Whitmer roads tax plan may drive marijuana shops out of business, experts say

• Gov. Whitmer's $3 billion ‘Mi Road Ahead’ plan proposes a 32% wholesale tax on marijuana 
• Consumers are already paying a 10% excise tax in addition to the state’s 6% sales tax 
• Some predict that higher taxes could lead to increased illicit market activity

Michigan’s cannabis industry is sounding alarms about Gov. Gretchen Whitmer’s plan to raise $470 million per year for roads by imposing a 32% wholesale tax on marijuana.

The governor recently proposed a new $3 billion “Mi Road Ahead” plan that she called “fiscally responsible and balanced.” She said Michigan’s “industry friendly” marijuana tax is the fourth-lowest in the nation and helped fuel an explosion of marijuana retailers.

The proposed tax increase would come atop the 10% excise tax on recreational marijuana that consumers pay on top of the state’s 6% sales tax. The wholesale tax would directly impact growers, and that cost would be passed down to retailers and consumers. 

“The Mi Road Ahead Plan would close a loophole that exempted the marijuana industry from wholesale tax, which is applied to similar smoking products, like cigarettes, and other tobacco items,” Whitmer said.

The state taxes cigarettes at $2 a pack and levies a 32% tax on non-cigarette tobacco products at the wholesale level.

Retailers say the marijuana industry is already struggling enough.

“There are other ways for (Whitmer) to fix the roads,” said Al Williams, president of DaCut, a dispensary in Detroit. “We want to work with her on that, but 32% is ridiculous.” 

“This could not come at a worse time,” said Williams, who is running for chair of the Michigan Democratic Party. “I think this increase actually would encourage more people to operate in the black market.” 

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• Michigan local governments getting $87 million from marijuana sales

The state has 850 retailers, nearly double the 432 in 2021. As supply has expanded, prices have plummeted: An ounce of marijuana sold for an average of $74 in 2024, down from $204 in 2021.

In 2023, the excise tax on marijuana generated over $270 million in revenue for the state. Tax revenue from recreational marijuana sales is split between schools, roads and local governments. Michigan sells an average of about $265 million per month of marijuana, according to the Cannabis Regulatory Agency. 

The tax increase ultimately would be paid by consumers: A vape pen that costs an average of $20 would be about $27 or more, Williams explained. 

Some businesses may not survive, said Cassin Coleman, chair emeritus of the National Cannabis Industry Association’s scientific advisory committee.

“There's not enough space currently in the margins in our industry to take on another 30% burden,” said Coleman. “So that would mean either the price would go up … or people would not be able to continue and would leave the industry, which would also increase prices because of the reduction in supply,” Coleman said. 

‘Full panic’ 

One of the reasons why cannabis is so cheap in Michigan is because there is an oversaturation of products in the market due to the state’s low taxes, said Robin Schneider, director of the Michigan Cannabis Industry Association. 

“The value of the product, because there's so much cannabis in our system, the prices have plummeted, so those growers are not even able to recoup the cost of what it costs to run the facility,” she said. 

Advocates warn that the wholesale tax could drive prices for cannabis up, forcing people to get their supply elsewhere. 

Business owners already have to compete with the black market, which drives prices below market value. The additional wholesale tax could cause businesses that are barely breaking even into the red, Schneider said. 

“All I hear everyday is how terrible everyone is doing,” she said. “Everybody in the industry is in a full panic right now.” 

For every 1% increase in tax, there’s up to a 2.4% decrease in participation in the legal market, according to Beau Whitney, chief economist for the National Industrial Hemp Council of America.

Ohio legalized recreational marijuana in 2023 and retail shops began opening last year. The growth of the state’s market likely will decrease sales in Michigan by 27%, according to Whitney.

Currently, Washington has the highest excise tax on recreational marijuana,  37% on retail sales, followed by Montana at 20% according to data from The Tax Foundation. Ohio’s tax is 10%.  

“The only way to survive in this market is to sell on the illicit market,” Whitney said. “We do not support this, but it is a reality of the situation for business owners. So an increase in taxes will backfire by lowering revenues, increasing business failures, hurting the agriculture sector, and increasing illicit activity.”