Michigan’s marijuana tax increase took effect January 1, 2026, when a new 24% wholesale tax on cannabis kicked in at the supply-chain level.1State of Michigan. Wholesale Marijuana Tax The 10% retail excise tax and 6% state sales tax that recreational buyers already pay at the counter have not changed. What has changed is the price flowing into the store. Wholesale costs are going up by roughly a quarter, and that increase is expected to show up in shelf prices over the coming months.
What the 24% Wholesale Tax Actually Taxes
The new tax applies to sales and transfers of marijuana between licensed businesses before any product reaches a dispensary shelf.1State of Michigan. Wholesale Marijuana Tax Cultivators and processors selling to retailers or other licensees pay it directly. Consumers never see a line item for it.
That does not mean consumers avoid it. A retailer paying 24% more for wholesale inventory sets retail prices to cover the cost. Most operators are expected to pass the tax through rather than absorb it, particularly those already running on thin margins. The practical effect is a price bump at the register even though the receipt still shows the same 10% excise and 6% sales tax it always did.
What Recreational Buyers Pay at the Counter
Two state-level taxes appear on every adult-use marijuana sale. The 10% excise tax was imposed by the Michigan Regulation and Taxation of Marihuana Act on the sale price of recreational marijuana transferred to anyone other than a licensed marijuana establishment.2Michigan Legislature. Michigan Compiled Laws 333.27963 – Imposition of Excise Tax The 6% state sales tax applies on top, the same way it applies to most retail goods. Recreational buyers pay a combined 16% at checkout.
Retailers calculate the two taxes separately and remit them to the Department of Treasury. Bundling a taxable marijuana product with a non-taxable product or service in a single transaction is prohibited, so retailers cannot dilute the tax base through creative packaging.2Michigan Legislature. Michigan Compiled Laws 333.27963 – Imposition of Excise Tax With the wholesale tax now in the chain, Michigan’s total tax take on a single product spans multiple layers even though the visible retail rate is unchanged.
Why the Increase Came as a Wholesale Tax
The 10% retail excise rate is locked in by the state constitution. Because the MRTMA was a voter-initiated law, the legislature cannot amend or repeal it without a three-fourths vote of the members elected to and serving in each chamber.3Michigan Legislature. Constitution of Michigan 1963 Article II 9 – Initiative and Referendum; Limitations; Appropriations; Petitions Raising the 10% rate would require near-unanimous consensus across both the House and Senate, which is uncommon on any tax question. The only alternative is sending the question back to voters on a ballot.
Structuring the new levy as a separate tax on wholesale transactions sidestepped that hurdle. It is a different tax on a different transaction, so the supermajority rule that shields the voter-approved 10% rate does not apply. That is why the increase arrived as a 24% wholesale charge rather than a straightforward hike at retail.
Medical Patients and the Increase
Medical marijuana patients with a valid registry identification card do not pay the 10% excise tax. The MRTMA exempts marijuana sold under the Michigan Medical Marihuana Act and the Medical Marihuana Facilities Licensing Act from that tax.2Michigan Legislature. Michigan Compiled Laws 333.27963 – Imposition of Excise Tax Medical purchases still carry the 6% state sales tax.
The wholesale tax itself sits on transactions between licensees, so medical patients will still feel upstream cost increases in the prices they pay, even without an excise line on the receipt. Retailers holding both medical and adult-use licenses need to keep meticulous records separating the two sales categories. The Department of Treasury presumes any sale a retailer cannot document as a valid medical transaction was an adult-use sale subject to the full 10% excise plus 6% sales tax.4State of Michigan. Revenue Administrative Bulletin 2020-17
What the Increase Means for Michigan Businesses
The wholesale tax lands on an industry already carrying an unusual federal tax burden. Internal Revenue Code Section 280E prohibits any business trafficking in Schedule I or Schedule II controlled substances from deducting ordinary business expenses or claiming tax credits.5Office of the Law Revision Counsel. 26 USC 280E – Expenditures in Connection with the Illegal Sale of Drugs For a recreational dispensary, rent, payroll, marketing, and utilities cannot be deducted against revenue on a federal return, which produces an effective federal tax rate far above what other retailers pay.
A 2026 rescheduling decision by the Department of Justice moved certain marijuana products from Schedule I to Schedule III, but the relief is narrow. Only FDA-approved marijuana products and marijuana sold under a qualifying state-issued medical license moved to Schedule III. Recreational marijuana stayed on Schedule I, so adult-use operators in Michigan still cannot deduct expenses under 280E. Businesses holding both license types may be able to apportion some expenses between medical and recreational activities, but IRS guidance on how that apportionment works is still developing.
Layering a 24% wholesale tax on top of that federal picture is a real squeeze. Cultivators and processors either raise their prices or eat the cost, and retailers face the same choice on the next step down the chain. Businesses that were already competing against an untaxed illicit market have less room to absorb the hit.
Where the Excise Revenue Goes
The 10% excise tax revenue follows a fixed distribution set out in the MRTMA. Administrative costs of implementing and enforcing the act are paid first. What remains is distributed on a set formula:
- 15% to municipalities that allow marijuana retail stores or microbusinesses, allocated in proportion to the number of licensed establishments in each city, village, or township.
- 15% to counties hosting those same businesses, distributed on the same proportional basis.
- 35% to the Michigan Transportation Fund for road and bridge repair.
- 35% to the School Aid Fund for K-12 education.
Communities that opt out of hosting marijuana businesses receive nothing from the excise pool. In fiscal year 2024, municipalities and counties each received approximately $49.7 million from excise tax distributions.6State of Michigan. FY 2024 Adult-Use Marijuana Distributions For fiscal year 2025, nearly $94 million was distributed to municipalities, counties, and tribes combined.7State of Michigan. Press Release – Nearly $94 Million in Adult-Use Marijuana Payments for Fiscal Year 2025 The Department of Treasury publishes annual reports showing exactly how much each jurisdiction received, and those reports are public records.
The new wholesale tax is separate from the MRTMA excise pool, so how its revenue is distributed does not follow the same 35/35/15/15 split. What is clear is that Michigan’s marijuana tax footprint in 2026 is larger and more layered than it was a year earlier, and the most direct effect for buyers will show up in retail prices even though the numbers on the receipt look the same.