Who and how is the tax paid? In typical wholesale transactions, the entity acting as the wholesaler—such as a grower or processor—is legally responsible for paying and remitting the 24% tax to the Michigan Department of Treasury. Although wholesalers may pass the cost on to retailers, they remain legally liable for reporting and payment, similar to how Michigan’s sales tax system operates.

The tax is calculated based on the “wholesale price.” For transactions between unrelated parties, this means the actual price paid by the retailer to acquire the product, including most fees and charges reflected on the invoice (but excluding the new 24% tax itself). Discounts, rebates, or trade allowances cannot reduce the taxable amount.

For transactions between affiliated entities—such as businesses under common ownership—or for retailers supplying their own product, the tax is based on an “average wholesale price.” This figure will be calculated and published quarterly by the Department of Treasury using the best available market data. The state is still developing the methodology for determining these average prices.

Tax returns and payments are expected to be filed quarterly, though specific filing procedures are still forthcoming. The Department of Treasury has created a webpage with guidance, FAQs, and updates for affected businesses.

Why all the concern?  Overall, the new wholesale tax substantially increases the total tax burden on Michigan’s adult-use marijuana market, adding another layer of cost to an already taxed industry. Bottom line is GROW YOUR OWN.