In February 2025, Gov. Gretchen Whitmer introduced the Pot for Potholes initiative, imposing a substantial tax on marijuana sold to retail shops, with funds allocated for road repairs through her “Mi Road Ahead” funding plan. By this time, the cannabis industry was already experiencing vulnerability, having recorded its first decline in sales revenue since the legalization of recreational cannabis in 2019, largely due to market saturation and falling prices. With the implementation of a 24% wholesale tax effective January 1, 2026, concerns within the industry have intensified.
Joni Moore, co-owner of Higher Love, a dispensary chain in the Upper Peninsula, reported immediate repercussions, including the layoff of 61 employees, approximately 28% of their workforce across nine locations, to offset the new tax burden. “There’s a public perception that cannabis has a lot of money, but the tax now is a total of 67% on every dollar that we bring in,” Moore explained, highlighting the cumulative impact of state and federal taxes on their profitability.
Impact on the Industry and State Revenue
Lawmakers predict that this new tax will generate an additional $420 million for the state’s $1.8 billion funding plan, primarily channeled into a new neighborhood road fund for state and local road repairs and bridge enhancements. However, for entrepreneurs like Moore, this shift signals a significant change in Michigan’s previously favorable environment for the cannabis industry. “Michigan is not very friendly to cannabis right now,” said Moore, indicating a shift in their focus towards other investment opportunities.
Following the passage of the cannabis tax through both the House and Senate, Gov. Whitmer enacted it as part of the fiscal year 2026 budget on October 7, 2025. The Michigan Cannabis Industry Association (MiCIA) responded by filing a lawsuit against the tax, alleging it violates the Michigan Constitution due to not securing a three-fourths legislative vote, as required for amending the 2018 law that legalized recreational cannabis in the state. As of now, this lawsuit continues its course through the Court of Claims.
Threats to Jobs and Market Stability
MiCIA, representing about 400 cannabis businesses, raised alarms over the potential ramifications of the wholesale tax, warning that it threatens 47,000 jobs in Michigan and could push consumers back into the illicit market—an outcome that contradicts the 2018 legalization initiative. “We’re hearing from members who are making impossible decisions about layoffs and potential closures as a direct result of this unconstitutional wholesale tax,” stated Rose Tantraphol, a MiCIA spokesperson.
Moore noted the detrimental trends observed in other states, citing California’s reversal of a similar cannabis tax aimed at rejuvenating its legal market. With Michigan currently being one of the largest cannabis markets in the U.S., the long-term effects of the new tax on market stability and growth remain uncertain. However, this initiative has placed an already precarious industry under increasing pressure.