On Oct. 7, Governor Gretchen Whitmer signed into law the Comprehensive Road Funding Act (Road Funding Act), which introduces a 24% wholesale excise tax (Wholesale Tax) on adult-use marihuana as a central component of the state’s infrastructure funding plan. The tax is scheduled to take effect Jan. 1, 2026, and presents a significant challenge for an industry already contending with tight margins, pricing pressure and liquidity constraints.
The Wholesale Tax applies only to adult-use marihuana and does not apply to medical marihuana products. The Wholesale Tax is imposed on the “wholesale price” of adult-use marihuana sold or transferred to a licensed retailer.
- For sales between unaffiliated entities, the wholesale price equals the actual price paid for the marihuana product, including “any tax, fee or other charge reflected on the invoice, bill of sale, purchase order or other document evidencing the sale or transfer.”
- For sales between affiliated entities (such as within a vertically integrated operation), the wholesale price will be determined based on an “average wholesale price” calculated and published quarterly by the Michigan Department of Treasury.
Legal Challenges
Michigan’s cannabis industry responded swiftly: multiple lawsuits were filed within hours of the Road Funding Act’s enactment, challenging the validity of the Wholesale Tax on various constitutional and procedural grounds – including claims that embedding the Wholesale Tax in the Road Funding Act circumvents the voter approval required to amend the Michigan Regulation and Taxation of Marihuana Act (MRTMA). It remains to be seen whether these challenges to the Wholesale Tax will be successful.
Preparing for Impact
Mitigating the effects of the Wholesale Tax will require a careful analysis of your current business model and potential adjustments to your business operations and financial structure.
Warner’s Cannabis Industry Group can help assess how to adapt your business to minimize the burden of the Wholesale Tax. Potential strategies may include:
- Evaluating vertical integration: Analyze whether maintaining vertically integrated operations remains advantageous under the new “average wholesale price” regime or whether separating processing and retail functions offers greater financial flexibility.
- Revising commercial terms: Consider modifying payment and pricing terms, such as moving to cash-on-delivery arrangements or explicitly passing through excise taxes to downstream retailers.
- Exploring medical market opportunities:Assess whether expanding or shifting operations toward the medical marihuana sector could provide certain tax relief or diversification benefits.
