Michigan is actively defending its newly implemented 24% wholesale marijuana tax in court, asserting its constitutionality and compliance with existing cannabis laws. The state’s defense comes in response to a lawsuit filed by a prominent cannabis industry group, which claims the tax is an unconstitutional amendment to the voter-approved recreational marijuana law.
The Legal Challenge: A Constitutional Hurdle
The Michigan Cannabis Industry Association (MCIA), representing over 400 businesses, alongside PG Manufacturing, a Lansing-based marijuana company, filed suit in the Michigan Court of Claims. Their primary contention centers on the Michigan Regulation and Taxation of Marihuana Act (MRTMA), the 2018 ballot initiative that legalized recreational cannabis in the state. The lawsuit argues that the MRTMA, as a voter-initiated law, can only be amended through a supermajority vote of three-fourths in both the Michigan House and Senate. However, the legislation creating the new tax passed with a 78-21 vote in the House and a 19-17 vote in the Senate, falling short of this constitutional requirement.
Industry advocates describe the tax hike as “legislative gamesmanship” and an “unconstitutional statute adopted in derogation of the voters’ rights,” arguing that lawmakers circumvented direct democracy by embedding the tax within a broader budget bill rather than seeking the necessary supermajority. Attorneys for the MCIA have characterized the process as a “last-minute, late-night process” that occurred in violation of constitutional provisions.
Michigan’s Defense: A Distinct Revenue Stream
The State of Michigan, through its Department of Treasury, is pushing back against these claims. The state’s legal filings argue that the new 24% wholesale tax is distinct from the existing 10% retail excise tax established by the MRTMA and does not, therefore, constitute an amendment requiring a supermajority vote. Instead, Michigan contends that the Comprehensive Road Funding Tax Act, which introduced the wholesale tax, works in concert with the existing legal framework for regulating marijuana.
A key element of the state’s defense is that the primary purpose of the new wholesale tax is to generate revenue for roads and infrastructure improvements, rather than to regulate the cannabis industry itself. This distinction is crucial to their argument that the legislative action did not require amending the voter-initiated MRTMA.
Background: Funding Roads and a Growing Market
The 24% wholesale tax is a significant component of Michigan’s recently approved $81 billion state budget and is projected to generate approximately $420 million annually for state and local roads. This tax is layered atop the existing 10% retail excise tax and the 6% state sales tax, a cumulative burden that critics fear will make Michigan’s cannabis market one of the most heavily taxed in the nation.
Michigan’s cannabis market is substantial, ranking second in the U.S. behind California with an estimated $3.2 billion in annual sales. The revenue generated from the original MRTMA’s 10% excise tax has historically been distributed among municipalities, counties, the school aid fund, and roads. The new wholesale tax is intended to substantially bolster funding for the state’s infrastructure, a priority for Governor Gretchen Whitmer.
Economic Implications and Industry Concerns
Beyond the constitutional arguments, the cannabis industry voices grave concerns about the economic fallout of the new tax. Operators warn that the increased tax burden will inevitably lead to higher retail prices, potentially driving consumers back to the illicit market and away from state-licensed businesses. This shift could undermine the very goals of legalization: providing safe, regulated, and lab-tested products. Some in the industry are already reporting layoffs and reduced hours, fearing a wave of business closures and market consolidation, where only the largest, most well-capitalized companies can survive.
The Road Ahead: Awaiting Judicial Clarity
The lawsuit is currently before the Michigan Court of Claims, with a hearing for a preliminary injunction scheduled for later in November. The outcome of this legal battle could have far-reaching implications, not only for Michigan’s burgeoning cannabis industry and its tax revenue streams but also for the broader legal framework governing voter-initiated laws and taxation in the state. This trending legal news highlights the ongoing tension between state revenue needs and the established rights of voters in shaping public policy.
