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Michigan’s leading cannabis trade group is urging the Michigan Court of Appeals to immediately take up its legal challenge to a new 24% wholesale tax on marijuana, arguing the tax is unconstitutional and should be blocked before it takes effect on Jan. 1.
The Michigan Cannabis Industry Association (MiCIA) filed an application for leave to appeal this week, seeking to overturn a Dec. 8 ruling by the Michigan Court of Claims that declined to stop the Legislature’s wholesale tax from going into effect while the case continues.
“We stand by our belief that the Court of Claims did not make the right call when it issued an opinion that declined to block the Michigan Legislature’s unconstitutional 24% wholesale tax on cannabis from going into effect on New Year’s Day,” MiCIA spokesperson Rose Tantraphol said. “Our filing requests that the Court of Appeals take up our lawsuit, which we continue to believe is an exceptionally strong case on the merits.”
The lawsuit argues lawmakers need a three-quarters supermajority to change voter-approved cannabis laws under the Michigan Constitution. When voters legalized recreational marijuana in 2018, they approved a 10% excise tax and 6% sales tax on retail cannabis sales. Any new or higher tax amounts to an amendment of that ballot measure and therefore needs a supermajority vote, MiCIA contends.
The association sued in early October, seeking to eradicate the tax entirely and alleging lawmakers pushed it through using a “shell bill,” changing the measure’s purpose late in the legislative process in violation of the Michigan Constitution.
MiCIA is represented by attorneys from Honigman LLP and Dykema.
In its Dec. 8 ruling, the Court of Claims rejected two of MiCIA’s constitutional arguments related to change of purpose and amendment by reference, but left a third issue unresolved. A hearing on that remaining issue is scheduled for Jan. 13.
Because the case has not been fully resolved at the trial court level, MiCIA filed an application for leave to appeal, asking the Court of Appeals to intervene now.
MiCIA argues the trial court erred by ruling against two of its claims and by declining to rule on the third, noting that all parties had agreed there were no factual disputes requiring further proceedings.
The legislation, approved by a slim majority of Republican and Democratic lawmakers, was signed by Gov. Gretchen Whitmer, who supports the tax to pay for long-promised road repairs.
The state’s cannabis market has already been struggling from oversupply, falling prices, and shrinking profit margins. In November, the average retail price of recreational flower dropped to a record low of $59.79 an ounce, which is down from $512 when legal sales began in 2020. Total sales also began falling for the first time this year.
Industry leaders warn that adding a 24% wholesale tax will push Michigan’s legal cannabis prices close to those in California, where high taxes eroded parts of the legal market and drove consumers back underground.
Tantraphol said delaying an appellate review would cause unnecessary harm to an industry already under financial strain.
“The stakes are incredibly high,” she said. “The Michigan cannabis industry has been an economic engine for our state since voters legalized marijuana in 2018. Our industry has created 47,000 new jobs, pumped $331 million annually to schools, roads, and other public priorities through the 10% excise tax we collect, and generated $188 million in annual sales taxes. This unconstitutional move by the Legislature jeopardizes all of that.”
Although the wholesale tax has not yet taken effect, Tantraphol said its impact is already being felt. One cannabis operation in Webberville has announced it will close, another business has told MiCIA it plans to shut down soon, and a company in the Upper Peninsula permanently laid off 61 workers last week.
“Businesses will close and neighbors will lose jobs,” she said. “Cannabis businesses operate on thin margins, so allowing the 24% wholesale tax to go into effect will mean a lower volume of sales. The state’s own Senate Fiscal Agency predicts that due to market elasticity, total sales will decrease by about 14%.”
MiCIA also warned the tax could drive consumers back to the illicit market.
“The last thing the state should be doing is pushing Michiganders who are already feeling stretched financially into the illicit market,” Tantraphol said. “Let’s get this case to the Court of Appeals so that we can start to right this wrong.”
In the same week the Michigan House approved the wholesale tax, California Gov. Gavin Newsom signed a bill to roll back a 25% tax increase on recreational cannabis. He approved the measure because the state’s high tax rates have forced thousands of legal businesses to shut down and drove residents to the unregulated market.
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Steve Neavling
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