Starting January 1, 2026, Michigan will implement a 24% wholesale excise tax on cannabis products under House Bill 4951. This tax will apply to transfers of marijuana from growers and processors to retailers. The new rate comes on top of Michigan’s existing cannabis tax structure:
- 10% excise tax on retail sales
- 6% state sales tax
That means cannabis operators, and ultimately consumers, will face one of the heaviest tax burdens in the Midwest.
Lessons From California
Michigan is not the first state to push cannabis taxation to extreme levels. In California, after the state layered high excise taxes with costly local licensing, thousands of operators closed.
- Reports show license attrition in California’s legal market has been severe, with thousands of cultivators exiting since 2021.
- While not every closure can be tied directly to taxes, high rates combined with regulatory costs accelerated market contraction.
The same dynamic threatens Michigan. Small, independent operators who built the state’s cannabis industry may not have the financial cushion to survive, while large multistate corporations with deeper capital reserves will be better positioned to absorb costs.
Licensing Fees Already Rising
On top of new taxes, Michigan cannabis operators already pay hefty licensing fees to stay compliant. According to the Michigan Cannabis Regulatory Agency:
- Application fee (nonrefundable): $3,000
- Initial license fees by type:
- Class A Grower: $1,200
- Class B Grower: $6,000
- Class C Grower: $24,000
- Microbusiness: $8,300 (Class A Microbusiness $18,600)
- Marijuana Processor: $24,000
- Retailer: $15,000
- Secure Transporter: $15,000
- Safety Compliance Facility: $15,000
For many small businesses, these fees are already a barrier. Adding a 24% wholesale tax increases financial pressure at every level of the supply chain.
Impact on Illinois Consumers
One reason Michigan’s cannabis industry has thrived is because of Illinois’ extremely high taxes. Illinois consumers often cross the border to shop in Michigan, where prices have been significantly lower.
- Illinois applies a 7% wholesale tax, plus excise taxes up to 25% on retail sales depending on THC content and product type, in addition to the standard 6.25% sales tax.
- This makes Illinois one of the most expensive cannabis states in the U.S.
If Michigan’s tax hike pushes prices closer to Illinois levels, the state may lose a significant portion of this cross-border consumer base.
Cannabis vs. Michigan Breweries
The cannabis industry also faces a stark comparison with Michigan’s thriving craft beer market.
- Beer is taxed at just $0.20 per gallon (about $6.30 per barrel) in Michigan, plus sales tax.
- Cannabis will soon face 24% wholesale excise tax + 10% retail excise tax + 6% sales tax, in addition to thousands in licensing fees.
Michigan breweries are celebrated as local economic drivers and cultural institutions, while cannabis, a legal, regulated product, continues to be saddled with much higher taxes and compliance costs.
Michigan’s cannabis industry has been a rare success story in the Midwest, driving down prices, creating jobs, and offering consumers a regulated alternative to the illicit market. But with a 24% wholesale tax coming in 2026, small operators may struggle to survive.
Without adjustments, the state risks repeating California’s mistakes, hollowing out the very businesses that built the market while handing the industry over to a handful of large corporations.
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