The Power to Tax is the Power to Destroy:
How Michigan Cannabis Businesses can Succeed in an Era of Heighted Taxation
In this world nothing can be said to be certain…except death and taxes.
Michigan cannabis businesses already juggle licensing, compliance, staffing, and shrinking margins, but starting January 1, 2026, you can add another major line item to that list: a new 24% wholesale marijuana tax. This additional cannabis tax reshapes how cash moves through the entire cannabis supply chain, particularly for vertically integrated and commonly owned operations. If you grow it, process it, and sell it, this law will affect your business from the inside out.
The Big Picture
As of January 1, Michigan adult-use cannabis will be subject to three separate state taxes:
6% state sales tax
10% retain excise tax
NEW! 24% wholesale marijuana tax
These taxes don’t replace each other, they stack, and they apply at different stages of the business. Understanding both the financial perspective and the operational perspective is crucial to understanding the new burden created by this tax. Higher taxes generally lead to higher prices, and higher prices often lead to unintended consequences, in this case, pushing consumers towards unregulated markets.
When combined, these taxes push the effective tax burden on adult-use cannabis dangerously close to, and in many scenarios to over, forty percent of gross revenue before federal income taxes, local fees, or ordinary operating expenses are even considered. For many operators, profitability will no longer hinge on growth, but on tax architecture.
Legally, the wholesaler pays and remits the tax to the Michigan Department of Treasury. Here, you will be considered a “wholesaler” if you are licensed marijuana establishment that makes the first sale or transfer to a retail licensee, including:
Growers selling flower to dispensaries
Processors selling infused products to dispensaries
Microbusinesses and seed-to-sale operations moving product into retail
Medical provisioning centers transferring product into adult-use retail
Even if the wholesaler passes the cost onto the retailer, the legal responsibility stays with the wholesaler. If the tax isn’t paid, the Treasury doesn’t chase the retailer/dispensary; it goes after the wholesaler. A wholesaler that under-collects, miscalculates, or improperly values taxable transfers may face assessments, penalties, and interest, even where the downstream retailer ultimately benefited from the product sale.
The wholesale tax applies once per product, at the first sale or transfer to a retail licensee. That means:
Transfers from a grower to a processor = Not taxed
Transfers from a processor or grower to a retailer = Taxed
Product grown and processed by a vertically integrated business for its own shelves = Taxed
The key point is that the tax hits the moment the product becomes retail-ready.
Vertically Integrated Businesses
If you operate cultivation, processing, and retail under common ownership, you don’t get to skip the wholesale tax just because you’re selling to yourself. For seed-to-sale businesses, the tax is triggered when the product is packaged for retail sale, not when it’s grown, harvested, or processed.
In addition, because there is no arms-length sale price between your own entities, the Treasury decides the taxable value by calculating the average wholesale price, which will be published quarterly. You can find the figures for the first quarter of 2026 here.
Affiliated v. Non-Affiliated: Importance of Ownership Structure
The tax treats transactions differently depending on who’s on the other side of the deal:
Non-Affiliated Businesses: If you sell to a retailer you don’t control, the tax is based on the actual price paid, with no discounts (e.g., rebates, trade allowances) permitted to reduce the taxable amount.
Affiliated Businesses: If the buyer and seller are under common control (generally more than 50% ownership, directly or indirectly) the tax is based on the average wholesale price set by the Treasury, not your internal numbers. This applies to:
Vertically integrated operators
Medical provisioning centers internally transferring medical product to adult use; and
Microbusinesses
What This Means for Your Business Strategy
For some businesses, this new Michigan wholesale tax may prompt reevaluation of:
Whether vertical integration still makes sense
How products are priced internally
How costs are absorbed or passed downstream
Whether operational efficiency can offset the tax burden
Waiting to think about this is risky. The businesses that succeed under this new tax structure will be those that plan early.
To start preparing, business can begin by:
Mapping out which product transfers trigger the tax
Reviewing ownership and affiliate structures
Updating contracts and internal pricing policies
Building the tax into cash-flow forecasts
This tax changes how cannabis businesses make money in Michigan. As Treasury guidance evolves and average wholesale pricing data is published, businesses should expect increased scrutiny, not flexibility, from regulators tasked with enforcing this new revenue stream.
If you want help understanding how the new wholesale tax impacts your specific operation, especially if you’re vertically integrated, the experienced cannabis legal team at Oak Law is a trusted resource. From tax exposure to compliance strategy, we help cannabis businesses stay protected, prepared, and profitable.
