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Michigan cannabis will soon become some of the most heavily taxed in the United States after state lawmakers approved a new 24% wholesale tax early Friday.
That’s on top of an existing 10% excise tax and a 6% sales tax in the $3.2 billion market, which operators now fear will shrink as consumers are driven to seek cheaper alternatives, including on the illicit market.
The tax increase is part of Michigan’s $75 billion budget that the state Legislature approved after midnight Friday morning.
Tax backers, including Gov. Gretchen Whitmer, say the marijuana tax will raise $420 million that will go toward rebuilding bridges and roads.
Several states have raised cannabis taxes this year amid a slowing economy and federal budget cuts.
However, there’s recognition from some policymakers that cannabis taxes might be too high.
California recently canceled a nearly 25% increase in the state excise tax.
In Michigan, where a major multistate operator recently exited, there are fears that the significant tax increase will depress sales and squeeze shrinking margins even further.
“Levying a new 24% wholesale tax on Michigan’s cannabis industry undermines the significant progress made in one of the nation’s strongest cannabis markets,” Rodney Holcombe, vice president of public policy at wholesale platform LeafLink, said in a statement.
“The industry has delivered 47,000-plus jobs, increased consumer safety and generated reliable tax revenue for the state,” Holcombe added.
“This new tax reverses this and may actually lead to less tax revenue collection due to fewer legal sales and an uptick in illicit market transactions.”
The tax increase takes effect in January.
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