Michigan’s cannabis industry faces an unprecedented shift as the state prepares to implement a new wholesale tax structure in 2025, replacing the current excise tax system. Industry stakeholders are bracing for significant operational changes while debating whether consumers or businesses will ultimately bear the financial burden.
The Michigan Cannabis Regulatory Agency recently confirmed the transition to a 10% wholesale tax beginning January 1, 2025, fundamentally altering how cannabis is taxed across the supply chain. This represents the most substantial regulatory change since recreational legalization took effect in 2019.
“This restructuring essentially shifts the tax burden upstream,” explains Robin Schneider, executive director of the Michigan Cannabis Industry Association. “Rather than collecting at the point of sale, the state will now capture revenue earlier in the distribution process, creating new cash flow challenges for cultivators and processors.”
According to data from the Michigan Department of Treasury, the cannabis industry generated over $325 million in tax revenue during fiscal year 2023. State officials project the wholesale approach could increase collections by approximately 12-15% annually while simplifying enforcement efforts.
For Michigan’s 540 licensed cannabis operators, the implications vary dramatically based on business model and scale. Vertically integrated companies controlling multiple license types may find strategic advantages, while smaller independent operators express concerns about margin compression.
Cannabis analytics firm Headset Research estimates the average wholesale price for cannabis flower in Michigan has already declined nearly 65% since 2020, dropping from approximately $4,000 per pound to around $1,400. This price compression has squeezed cultivator margins well before the tax change.
“We’re already operating in a challenging environment with substantial price volatility,” notes James Shamberger, owner of Great Lakes Cultivation in Bay City. “Adding a 10% wholesale tax when we’re already seeing razor-thin margins could force many small growers to consolidate or exit the market entirely.”
The Michigan Cannabis Manufacturers Association supports the transition, suggesting it creates more predictability for businesses while potentially reducing tax avoidance. Their internal analysis indicates properly structured companies can absorb the change through efficiency improvements and volume adjustments.
“This aligns Michigan’s approach with several other mature cannabis markets,” says Andrew Brisbo, former director of Michigan’s Cannabis Regulatory Agency and current industry consultant. “Colorado and Washington have demonstrated that wholesale taxation can create stable revenue streams while allowing reasonable market growth.”
Critics argue the approach disproportionately impacts smaller operators. Federal tax code Section 280E already prevents cannabis businesses from deducting ordinary business expenses, creating effective tax rates sometimes exceeding 70%. The wholesale tax adds another layer of complexity to an already challenging tax environment.
The Federal Reserve Bank of Chicago’s regional economic assessment notes Michigan’s cannabis industry employs approximately 31,000 workers and has attracted over $1.8 billion in capital investment since legalization. Any significant industry contraction could have measurable economic impacts in communities heavily invested in cannabis infrastructure.
Consumer advocacy groups remain divided on the implications. While some predict retail price increases as businesses pass costs downstream, others suggest intense competition might force operators to absorb the tax impact internally.
“Michigan consumers should expect modest price adjustments as the industry adjusts,” predicts Marshall Stern, cannabis market analyst with Viridian Capital Advisors. “However, the greater concern is potential consolidation reducing product diversity and innovation in what has been one of America’s most dynamic cannabis markets.”
The Michigan Department of Treasury has scheduled informational sessions throughout 2024 to help businesses prepare for the transition. Industry compliance experts recommend operators review supply agreements, assess cash flow implications, and potentially renegotiate terms with partners to accommodate the new tax reality.
For Michigan municipalities hosting cannabis businesses, the shift raises questions about local revenue sharing. Under current laws, local governments receive a portion of cannabis tax revenue based on retail sales within their jurisdiction. The wholesale model potentially alters distribution formulas, though state officials maintain local funding will remain protected.
As the implementation date approaches, Michigan’s cannabis industry stands at a crossroads. The wholesale tax represents just one component of a maturing regulatory framework that continues to evolve nearly five years after adult-use legalization.
“Michigan’s cannabis market has demonstrated remarkable resilience through regulatory shifts, pandemic disruptions, and price volatility,” observes Schneider. “While this wholesale tax presents genuine challenges, particularly for smaller operators, the industry will adapt as it has before. The question isn’t whether the market survives, but rather which operators successfully navigate this transition.”
Industry participants and observers can only speculate whether the wholesale tax change represents a maturation of Michigan’s cannabis policy or merely another chapter in the ongoing regulatory experiment. What remains clear is that 2025 will mark a pivotal moment in the state’s cannabis evolution, with implications extending far beyond simple tax collection mechanics.
