Why Michigan’s New Cannabis Tax Is Facing a Legal Challenge

Michigan’s new marijuana tax isn’t even a month old, and it’s already facing a legal challenge.

A judge with the Michigan Court of Claims has ruled that a lawsuit challenging the state’s new 24 percent wholesale marijuana tax can move forward, keeping the issue very much alive even as the tax is already being collected.

On Monday, Jan. 5, Judge Sim Patel denied the state’s request to reconsider an earlier decision from December that refused to throw the case out. That earlier ruling allowed the wholesale tax to officially take effect on Jan. 1, 2026, after lawmakers passed it during last year’s budget negotiations as a way to pump more money into Michigan’s ever-needy road funding.

The tax, formally known as the Comprehensive Road Funding Tax Act, is expected to generate more than $400 million to help fix Michigan roads. On paper, that sounds like a win for us to ‘fix those damn roads’. In practice, the cannabis industry is claiming it’s anything but.

The lawsuit was filed in November by the Michigan Cannabis Industry Association, and argues that lawmakers didn’t have the constitutional authority to make this change in the first place. Marijuana was legalized through a voter-approved ballot initiative, the Michigan Regulation and Taxation of Marihuana Act. Because of that, any changes to the law require a three-fourths supermajority vote in the Legislature. The lawsuit claims that threshold wasn’t met, and therefore this tax could be considered illegal and against voter wishes.

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Beyond the procedural argument, the industry is also warning about real-world fallout. The MiCIA says the wholesale tax hits an industry already operating on thin margins, raising prices and pushing consumers back toward the illicit market that legalization was supposed to eliminate. In other words, the state could end up undercutting its own goals while collecting less revenue than projected.

Judge Patel didn’t rule on whether the tax ultimately violates the voter-approved law, but he made it clear those questions still need to be answered. He said the court must examine whether the wholesale tax conflicts with the intent of the original legalization measure and how it could impact consumer prices and illegal market sales. For now, both sides will be allowed to move forward and gather evidence.

The tax remains in effect while the case plays out, and the MiCIA is also waiting on the outcome of an appeal tied to the December decision that allowed the tax to begin in January. As of now, they’re still collecting the tax so it’s a ticking clock to get help to cannabis businesses before their margins get even thinner.