Michigan’s legal cannabis industry is entering 2026 at a moment of real vulnerability, as a newly enacted 24% wholesale tax takes effect in a market that has already slowed after years of rapid expansion.
What began as one of the country’s strongest adult-use cannabis markets is now contending with falling prices, store closures, job losses, and intensifying competition, which makes the new tax especially disruptive for businesses and consumers alike.
Since recreational marijuana sales launched in late 2019, cannabis has become a significant contributor to Michigan’s economy and public revenues. At the same time, more than 550 dispensaries and cultivation facilities have closed, and thousands of workers have lost jobs. But after years of steady growth, the industry showed its first signs of contraction in 2025. This contraction has been signifying that the market has entered a new phase defined less by expansion and more by survival.
According to data from the Michigan Cannabis Regulatory Agency, adult-use dispensaries generated $3.17 billion in sales in 2025, down from $3.27 billion in 2024. While a 3.1% decline may appear modest, it marks a significant shift for a market that had previously grown every year and helped position Michigan as one of the largest legal cannabis markets in the country.
“Michigan is a mature cannabis market, which is great for consumers but not always great for businesses,” a Michigan attorney who has spent nearly half of his 14-year legal career advising cannabis companies told Michigan Chronicle in an interview. “It’s highly saturated. There’s significant price compression, and margins are already razor thin.”
That saturation has driven prices to historic lows, making Michigan one of the most affordable legal cannabis markets in the country. While consumers have benefited from cheaper products and frequent discounts, many operators have been left selling at or near cost just to maintain foot traffic. For smaller, locally owned businesses in particular, profitability has become increasingly elusive.
Over six years, legal cannabis sales in Michigan have totaled more than $13 billion, generating approximately $2.2 billion in excise and sales tax revenue that supports schools, roads, and local governments. However, those figures are expected to decline further in 2026.
State lawmakers approved a new 24% tax on wholesale cannabis transfers, which went into effect Jan. 1, 2026. The tax applies to the first transfer of cannabis from a grower or processor to a retailer, and is layered on top of the existing 10% excise tax paid by consumers at the register.
“This new tax is fundamentally different,” the attorney said. “It doesn’t happen at the retail level. It happens higher up the supply chain.”
While the tax is technically assessed on wholesalers, its effects are expected to cascade throughout the industry. Growers and processors must now decide whether to absorb the cost, negotiate tighter terms with retailers, or raise wholesale prices.
Retailers, in turn, face difficult choices of their own: pass higher costs along to consumers, cut back on promotions, or further compress margins that are already dangerously thin.
“Taxes don’t disappear,” the attorney said. “They get pushed up or down the supply chain.”
For consumers, that could mean subtle but meaningful changes. Instead of the steep discounts and low prices that have defined Michigan’s cannabis market in recent years, shoppers may encounter higher prices, fewer sales, and a narrower selection of products. In a market where price sensitivity is high and competition is fierce, even small increases can influence purchasing behavior.
The average retail price for an ounce of recreational cannabis dropped to just over $58 in December 2025. That figure was more than $69 a year earlier and exceeded $95 in late 2023. Michigan has become one of the cheapest legal cannabis markets in the nation, a benefit for consumers but a serious obstacle for businesses trying to cover operating costs.
“In a mature market, nobody has the luxury of simply raising prices,” the attorney said. “You raise prices, you lose customers.”
That risk is especially pronounced given the alternatives available to Michigan consumers. The state has a long-standing caregiver market that predates legalization and offers cannabis without the regulatory costs borne by licensed businesses. In addition, Ohio’s recent approval of medical marijuana sales gives consumers near the border new legal options, increasing competitive pressure on Michigan retailers.
“If prices rise too much, consumers will go back to the gray or illicit market,” the attorney said. “That’s just economic reality.”
Industry leaders warn that this shift would undermine the goals of legalization by reducing compliance, weakening consumer protections, and shrinking the regulated market that generates tax revenue. Unlike licensed businesses, the illicit market does not contribute to public coffers or follow safety and testing requirements.
