On September 25, 2025, the Michigan House of Representatives passed the Comprehensive Road Funding Tax Act (HB 4951), imposing a new 24% excise tax at wholesale on adult-use cannabis transfers to retailers, including vertically integrated transfers valued at the “average wholesale price.” The tax would begin January 1, 2026, with revenues largely dedicated to local road funds. The bill is “tie-barred” to other measures and must also pass the Senate and secure the Governor’s signature to become law.
This alert explains the legislative path ahead and where cannabis businesses may want to advocate for changes, outlines potential avenues for legal challenges if enacted (state and federal), and provides policy arguments and state comparisons you may consider using in discussions with lawmakers and the Governor’s office. This alert also provides some insight into what licensees can expect as the cannabis business in Michigan shifts towards a revenue-generating endeavor for the State.
Legislative Status and Process
HB 4951 creates a 24% excise tax on the wholesale price of marijuana when a marijuana establishment sells or transfers to a retail licensee, retail licensee sells product it cultivated and processed for its own retail, or when a provisioning center sells or transfers to a retail licensee.
A tax is set on the “wholesale price,” which is further defined depending on how the transaction takes place. The Department of the Treasury (DOT) administers and may circulate rules regarding the excise tax, which, at a minimum, will require licensees to file additional periodic returns. After small allocations to a new Comprehensive Road Funding Fund, most revenue flows to the Neighborhood Road Fund for local roads and bridges.
The Senate is expected to vote on the bill on Tuesday, September 30, 2025. If the Senate amends or changes the bill in any way, it will be sent back to the House for concurrence. The Governor can sign or veto the bill; however, a veto is unlikely given the prior support for a 32% excise tax on cannabis, which is the amount of excise tax currently levied against wholesale tobacco products. The timing is tied to the broader budget framework, intended to avoid a shutdown, which increases pressure for quick passage. If passed into law, the excise tax would take effect on January 1, 2026, but the act “does not take effect unless” specified companion bills are also enacted – called the “tie-bar” rule.
Advocacy Opportunities and Leverage
The legislature has created pressure to pass this bill based on a looming shutdown, so the window for political action is very narrow. If you are interested in advocating for changes to the bill, the time to act is now: request hearings, offer data on price elasticity, diversion, employment, and tax-yield curves. Target senate members on tax/appropriations committees and leadership working on the budget. During these conversations, consider emphasizing the following amendments:
- Reduce rate (e.g., to 10–15% excise tax), or phase-in (e.g., 8% in 2026, stepping up only if the illicit market shrinks).
- Carve-outs or credits for small, social equity, and in-state cultivators; hardship relief tied to wholesale price indices.
- Sunset clause (e.g., two-year automatic sunset unless Legislature reauthorizes based on market-health metrics).
- Revenue allocation for enforcement against the illicit market, lab testing subsidies, and energy/water efficiency to reduce costs.
- Safe-harbor valuation for vertical transactions to avoid punitive “average wholesale price” assessments when markets are depressed.
- Offset mechanisms to prevent the new wholesale tax from stacking punitively with the 10% Michigan Regulation and Taxation of Marihuana Act (MRTMA) retail excise tax and the 6% sales tax.
One data point to provide reference is how other states handle this issue, acknowledging their own failures as well. Michigan stands to become a state with one of the effective tax rates on cannabis (24% excise tax at wholesale, 10% excise at retail, 6% sales tax). This will inevitably lead to increased black-market activity, which is already rampant in other states, such as California and Washington. The chart below summarizes other states’ cannabis tax rates:
State | Excise Tax Rate | Impact on Industry/Market |
|---|---|---|
California | 15% excise + local taxes (often 30%+ total) | Persistent black market, legal market struggles, business closures, recent initiatives to cut back on excise tax |
Colorado | 15% excise + 15% sales | More stable market, but still price-sensitive |
Oregon | 17% excise + up to 3% local | Lower illicit market, robust legal sales |
Washington | 37% excise | High prices, illicit activity, but more mature market |
Michigan (current) | 10% excise + 6% sales | Competitive pricing, fastest growing legal market |
A key point to emphasize is that “black market risk” directly impacts the health, safety, and welfare of all Michigan residents and was a primary reason for establishing a legal cannabis market under the Medical Marihuana Facilities Licensing Act (MMFLA) and MRTMA. Large tax hikes increase price differentials with illicit sellers, encouraging diversion and eroding product testing standards. California’s experience, with high combined regulatory burdens and excessive taxes, has arguably led to a persistent (and sometimes violent) illicit market – a cautionary tale.
What Can You Do Today?
- Activate your network. This will not only impact growers, but all licensees and those tied to the industry (i.e., landlords, suppliers, service providers, etc.) Encourage these individuals to contact their senators and the Governor’s office to express their discontent with the proposed excise tax. Emphasize job stability, small-business viability, black market competition, and the “revenue paradox” (i.e., over-taxation yields lower total collections).
