A judge on the Michigan Court of Claims is set to review arguments over whether state lawmakers crossed a constitutional line when they approved a new tax on cannabis. The hearing centers on a 24% levy on wholesale cannabis transactions that became a key part of the state budget signed by Governor Gretchen Whitmer last month.
The state’s recreational cannabis industry filed suit shortly after the budget became law. Industry leaders argue that voters already established the tax framework for legal marijuana when they passed a ballot initiative in 2018, which created a retail tax on cannabis products.
They argue that lawmakers cannot layer an additional tax on the industry without meeting the required supermajority votes.
The Michigan Cannabis Industry Association spokesperson, Rose Tantraphol, stated that the Legislature exceeded those limits. She accused lawmakers of approving the wholesale tax during hectic late-night proceedings that left little room for scrutiny.
According to the lawsuit, the original ballot measure was designed to encourage a stable, regulated market for adult-use cannabis, while the recently adopted wholesale tax would undermine that goal. Industry representatives say many stores are already struggling to stay open amid falling prices, limited access to banking, and heavy competition.
“Profit margins are already razor-thin. There is no way to absorb a 24 percent hit,” Tantraphol said. Some operators, she added, have said they would be forced to shut down if the tax is implemented.
Officials in the State Budget Office declined to discuss the case, citing ongoing litigation. In court filings, the state maintains that the new tax stands on its own, as it appears in a separate statute and is not intended to regulate the cannabis market. Instead, state lawyers say the revenue would help generate an estimated $420 million for Michigan’s roads.
Robert Schneider, a senior analyst with the Citizens Research Council of Michigan, said the dispute may come down to whether the wholesale levy is viewed as distinct from the retail tax approved by voters. He noted that the two appear in different laws and apply to different stages of the supply chain. The court will have to determine whether those differences are meaningful or whether lawmakers attempted an improper workaround.
Both sides have asked for a prompt decision. The tax is scheduled to start on January 1, and any delay in the ruling could complicate the state’s plans for budgeting and distribution of the expected revenue.
The marijuana industry is also seeking a temporary order that would halt enforcement of the tax until the case is resolved. If the judge issues an immediate ruling, the matter could reach the state Supreme Court in the coming months.
The entire marijuana industry within and outside the U.S., including leading companies like Aurora Cannabis Corp. (NASDAQ: ACB) (TSX: ACB), will be watching how the judge handles this dispute and the ruling made as it could set a precedent that other states emulate in their bid to generate more tax revenue from licensed cannabis companies.
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