By the end of 2025, Michigan had 2,171 active cannabis licenses, a net decline from the previous year and the first such drop since adult-use legalization began. Nearly 1,000 licenses are now inactive. Growers have been hit especially hard, with nearly one-third of cultivation operations closing since the market opened.
Detroit has also seen notable contraction, with at least 14 cannabis businesses closing since the city began issuing licenses in late 2022. Despite these closures, the market remainscrowded, as new entrants continue to replace those that exit, keeping supply high and prices low.
But the way the wholesale tax was enacted has only deepened frustration within the industry. Rather than moving through the Legislature as a standalone marijuana policy, the tax was folded into a broader budget and infrastructure funding package during late-stage negotiations.
“This wasn’t a marijuana bill,” the attorney said. “Cannabis became the funding mechanism at the last minute.” He said that the state projects an additional $420 million from the new tax – with the irony of that figure being that “420” is universal code for cannabis consumers around the world.
Earlier efforts to raise cannabis taxes had failed, he noted, largely because the original adult-use statute — approved by voters — carefully outlined the tax structure. That statute imposed a 10% excise tax at the point of sale and required a supermajority vote in the Legislature to make changes.
“Voters knew exactly what they were voting on,” he said. “That structure was part of the deal.”
From the industry’s perspective, using cannabis to help close budget gaps reflects a broader political reality: the sector is seen as accessible revenue, with fewer defenders in Lansing than more established industries.
“Cannabis was an easy target,” the attorney said. “It doesn’t have the lobbying power of big alcohol or big tobacco.”
That dynamic has placed pressure on an industry that is still evolving. While cannabis is now legal and regulated, many operators entered the market without the institutional knowledge or financial backing of legacy industries. As a result, sudden policy shifts can have outsized consequences.
“This tax is forcing the industry into maturity whether it’s ready or not. And not the kind of maturity that I mentioned earlier. I mean the kind of maturity that demands a certain kind of operations savvy that a lot of current retailers are still learning.” he said.
The rollout of the wholesale tax has also been marked by uncertainty. The measure took effect at the start of the year with limited guidance, leaving businesses to interpret compliance requirements while absorbing immediate financial impacts.
“The tax went into effect with essentially no runway,” the attorney said. “There are still dozens of unanswered questions about how the tax applies.”
A legal challenge seeking to block the tax failed to secure a preliminary injunction, allowing it to take effect while litigation continues. Even if the industry ultimately prevails, the process is expected to be lengthy and costly.
“Even if the industry wins, that’s a long and expensive battle,” he said. “And the tax is real in the meantime.”
For workers, the uncertainty is deeply personal. Cannabis jobs span retail, cultivation, processing, transportation, compliance, and security, and layoffs have already accompanied the broader market slowdown. As costs rise and margins tighten further, operators say staffing decisions will become increasingly difficult.
Municipalities could also feel the impact if more businesses close or scale back operations. Communities that allow cannabis businesses have come to rely on marijuana tax revenue as a steady funding source, and any contraction in the regulated market could reduce those distributions.
Ultimately, critics of the wholesale tax argue that it risks undermining a system that, while imperfect, has largely achieved the goals voters set out: displacing the illicit market, protecting consumers, and generating public revenue. Pushing too hard on taxation, they say, could reverse that progress.
“You risk creating the opposite outcome,” the attorney said. “Less compliance, less revenue, and more underground activity.”
Michigan’s cannabis industry faces a defining period. Operators are making short-term decisions in an environment that is shifting month by month, with little certainty about what comes next.
“This is going to be a survival exercise,” the attorney said. “People were already hustling just to stay afloat. Now the rug’s been pulled out while they were still trying to find their footing.”
Whether Michigan lawmakers reconsider their approach or double down on cannabis as a revenue source remains to be seen. What is clear is that the consequences of the new wholesale tax will extend beyond balance sheets, shaping the future of the state’s legal cannabis market and the experience of the consumers who sustain it.
