Michigan’s Marijuana Tax Experiment Should Be An Urgent Warning To Other States (Op-Ed)

*“Other states as well should learn from Michigan’s experience, rather than
repeat the same economic misstep the next time they face a budget
shortfall.”*

*By Hirsh Jain, Verdant Strategies*

In an effort to raise short-term revenue, Michigan recently adopted a
cannabis tax structure that is already proving economically
counterproductive and strategically shortsighted.

For years, Michigan was widely regarded as one of the most successful legal
cannabis markets in the United States. The explanation was simple.
Michigan, wisely, had adopted one of the lowest cannabis tax rates in the
country.

The state imposed a 10 percent adult-use excise tax, shared between the
state and local governments, plus the standard 6 percent sales tax, for a
total effective rate of 16 percent. By comparison, California’s cannabis
tax burden was more than twice as high, even approaching 40 percent in some
cities.

The contrast was notable because both California and Michigan share deep
medical cannabis histories. California became the first state in the nation
to legalize medical cannabis in 1996. Michigan later developed one of the
most robust caregiver-based medical cannabis markets in the country during
the 2000s and 2010s. Both states built strong cultural and policy
foundations around the idea that cannabis is medicine.

When adult-use legalization arrived, however, the two states moved in
different directions.

Michigan largely maintained the view that cannabis should be treated more
like medicine than vice. It adopted a moderate tax structure that kept
legal prices competitive. California, by contrast, layered on heavy taxes
and regulatory costs that treated cannabis more like a luxury or vice
product than a therapeutic good.

Predictable results followed.

Michigan’s fairly modest taxes helped draw consumers out of the illicit
market and into licensed stores. Legal sales climbed rapidly, reaching
roughly $3.3 billion annually in a state with just 10 million residents.

California’s market has hovered around just $4 billion in recent years,
despite having nearly four times the population. On a per capita basis,
Michigan became one of the strongest adult-use cannabis markets in America,
while California became the weakest, largely driven by tax policy.

In July 2025, industry analytics firm Headset remarked, “What is so
shocking about Michigan keeping pace with California sales is the
difference in population. With a population of 10 million, Michigan is at
the point of usurping America’s largest state, California, which has a
population of nearly 40 million.”

Cannabis became a major engine of employment in Michigan. According to
industry recruiting firm Vangst, 47,000 Michiganders worked in the industry
in 2024, incredibly representing almost 1 percent of the entire state’s
workforce.

Even more striking, Crain’s Detroit Business reported that cannabis
accounted for an astonishing 52 percent of Michigan’s net private-sector
job growth from 2018 through 2024. During a period when many of Michigan’s
traditional manufacturing industries struggled and wage growth stalled for
many workers, cannabis was the state’s most consistent source of job growth.

Then the tax structure changed.

Effective January 1, 2026, Michigan imposed a new 24 percent wholesale
cannabis tax. This more than doubled the effective tax burden on operators
at a critical point in the supply chain. The consequences were immediate.

According to New Cannabis Ventures, Michigan’s legal cannabis market
generated just $226 million in sales in January 2026, the lowest monthly
total since late 2022. Sales fell by a sharp 16 percent from December 2025,
the month before the tax took effect, and were 8 percent lower than January
2025.

The situation may worsen in the months ahead. Many Michigan dispensaries
stocked up on inventory in late 2025, before the tax took effect, and are
still selling product that was not subject to the new wholesale tax.

And even that temporary workaround came with tradeoffs. As retail analytics
firm Happy Cabbage noted, high-demand products were often in limited supply
in late 2025, while lower-demand items were readily available. As a result,
purchasing decisions increasingly reflected what suppliers had on hand
rather than what customers were most likely to buy.

The full impact of the tax increase will become clearer in the coming
months, as more newly taxed inventory reaches store shelves and higher
costs are passed on to consumers.

But already the effect on the industry has been sobering. In January alone,
several sizable Michigan operators announced cultivation shutdowns, retail
consolidations, and workforce reductions, citing collapsing margins
following the tax increase.

Higher Love Cannabis announced layoffs for 61 of its 213 employees,
explaining that the cuts were necessary to withstand the new tax. C3
Industries said it would close its Webberville cultivation facility and lay
off 62 employees, noting that it had warned lawmakers of this outcome if
the wholesale tax were enacted. PinCanna placed its operations up for sale,
citing the new wholesale tax as the reason. The owner of The Greenhouse
predicted that as many as 30 percent of Michigan dispensaries could close
within the next year because of the tax increase.

This tax increase is rapidly destabilizing perhaps the most dynamic
job-creating industry in Michigan’s recent history. It is an unmistakable
reminder that cannabis does not operate in a closed legal market. It
competes directly with a resilient illicit market that faces no excise
taxes, no compliance costs and no regulatory burden.

That illicit market has operated for decades and can quickly absorb
consumers if the legal price gap becomes too wide. When policymakers raise
cannabis taxes, the notion that they are simply adjusting revenue
projections is an intellectual fantasy. In reality, they are shifting
market share and economic resources to a highly unscrupulous, often-violent
illicit market.

Michigan’s earlier success showed that moderate taxation can expand the
legal market and grow revenue organically. Its recent shift suggests that
aggressive taxation can quickly reverse that progress.

It is critical that other states take note of what is happening in Michigan
right now. In recent months, states like Maine, Maryland and Minnesota have
also increased their cannabis tax rates in an effort to plug various
unrelated revenue gaps. But whether policymakers in these states appreciate
it or not yet, those decisions will simply reduce legal sales and
strengthen illicit operators.

In fact, California learned this lesson in the third quarter of 2025, when
it raised its already high cannabis excise tax from 15 percent to 19
percent. Legal sales fell 5 percent from the previous quarter, dropping to
their lowest quarterly level in more than five years and prompting the
state to quickly reverse course and restore the tax rate to 15 percent.
Michigan failed to heed this clear economic lesson.

Beyond its economic consequences, overtaxing cannabis runs counter to the
spirit and logic of federal rescheduling. If cannabis is formally
recognized at the federal level as having accepted medical use under
Schedule III, states with long medical cannabis histories should pause and
reconsider whether their tax policy properly reflects and honors their own
legacies.

Michigan and California were pioneers in recognizing cannabis as medicine,
creating the conditions for a dramatic change in national attitudes that
the current push for rescheduling reflects. Taxing cannabis at rates that
exceed those applied to alcohol and tobacco, products which kill hundreds
of thousands of Americans each year, betrays that pioneering medical legacy.

If the lessons of rescheduling are taken seriously, both Michigan and
California should reexamine their punitive tax structures in light of their
own histories.

And states such as Pennsylvania and Virginia, which may vote in 2026 to
create new adult-use markets, also face a clear choice. They can pursue
illusory short-term fiscal gains through heavy taxation and risk repeating
Michigan’s recent mistakes. Or they can design competitive tax structures
that support stable businesses, protect jobs and align policy with the
growing recognition of cannabis as medicine.

Michigan’s tax experiment is still unfolding, but the early signs are
concerning. The state still has time to change course, as California did,
albeit modestly.

For the sake of its citizens, tens of thousands of cannabis workers, and
the legal market it built, Michigan’s lawmakers should reverse this tax
increase.

Other states as well should learn from Michigan’s experience, rather than
repeat the same economic misstep the next time they face a budget shortfall.

*Hirsh Jain is the Director of Market Intelligence at Verdant Strategies, a
financial services and solutions company that provides tax planning and
accounting services to many of the nation’s leading cannabis brands and
retailers. He is also a principal at Los Angeles-based consulting firm
Ananda Strategy.*

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