Gretchen Whitmer signs Michigan marijuana tax into law: what to know

Michigan Gov. Gretchen Whitmer on Tuesday signed a new 24% tax on marijuana sales between producers and dispensaries, saying the measure will help fund her administration’s long-promised effort to repair the state’s crumbling roads.

The tax, which applies to wholesale marijuana transactions, is expected to generate roughly $420 million annually — money that will go toward Whitmer’s $1.8 billion road-funding plan.

Whitmer’s first attempt to fix Michigan’s roads through a 45-cent gas tax increase failed in 2019 after pushback from both parties. She later turned to a $3.5 billion bonding program in 2020 to rebuild highways and bridges. The borrowing funded years of major construction projects, but it did not extend to local roads, and that borrowing authority expires this year.

Michigan’s freeze-and-thaw climate makes road deterioration a constant problem, and the state ranks near the bottom nationally for road quality. The Citizens Research Council of Michigan lists the state 40th for road conditions and 28th for infrastructure funding.

Whitmer, long mentioned as a potential presidential contender though she has downplayed interest in the White House, signed the budget in a closed-door ceremony.

The 24% wholesale tax will apply when marijuana is sold from growers and processors to retail dispensaries. Consumers will still pay the existing 10% excise tax on retail marijuana sales, along with Michigan’s 6% sales tax, which together make the state’s marijuana taxes among the highest in the nation.

Fiscal analysts and industry experts predict the new levy will likely raise prices and reduce sales. The Michigan Senate Fiscal Agency projects a 14.4% drop in sales, while critics warn the higher tax could drive consumers to the black market.

Some other states — including Minnesota, Maryland, and Maine — also raised taxes on marijuana products this year.

The new tax has drawn sharp criticism from industry leaders, particularly small business owners. Stuart Carter, founder of the Detroit Cannabis Industry Association, called the measure a “slap in the face,” saying it was pushed through the Legislature with little opportunity for public input.

The tax was a key component in final budget negotiations for Michigan’s 2026 fiscal plan, which totals $81 billion. Democrats control the state Senate, while Republicans hold the House. Weeks of partisan infighting nearly triggered a government shutdown when lawmakers missed the Oct. 1 deadline to pass a budget. A temporary funding measure kept the government open until a final agreement was reached early Friday morning.

Adam Hoffer, director of excise tax policy at the Tax Foundation, told the Associated Press: “This massive tax increase is really going to hurt the legal market in Michigan. The higher the tax, the greater the incentive for consumers to seek cheaper, unregulated product."

Whitmer said in a video statement announcing the law: “When I took office, I made a promise to fix the damn roads so Michiganders could get where they’re going faster and safer."

Lance Binoniemi, vice president of government affairs for the Michigan Infrastructure and Transportation Association, called the marijuana tax a creative approach to closing Michigan’s long-standing funding gap: “We think this is a big step in the right direction,” he said. “It’s a nontraditional method, but lawmakers recognized the urgency of finalizing a plan.”

About $1 billion of the budget will go toward local road and bridge projects. In addition to the marijuana tax, the plan redirects all taxes collected at the gas pump — which previously funded schools — to road construction and maintenance.

This article includes reporting by the Associated Press.