- Engage your public coalition. Customers, local governments relying on stable legal markets, and advocacy groups. If you are not a member of the Michigan Cannabis Industry Association (MICIA), it is encouraged to join immediately. To the extent you are part of other advocacy groups and can encourage other coalitions to contact the Senate and the Governor’s office, it would be prudent to do so. Your best chance for immediate relief is through a political solution, not a legal one.
Potential Legal Challenges if Enacted
The strongest near-term strategy is legislative. Some attorneys may encourage seeking immediate legal challenges, but those are likely to fail for two reasons:
- There has been no injury because the law has yet to go into effect; and
- There is no ‘irreparable harm’ present because the damage is overwhelmingly monetary in nature.
Rushing headlong into litigation without adequate due diligence may also lead to negative outcomes for future challenges. However, if the bill becomes law, several litigation theories may be considered, including:
Michigan Constitution — Uniformity Clause (Art. IX, § 3). This clause expressly governs ad valorem property taxation. Plaintiffs could analogize that a punitive, industry-specific excise tax with arbitrary intra-class valuation rules (e.g., “average wholesale price” for affiliates regardless of real prices) lacks a rational basis and functions as non-uniform taxation within a defined class. A Uniformity-based challenge is novel and uphill, but can be paired with equal protection/due process arguments, especially if evidence shows the rate is confiscatory or arbitrary in application.
Michigan’s constitutional and statutory process checks and balances. Depending on the outcome of the legislature, arguments regarding tie-bar compliance could be raised, i.e., if any tie-barred bills fail or are later invalidated, the act cannot take effect or could be vulnerable. Likewise, the bill could be challenged on the basis that it conflicts with the MRTMA; i.e., the MRTMA imposes a 10% retail excise tax, and HB 4951 adds a separate wholesale excise without directly amending the MRTMA. A challenge may also claim that the 24% wholesale tax frustrates MRTMA’s purposes (safe legal access, displacement of illicit market) and thus functions as an indirect amendment, which was never intended by the voters.
Challenging parties could also raise an equal protection and/or substantive due process arguments (under the U.S. and Michigan Constitutions) that the 24% rate and the “average wholesale price” rule for affiliates are arbitrary and punitive, not tied to regulatory costs or legitimate objectives, and will foreseeably extinguish many compliant operators, undermining the stated goals (roads) by shrinking the tax base. In effect, making arguments that this excise tax is unfair.
It is important to recognize that pursuing legal challenges to the proposed excise tax would be a significant undertaking. Litigation is often time-intensive, requiring substantial resources for legal fees, expert analysis, and the collection of evidence. The process would likely take years to reach a resolution, and outcomes are inherently uncertain, especially in areas where courts have historically given broad deference to legislative tax policy decisions. For most operators, legislative advocacy and coalition-building may offer a more practical and timely path to relief than relying solely on the courts.
Increased Regulatory, Law Enforcement Oversight, and Uncertainty
Before representing cannabis clients, Varnum worked significantly with clients falling under the Tobacco Products Tax Act (TPTA). The TPTA levies a 32% excise tax against wholesale tobacco and is primarily a tax enforcement statute, which includes felony punishment for individuals for minor violations. From our professional experience, this resulted in licensees – not just at the wholesale level, but also at the retail level – receiving significant scrutiny from the Michigan State Police and the Michigan DOT, with interactions that were much more adversarial and exclusively focused on tax compliance. This often resulted in significant audit pressure, search warrants, asset seizure and forfeiture, and criminal tax charges. See e.g., People v. Beydoun, 283 Mich. App. 314, 327 (2009) (“the TPTA is at its heart a revenue statute, designed to assure that tobacco taxes levied in support of Michigan schools are not evaded.”).
The TPTA is a significant departure from the MMFLA, MRTMA, and Rules, which primarily govern licensing, and rules aimed at cannabis integrity for human consumption. Likewise, enforcement in the cannabis industry is generally focused on the health, safety, and welfare aspects of the business and tracking in METRC, rather than revenue generation. Moreover, enforcement of the MMFLA and MRTMA is primarily carried out by regulatory agents of the Cannabis Regulatory Agency (CRA), who have specialized training on compliance. With the excise tax on cannabis closely aligning with the excise tax on tobacco, it is foreseeable that enforcement will shift toward law enforcement (i.e., the Michigan State Police) and away from regulatory enforcement. This will be challenging for cannabis companies and will open a new level of exposure to tax and criminal liability.
Conclusion
HB 4951 would alter Michigan cannabis economics by layering a 24% wholesale excise over existing taxes, with risk of accelerating illicit activity, destabilizing compliant operators, and potentially reducing net state revenues over time. If enacted, limited litigation avenues exist – particularly arguments grounded in uniformity principles, equal protection/due process, and statutory-process defects. The strongest path remains legislative modification: lower rates, phased adoption, targeted exemptions/credits, and reinvestment in enforcement and market health.
Varnum will be monitoring this issue closely and may provide additional updates on the state of the excise tax. Should you want to engage a Varnum lawyer for advice on this issue, please contact attorney William Thompson to discuss potential representation on this issue.
