Michigan Cannabis Tax Lawsuit Targets A Tax On Tax
Michigan cannabis tax protest scene showing industry opposition to the new wholesale levy and lawsuit challenge.
The Michigan cannabis tax lawsuit over the state’s new 24% wholesale levy is no longer just a fight about how the law was passed. A new complaint filed March 27 argues the tax structure itself works like a sales tax, creates tax pyramiding, and pushes the effective burden above the 6% sales tax ceiling plaintiffs say is set by the Michigan Constitution. That challenge lands on top of an earlier tax case that is already moving through the Michigan Court of Claims, which means the wholesale tax fight is now expanding instead of cooling off.
Quick facts
• A March 27 complaint was filed by Mitten Distro X LLC, Refine Michigan Co., Michigan Cannabis Industry Association and affiliates, and consumer Santino Hermiz against the Michigan Department of Treasury.
• Michigan Treasury says the 24% wholesale cannabis tax took effect January 1, 2026 and applies to certain adult use sales and transfers at the wholesale level.
• The 2018 adult use law already imposes a 10% excise tax on retail cannabis sales in addition to other taxes.
• In the new complaint, plaintiffs argue the wholesale levy functions like a sales tax and that layering it into the retail sale price creates impermissible tax pyramiding.
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What The New Complaint Is Actually Arguing
The new case attacks the structure of the tax, not just the politics behind it. Plaintiffs argue the levy is imposed on the selling price rather than on a simple per unit basis, and because the later 10% adult use excise tax and 6% sales tax are applied to a price that already includes the 24% wholesale levy, the same product is taxed multiple times on the way to the customer. The complaint says that turns the levy into something closer to a sales tax than a traditional excise tax.
The complaint even lays out a simple example. On a $100 wholesale transaction, the new levy would add $24 before the retail layer is taxed. From there, the complaint says the 10% adult use excise tax becomes $12.40 and the 6% sales tax becomes $7.44 instead of $6. That is the heart of the tax on tax argument.
Why Tax Design Matters More Than The Headline Rate
The bigger operator lesson is that tax design can matter just as much as tax rate. A business can sometimes survive a higher rate if the tax is clean, predictable, and hits only one point in the chain. It gets much uglier when the tax base stacks, when retail pricing has to absorb prior tax layers, or when different business structures are treated differently. That is where pricing pressure turns into margin pressure fast.
Michigan’s Treasury guidance shows why this matters operationally. For unrelated parties, the tax is based on the actual price the retailer pays. For related companies, or when a company grows and sells its own product, Treasury uses an average wholesale price list updated every quarter. That means vertically integrated operators and affiliated structures need to model the tax carefully instead of assuming the invoice price tells the whole story. [Cannabis Tax Exposure Review] [Retail Margin Stress Test Guide]
If you want to pressure test how stacked taxes affect price, contracts, and margin, use our Cannashield questionnaire and request a cannabis pricing risk review.
What Businesses Should Watch Next
This is now a two front legal fight. The earlier lawsuit challenged whether the Legislature could impose the new wholesale tax without the higher vote threshold tied to a voter adopted law. In December, the Court of Claims denied a preliminary injunction on that theory but kept alive factual questions about whether the new tax undercuts the original purpose of the 2018 adult use framework. The new complaint adds a separate constitutional overtaxation theory focused on how the levy operates in practice.
Operators should also keep one eye on compliance. Treasury says good faith quarterly payments for 2026 are due April 20, July 20, and October 20, with the full 2026 return due January 20, 2027. So even while the legal fight grows, the business side still has to model cash flow, pricing, and reporting right now. [Wholesale Transfer Documentation Checklist] [State By State Cannabis Pricing Risk Map]
If uncertainty around stacked taxes, transfer pricing, or retail exposure is affecting how you plan, Complete our quick Cannashield intake form so you can identify weak spots before litigation and tax compliance start pulling your operation in opposite directions.
Conclusion
Michigan’s new lawsuit is a reminder that in cannabis, the real risk is not always the headline number. Sometimes it is where the tax lands, how often it gets layered into the price, and who ends up carrying it. Operators in any state should take the same lesson from this fight: do not just ask what the rate is. Ask what the rate touches.
Educational note: This article is for education only and is not legal, tax, regulatory, or insurance advice.
What To Do This Week
• Model your top SKUs with and without stacked tax assumptions so you know where price breaks down.
• Review wholesale and retail contracts to see who really carries added tax pressure.
• Separate affiliated and unaffiliated transactions in your internal reporting.
• Recheck margin assumptions for vertically integrated operations that rely on internal transfers.
• Calendar the April 20 quarterly payment date and prepare a clean backup file for 2026 tax reporting.
• Build one clear explanation for how each major product is priced from transfer to final sale.
FAQ
What is the new Michigan lawsuit about?
It argues the 24% wholesale cannabis levy functions like a sales tax, creates tax pyramiding, and pushes the effective burden above the 6% sales tax ceiling plaintiffs say applies under the Michigan Constitution.
Who filed the complaint?
The March 27 complaint was filed by Mitten Distro X LLC, Refine Michigan Co., Michigan Cannabis Industry Association and affiliates, and Santino Hermiz against the Michigan Department of Treasury.
Is the 24% wholesale tax already in effect?
Yes. Michigan Treasury says it took effect January 1, 2026.
What taxes already applied before this new challenge?
Michigan’s adult use law already imposes a 10% excise tax on retail cannabis sales, and the complaint also references the existing 6% sales tax.
How does Treasury calculate the wholesale tax?
For unrelated businesses it uses the actual price paid. For related companies and self supplied retail operations it uses a quarterly average wholesale price list.
Why should operators outside Michigan care?
Because this fight shows that stacked tax design can hit margins, pricing, and consumer costs even when the headline issue sounds local. That is an inference from the complaint’s tax pyramiding theory and Treasury’s pricing rules.
