A Michigan legislator has introduced a bill to eliminate the state's 24% wholesale excise tax on cannabis products, arguing the levy puts licensed operators at a competitive disadvantage against unlicensed sellers.
State Rep. James DeSana, a Republican, called the tax an "unnecessary burden" on the industry in a statement announcing the legislation. He said removing the tax would reduce costs throughout the supply chain and help legal businesses compete with the illicit market.
Michigan's wholesale tax applies to transactions between licensed cannabis businesses—when a grower sells to a processor, or a processor sells to a retailer. The tax is separate from the state's 6% sales tax that consumers pay at the register. Combined, the two taxes generate roughly $290 million annually for the state, according to 2023 figures from the Michigan Department of Treasury.
The Competitiveness Argument
DeSana's push to repeal the wholesale tax echoes complaints from Michigan cannabis operators who say high taxes force them to price products above what unlicensed sellers charge. A 2023 survey by the Michigan Cannabis Industry Association found that 68% of licensed retailers cited tax burden as their top operational challenge.
The wholesale tax structure means products get taxed multiple times as they move through the supply chain. A cultivator pays the tax when selling to a processor. That processor then includes that cost—plus their own markup and the 24% tax—when selling to a retailer. By the time products reach consumers, the cumulative effect of the wholesale tax can add 40% or more to final prices, industry representatives have said.
"The current tax structure essentially taxes inventory rather than sales," said Andrew Brisbo, executive director of the Michigan Cannabis Regulatory Agency, in testimony to state lawmakers last year. "That creates cash flow problems for smaller operators who can't absorb those costs."
How Michigan Compares
Michigan's combined tax burden sits in the middle range nationally. California charges a 15% excise tax plus local taxes that can push total rates above 30%. Illinois levies taxes based on THC content, with rates between 10% and 25%. Washington state charges a flat 37% excise tax but has no wholesale levy.
Several states have moved to reduce cannabis taxes after initial implementation. Colorado cut its retail tax from 10% to 8% in 2023. Massachusetts reduced its excise tax from 10.75% to 10% in 2022.
What's Next
The bill faces an uncertain path in Michigan's divided legislature. Democrats control both chambers by narrow margins and have generally supported maintaining cannabis tax revenue for education and infrastructure funding.
Gov. Gretchen Whitmer, a Democrat, has not commented on the proposal. Her administration has previously opposed cannabis tax cuts, arguing that revenue supports regulatory oversight and social equity programs.
The legislation would need to clear the House Regulatory Reform Committee before reaching the full chamber for a vote. No hearing has been scheduled yet.
Industry observers say even if the wholesale tax is repealed, Michigan would still collect sales tax on cannabis purchases, along with standard business taxes that apply to all commercial activity in the state.
This article is based on original reporting by ganjapreneur.com.
