Michigan just passed a new law that adds a 24% cannabis tax on wholesale transactions. This means growers will have to pay this new tax to sell their products to dispensaries. Whenever there is a change in one sector of the ag industry, it has a ripple effect across the entire supply chain.
How Does This New Tax Affect Cannabis Growers?
Cannabis prices have already dropped in Michigan. Many growers are struggling to stay open. With this new tax, they’ll earn even less money. Some small farms and social equity growers (those who entered the market to fix past unfair drug laws) say they might have to shut down.
The cannabis industry is already burdened with substantial taxes. The industry is treated like the alcohol or tobacco industries and taxed with what is termed a “sin tax.” The proceeds go to offset perceived social costs such as addiction and impaired driving.
In other industries, the tax intends to discourage use, but that’s not the case with cannabis. Even so, when you compare the tax burden of cannabis to any other agricultural commodity, it’s substantially higher.
This new 24% cannabis tax hike is for sales at the wholesale level. You’d think it wouldn’t affect those businesses that are vertically integrated. Sadly, that’s not so. The tax applies to all wholesale transfers, even if it’s from the grow facility to its own retail store.
At the retail level, there is already a 10% “sin tax” and a 6% sales tax on cannabis. Add another 24% tax to the product, and that results in a 40% tax burden. The increased cost of doing business will be passed on to the buyer.
Will People Pay More for Legal Cannabis? Or Go Black Market?
This is the concern of many legal cannabis businesses. The State of Michigan is enacting this tax to pay for Michigan roads, which are always crumbling. This 24% cannabis wholesale tax is expected to generate roughly $420 million annually. But if the price of a legal cannabis product is too high, the business will go Black Market (illegal). Then there will be no taxes generated from this tax legislation, and a lot of small businesses with shuttered doors.
An interviewer on CBS News asked a Detroit cannabis wholesaler about how this would impact his business. He said, “When the industry is in a crisis like we are now, we are barely breaking even…The revenue collected from this affects everything in the state.”
Adam Hoffer, director of excise tax policy at the Tax Foundation, told the Associated Press: “This massive tax increase is really going to hurt the legal market in Michigan. The higher the tax, the greater the incentive for consumers to seek cheaper, unregulated product.” His statement echoes other critics who predict lower sales of legal products as consumers find illegal, non-regulated sources.
Sometimes we don’t think of cannabis as an agricultural product, but the USDA does. The average monthly sales of medical and recreational cannabis in Michigan in 2024 were $315.8 million. Already in 2025, cannabis sales have fallen to an average monthly revenue of $261.7 million. That’s a 17% decline in sales, before any new taxes.
The financial analysts talk about the plant-touching vs the non-plant-touching sectors of the cannabis industry. The plant-touching sector has a 24% wholesale tax burden. That tax doesn’t affect the non-plant-touching sectors like soil amendments, lighting, or packaging - directly.
But a decline in sales affects everyone in the supply chain.
How Will the 24% Cannabis Tax Affect the Ag Supply Chain?
The 24% cannabis tax on wholesale sales in Michigan indirectly affects non-plant-touching businesses. It creates shrinking demand, tightening margins, and increasing financial strain across the supply chain.
The companies that support the cannabis industry in one way or another span the spectrum. They range from soil amendments to construction and HVAC contractors to retail tech and POS systems to security firms, and everything in between.
There are numerous ways cannabis operators will respond to this tax hike. Some will reduce spending across the board. Some will delay or cancel expansion plans.
Some will opt for lower-cost, lower-quality soil amendments. This is the area least able to withstand cuts. Maintaining healthy cannabis plants is only possible with an optimum growing medium. Unhealthy plants will result in a lower quality product, which won’t be satisfying to consumers, and create a vicious downward cycle of loss.
Industry leaders warn that the tax could “gut the legal market,” forcing businesses to downsize or close. That means fewer clients for non-plant-touching vendors and more competition for the remaining contracts.
It also means less tax revenue for the State of Michigan. The voters of Michigan ratified recreational and medical cannabis sales in 2018. There is also a question of the legality of this new tax burden.
Why Might This 24% Cannabis Tax Bill Be Unconstitutional?
The Michigan Cannabis Industry Association (MiCIA) has filed a lawsuit to block the tax from going into effect. The voters approved cannabis sales in the state, and it takes a three-fourths majority vote to overturn a law enacted by citizen referendum (we, the voting public). That means a supermajority has to vote to overturn a law, and the legislature did not get those votes.
A lawyer with the MiCIA told the Detroit Free Press reporter Craig Mauger, “The lawsuit details how the last-minute, late-night process occurred in violation of a range of other constitutional provisions. The association is asking the court to strike the tax in its entirety.”
This case could make it all the way to the Michigan Supreme Court. And in the meantime?
The Financial Strain Will Be Felt Along the Ag Supply Chain
Biochar is one of the soil amendments that creates an optimum growing medium for cannabis plants. We have many customers who use our products every year and swear by the quality of the trichomes from their healthy plants. Those same customers now have to decide if they’re going to scale back production and how they are going to keep the doors open.
Our customers use our VITAL Blend biochar blend routinely in their indoor and outdoor cannabis grows. Will we lose sales? We’re not sure yet. It depends on how consumers act as well as the legislation going forward.
But we, and we’re sure the packaging suppliers, accounting services, retail tech and POS systems, and many other parts of the ag supply chain will support our customers.
Agriculture, including cannabis, is hitting a rough patch right now. But we will do all we can to make this a win for all parties.
At American BioChar Company, we’ve always believed healthy soil grows more than just strong plants; it grows strong communities. As a biochar soil amendment company, we proudly stand with our cannabis partners during this challenging time. We know the value they bring to Michigan’s economy, environment, and agricultural innovation.
While the new tax presents real hurdles, we’re committed to helping growers stay resilient, sustainable, and successful. Together, we can turn this moment into a win-win. For the industry, for the land, and for the future.
