Rethinking Well-Intended Policy: Why Michigan’s New Cannabis Tax Risks Undermining Its Own Goals

The question isn’t intent — it’s impact.

Across the country, policymakers are working hard to balance public needs with evolving industries. In Michigan, the latest example is the Comprehensive Road Funding Tax Act (House Bill 4951), signed on October 7, 2025. On the surface, the concept seems straightforward. Use cannabis tax revenue to repair critical roadway infrastructure. Most would agree that improving roads is essential and redirecting revenue from a legal industry appears logical.

However, the execution of this plan raises significant concerns that could unintentionally weaken the regulated cannabis market and revive the very challenges Michigan has been working to correct.

The law introduces a new 24 percent excise tax on wholesale adult use cannabis beginning January 1, 2026. It sits on top of the existing 10 percent retail excise tax and the 6 percent state sales tax. Early estimates project 420 million dollars annually for road and bridge repairs. A legal challenge is already underway, with industry leaders questioning whether the bill violates Michigan’s constitution because voter initiated laws require a higher threshold for amendment.

At first glance, the policy appears financially strategic. In practice, it risks creating pressures that work against the state’s long term goals.

Michigan is already one of the most heavily taxed cannabis markets in the United States, even before factoring in the federal 280E restrictions that prevent cannabis operators from deducting ordinary business expenses. In industries with healthy margins, layered taxation can be absorbed. In an emerging sector that is still stabilizing, these cumulative pressures can compound into unintended consequences.

In an emerging sector that is still stabilizing, these cumulative pressures can compound into unintended consequences.

We have real time examples that illustrate both sides of this outcome.

California remains one of the most challenged legal cannabis markets in the country. Excessive taxation and regulatory complexity created a business environment that made the legal market less competitive than the illicit one. The result has been widespread black market activity, depressed legal pricing, and the closure of many licensed businesses.

By contrast, Colorado, the most mature legal market in the United States, has generally maintained a more business conducive regulatory structure. While imperfect, the state has minimized the economic incentives that drive operators toward illegal channels.

Michigan sits between these two models. It is the second largest cannabis market in the country and for several years was considered one of the strongest legacy markets. But as pricing declined and operational pressures increased, some operators pursued illegal material to maintain margins. This included illicit distillate, smokeable flower, and biomass being introduced into licensed supply chains. The state responded aggressively in 2023 and 2024 with new enforcement measures, and the industry began to correct course.

Introducing a 24 percent wholesale tax at this moment significantly raises the risk of reversing that progress. When legal operators cannot maintain financial stability, the likelihood of poor decisions increases. This is not about bad actors. It is about economic pressure points. If legal products become too expensive to produce, the illicit market regains pricing advantage and consumers follow it.

Once that happens, the state loses far more than tax revenue. It loses control over product safety, testing standards, consumer confidence, and long term market integrity.

None of this suggests that legislators acted with anything other than good intentions. Policymakers are navigating one of the most complex industries in the country without a dedicated regulatory framework, historical precedent, or federal guidance. No one person or agency is equipped with all the expertise required. The intent is not the issue. The impact is.

The path forward requires collaboration, not criticism. Regulators deserve support, not scrutiny. What is needed is a structured mechanism for accessing industry expertise before policies are finalized. Other highly regulated industries use advisory councils, technical working groups, and economic modeling before implementing sweeping tax changes.

Michigan now has the opportunity to lead in this way.

Cannabis legalization was intended to replace an unregulated system with one that protects consumers through safe, tested, accurately labeled products. To achieve that outcome, regulations must reinforce the legal market, not weaken it. Taxation should be balanced in a way that generates public revenue without creating financial conditions that incentivize illicit activity.

The solution is not to abandon infrastructure funding. It is to design policy that does not unintentionally destabilize an emerging industry still transitioning out of decades of prohibition.

Michigan has come too far to risk reopening the door to black market penetration. As the state continues developing its framework, the hope is simple. Let us pursue regulatory approaches that strengthen public outcomes without undermining the legal businesses working to operate responsibly in a highly constrained environment.

A thriving legal market is the most effective tool we have against unsafe and unregulated channels. The goal should be to support it, not strain it at the very moment it is finding its footing.