Michigan's 24% Wholesale Cannabis Tax Will Force Consolidation

The Michigan House has passed a 24% wholesale excise tax on cannabis - layered on top of the existing 10% retail excise tax and 6% sales tax. Proponents project the tax will generate approximately $420 million in revenue for state infrastructure. But for the cannabis industry itself, the consequences could be devastating - particularly for small and mid-sized operators.

The Tax Stack Is Crushing

When you combine a 24% wholesale excise tax with a 10% retail excise tax and a 6% state sales tax, you are looking at a total effective tax burden that makes profitability nearly impossible for operators who do not control the entire supply chain. The math simply does not work for small cultivators or independent retailers who lack the vertical integration needed to absorb these costs internally.

California's Cautionary Tale

We have seen this movie before. California initially imposed a 15% cultivation tax that was widely credited with keeping the illicit market thriving and driving legal operators out of business. The state eventually rolled back the tax under AB 564, moving to a 19% excise tax model that eliminated the cultivation-level levy. But the damage was already done - countless small operators had been forced to close their doors.

Michigan appears to be making the same mistake. Rather than learning from California's experience, the state is imposing an even more aggressive wholesale tax that will have predictable consequences.

Vertical Integration Wins, Competition Loses

A wholesale excise tax inherently favors vertically integrated firms. When a company controls cultivation, processing, and retail, it can internalize the wholesale transaction and manage the tax burden more efficiently. Independent operators who must buy and sell on the open market face the full force of the tax at every stage.

The result is predictable: consolidation. Smaller operators will be forced to sell to or merge with larger multi-state operators, reducing competition and concentrating market power in fewer hands.

Cannabis Is Not Alcohol or Tobacco

Policymakers often reach for the alcohol and tobacco regulatory framework when designing cannabis tax structures. But this comparison is fundamentally flawed. Alcohol and tobacco are mature industries with established supply chains, massive consumer bases, and decades of regulatory stability. Cannabis is an emerging market that is still developing its infrastructure, building consumer trust, and navigating a hostile federal regulatory environment.

Emerging markets need room to grow. Taxing cannabis like a mature vice industry before it has even had the chance to stabilize is a recipe for market failure. Michigan's legislature should reconsider this approach before it is too late.