The Lead Off

• A new 24% wholesale marijuana tax in Michigan is raising concerns among dispensaries and rural communities that depend on cannabis revenue.
• Industry experts say the tax could accelerate consolidation in a market already strained by oversupply and falling prices.
• Small towns that benefited from early marijuana legalization are now watching for potential business closures and reduced tax revenue.

LANSING, MI. (WOWO) A new 24% wholesale tax on marijuana in Michigan is drawing concern from dispensary owners, researchers, and local officials who say it could speed up industry consolidation and reduce economic benefits in rural communities already dependent on cannabis revenue.

The tax, enacted as part of a road funding deal, comes on top of Michigan’s existing 10% excise tax and 6% sales tax on marijuana products according to Bridge Michigan.

Industry already under pressure from oversupply

Michigan’s marijuana industry has been contracting in recent years amid oversupply, steep competition, and falling prices, according to industry data and stakeholders.

More than 800 cannabis retail stores currently operate in the state, generating roughly $3 billion in annual sales. However, market conditions had already been tightening before the new tax took effect Jan. 1, with the first tax payment due April 20.

In December, a marijuana manufacturing plant in Webberville, a community of about 1,400 people, closed and laid off 62 workers. Company leaders cited a shrinking cannabis market and increasing tax pressure.

Experts warn of rural impact

Researchers and industry experts say the new tax could disproportionately affect smaller communities where marijuana businesses make up a significant share of local economic activity.

Stephanie Leiser, director of the Center for Local, State and Urban Policy at the University of Michigan, said business closures can have an outsized impact in small towns.

“In small towns, the impact of a business opening or closing is really acute, because it’s a really big swing in revenue when there’s a change,” Leiser said. “If you have 30 or 40 (marijuana business) licenses, losing one license is not a big deal. But if you only have five, losing one is a pretty big deal.”

Bill Knudson, a professor in Michigan State University’s Department of Agricultural, Food, and Resource Economics, said many operators are already operating on thin margins.

“A lot of them are operating on very thin profit margins, and I could certainly see a scenario where this tax forces some people out of business,” Knudson said.

Business leaders cite broader market strain

Industry representatives say the tax is adding pressure to an already competitive environment shaped by oversupply and widespread licensing.

Derek Norman, founder of Humblebee, a Frederic-based cannabis company, said the market challenges extend beyond taxation.

“Michigan is dealing with oversupply and a very open licensing structure, which has already compressed margins across the industry,” Norman said. “So this isn’t happening in a vacuum. It’s hitting operators at a point when many are already under significant financial pressure.”

Policy debate over tax impact

State lawmakers who supported the tax say it was necessary to fund infrastructure improvements, including road repairs.

State Sen. Ed McBroom, R-Norway, said consolidation in the industry was expected given market conditions.

“Everyone knew that that kind of consolidation was bound to happen since the Michigan market is so saturated,” McBroom said.

He also said:

“I don’t think we are better off as a people for having more addictive substances available for less money.”

The tax has also been challenged in court by the Michigan Cannabis Industry Association.

Rural communities see both gains and losses

Some rural communities have benefited significantly from cannabis-related tax revenue since legalization expanded.

In Ironwood, a city of about 5,000 near the Wisconsin border, marijuana tax revenue sharing has exceeded $783,000 since 2022, increasing its general fund by about 66%, according to local officials.

In Baldwin Township in Iosco County, cannabis tax distributions have totaled nearly $900,000 since 2020, boosting its general fund by 78%. Officials there used some of the revenue for infrastructure projects, including repairs to a long-delayed bike path.

Christopher Martin, Baldwin Township supervisor, said the funding helped avoid local tax increases.

“Being able to fix the bike path without raising taxes was pretty beneficial to our community,” Martin said.

At its peak, Baldwin Township had five dispensaries. That number has since declined to two.

Next steps

The new wholesale tax remains in effect while legal challenges from the Michigan Cannabis Industry Association continue. Industry stakeholders say they are closely watching whether additional business closures or consolidations follow as the tax structure settles into place.