- The Michigan Cannabis Industry Association is suing the state to block a new 24% tax on marijuana
- Attorneys argued the new law unconstitutionally alters the 2018 ballot measure legalizing marijuana in Michigan
- The tax is central to a road funding deal and is estimated to generate about $420 million a year
Just hours after a new 24% wholesale tax on marijuna was signed into law, a group representing Michigan’s cannabis industry sued the state, seeking to block the tax’s implementation.
The Michigan Cannabis Industry Association alleges the new tax is unconstitutional because it improperly alters the 2018 ballot measure that legalized the drug for Michigan adults.
The tax is a pillar of state lawmakers’ efforts to increase funding for Michigan’s ailing roads and was a key portion of a bipartisan compromise on the state’s newly enacted $81 billion budget.
Fiscal analysts estimate the tax, which is levied on marijuana and related products before they hit dispensary shelves, could generate $420 million a year in additional revenue.
Lawyers representing the association want a Court of Claims judge to completely block implementation of the new law, arguing lawmakers improperly changed the voter-approved law that legalized recreational marijuana use and its sale in Michigan.
In a statement, Doug Mains, a lawyer representing the association, called the creation of the new tax a “last-minute, late-night process” that “occurred in violation of a range of other constitutional provisions.”
Spokespeople for House Speaker Matt Hall and Senate Majority Leader Winnie Brinks didn’t respond to requests for comment Wednesday.
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Under Michigan’s constitution, amending a voter-approved law requires support of three-fourths of the Legislature. The tax passed the Senate 19-17 and the House 78-21 — both short of that threshold.
The new law creating the tax doesn’t directly amend the statute, though, and calls itself the Comprehensive Road Funding Tax Act. The cannabis industry attorneys assert the new tax is simply trying to get around amending the original legalization statute.
“Legislative authority over marihuana excise taxes is exclusive to (the legalization law),” they wrote. “Additional excise taxes require a direct amendment to (the legalization law) itself.”
The lawyers argue any additional taxes on marijuana must be approved by voters or a legislative supermajority because of how the original law was enacted.
Lawmakers have made similar moves before. In a previous interview with Bridge Michigan, attorney Steve Liedel noted state lawmakers wrote new laws to legalize sports betting in Michigan in 2019 without altering a voter-initiated gaming control law from 1996.
The new tax is scheduled to take effect Jan. 1.
Supporters of the tax have argued it does not affect the legalization law because it applies the tax on marijuana businesses before the product reaches consumers, who pay a 10% excise tax on retail sales, part of which already goes toward road funding.
Gov. Gretchen Whitmer quipped in 2019 — while pushing for a 45-cents-per-gallon gas tax increase for road repairs — that every resident in the state would have to consume $2,500 worth of marijuana products a year to cover a funding shortfall.
“At that level, no one is going to care about the damn roads,” she said.
The tax represents more than a fifth of money policymakers have either raised or redirected toward road repairs and was a centerpiece of the bipartisan agreement, part of a $2 billion-per-year funding increase at the center of last month’s fraught budget negotiations.
Marijuana industry representatives and cannabis advocates criticized the tax well before it became law, saying it would make the state less competitive and encourage consumers to source the drug from the black market, where there is no testing for contaminants.
The tax also had significant resistance in both chambers of the Legislature, with some lawmakers holding out for hours. Whitmer personally lobbied holdout lawmakers to get behind the tax increase after Republican House Speaker Matt Hall vowed the state government would shut down without the measure’s passage.
Marijuana has become a major industry in the state since recreational legalization was implemented in early 2020. Cannabis stores now make close to $300 million in sales a month and about $3.2 billion in 2024. But there is no cap on production or the number of business licenses available under state law, and a glut of supply has led the multibillion-dollar industry to have some of the lowest prices in the nation.
Steep competition has led to tough times for the sector, which is facing decline as some industry observers warn the market is approaching a “saturation point” after multi-year explosive growth.
Whitmer, in pitching a roads funding plan earlier this year, had initially called for a higher 32% wholesale tax.
Reporter Jordyn Hermani contributed to this story.
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