Michigan’s 24% Cannabis Tax: Roadmap to a California-Style Collapse?

How much is cannabis tax in Michigan? It’s about to get a whole lot higher.

Michigan’s cannabis market already faced a steep taxation rate: 10% retail excise tax and the state’s 6% sales tax. But the new wholesale tax, which took effect on January 1, 2026, has left retailers worried—and rightly so. The new wholesale tax added a staggering 24% to the price of legal cannabis, raising the price for weed sold from cultivators to manufacturers, and ultimately, the consumer.

This wholesale tax is a part of a larger state budget passed by Michigan regulators that aims to raise more money for the comprehensive road funding fund. But the state’s cannabis industry is worried that such an increase in price will drive consumers away from legal cannabis sources and into the black market, where there are no taxes. This drop in marijuana sales due to price increases could ultimately negate the increased tax revenue projected in the budget, missing the projected revenue goal of $420 million.

This price increase puts the squeeze on businesses that are already struggling to remain afloat in a competitive market by raising the average wholesale price of cannabis. Cultivators and processes have two choices: absorb the additional cost and reduce what little profitability they have, or pass it along to the end consumer and watch sales suffer.

In an already challenging market, many fear that this new tax hike will trigger a collapse of the market akin to that of California. Cannabis businesses in Michigan are preparing for a small sales year in 2026. This may trigger some businesses to go under, become insolvent, and declare bankruptcy.

In the early days of California’s legal cannabis market, there were two taxes: 15% retail excise tax, and a weight-based tax that cultivators had to pay. The state government was a fan of this setup because the weight-based cannabis tax brought in high amounts of revenue. But it placed a majority of the tax burden on cultivators, who struggled to stay afloat under the crushing tax requirements.

Not only was the weight-based tax unpopular, it crushed cultivators. It’s estimated that over a two-year period, there was a 60% decrease in active cultivation licenses. Businesses dropped out of the industry left and right because the weight-based cannabis tax made it so challenging to turn even a small profit.

In 2022, the weight-based tax was removed and replaced with a higher excise tax, 19%—a 25% increase. But this too was damaging to the industry, as the cost was passed along to the end consumer, and sales suffered, with a tax revenue shortfall of nearly $250 million. In July 2025, Governor Newsom signed a bill that dropped the excise tax back down to 15%—but by that time, the damage was done.

Michigan now faces a similar challenge as the state’s regulatory structure takes a tax stance against the growth and success of the legal industry. While this increased wholesale tax on marijuana is meant to bring in more money for the state, the most likely result will be the opposite—fewer sales and less tax revenue than predicted as consumers turn to the tax-free black market for their cannabis products.

Not only does this put consumer safety at risk with unregulated, untested products, it also increases security threats for licensed operators, such as theft from dispensaries and illegal cultivation centers. This, in turn, affects insurance premiums for every business in the state, which is another cost burden for businesses to bear.

Faced with such challenges, it’s easy to feel hopeless. While operators cannot immediately change the new tax, there are steps that businesses can take immediately to increase protections and security nets against market volatility.

Increased Security Exposure

As profit margins decrease in a competitive environment and illicit cannabis businesses grow, the incentive for theft and fraud increases. It becomes more lucrative for external bad actors to target cultivations and dispensaries, and for internal bad actors to commit fraud.

In the face of increased security risk, it’s vital that cannabis operators have sufficient security protocols to protect assets and inventory. This may include updating the camera systems and alarms, increasing on-site surveillance, and updating access control to specific parts of facilities. Insurance policies must be up-to-date as well; crime and fidelity insurance can be customized to reflect the rising risk factor of threat and provide a more robust safety net.

Inventory and Valuation Risk

Market volatility can directly impact the value of cannabis assets. If wholesale prices go down due to market saturation, while new taxes are implemented, asset valuation is not stable. Property and inventory insurance policies provide a safety net against fluctuating asset valuations—but only if inventory values are correctly calculated. Operators in the cannabis industry would be well-served by re-evaluating their inventory valuation and insurance policies to ensure alignment.

Business Interruption (BI) Modeling

Unfortunately, history shows us that this tax change will create a fundamental shift in the market economics of Michigan’s cannabis industry, which increases the probability of businesses closing and the rate at which they will have to shut down. In the face of this, business interruption coverage becomes incredibly important.

Business interruption coverage provides a safety net for worst-case scenarios. But this policy must be up-to-date for a company’s financial projections in order to provide adequate coverage.

Prior to January 1, operators should have reassessed and conducted new financial modeling for their companies to project potential revenue dips due to the tax shift, and ensured their BI coverage accounts for the most severe scenarios. Modeling the possibility of a total market collapse is not something any business owner wants to do, but it is vital to account for in order to ensure your business is adequately prepared.

Supply Chain Risk and Accounts Receivable

This tax shift has a ripple effect through the entire supply chain. Cultivators, who are among the most impacted by this, will have to shift financial priorities. This may include refusing to extend credit to retailers due to the tax liability on transactions, which in turn may affect retailers’ ability to stock products if they have to pay upfront for everything.

A lesser-known policy called Accounts Receivable Insurance (sometimes called Trade Credit insurance) may help in this scenario. If this is not already a part of your business’s insurance umbrella, consider adding it. Businesses may also need to change credit terms and implement stricter payment policies to mitigate exposure of retailer defaults, which are sadly common in cannabis.

Let’s be blunt: Michigan’s cannabis operators are facing an incredible set of challenges; the government-induced financial strain on an already profit-thin market, combined with intensified black market competition where consumers can shop tax-free.

There is no easy answer to navigating this set of challenges. But forward-thinking operators know that weathering storms takes strategy, preparation, and safety nets in the form of insurance and risk management to protect bottom-line investments. This wholesale tax has caused volatility in Michigan’s cannabis market that may take months, or years, to normalize. Now is the time for operators to reassess financial projections and assets. Only businesses that strengthen their insurance coverage and adhere to security best practices have a chance at making it through.

Most of all, licensed operators must make their voices heard in Michigan’s state government and advocate for tax policy reform that removes this pressure and adheres to the original Michigan Regulation and Taxation of Marihuana Act to ensure the long-term viability of Michigan’s cannabis market. Without tax reform, the industry faces a long uphill battle.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.