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Michigan Implements 24% Wholesale Marijuana Tax and Fuel Tax to Fund Road Repairs

The recreational marijuana wholesale tax went into effect on Jan. 1. Lawmakers hope this will generate $3 million in revenue to help fund road repairs.

Michigan is now operating under a new state budget, including a 24% wholesale tax on cannabis in addition to the state’s existing 10% excise tax and 6% sales tax. 

“Retailers will likely have to pass a portion or all of that [tax] onto consumers in the form of price increases,” said Casey Kornoelje, owner of Pharmhouse Wellness, Grand Rapids' only locally-owned dispensary and one of the many businesses navigating the change.

The wholesale tax provision narrowly passed the Michigan Senate in early October with a 19-17 vote. The tax is intended to fund the state’s road improvement plan, including investments in roads, bridges and other infrastructure.

Under the Comprehensive Road Funding Tax Act (CRFTA), the cannabis tax is expected to generate $3 million in Fiscal Year 2026 and $500,000 in each subsequent year. 

After an initial allocation to the Comprehensive Road Funding Fund, the remainder of the revenue will be deposited into the Neighborhood Road Fund. From the Neighborhood Road Fund, $100 million is earmarked annually for local bridges. The remainder is distributed to county road commissions, cities and villages.

The Michigan Cannabis Industry Association (MiCIA), which represents more than 400 cannabis businesses, appealed a lower court ruling upholding the state’s wholesale cannabis tax, asking the court to block the 24% tax from taking effect. The MiCIA argues that the Legislature violated the Michigan Constitution by failing to secure the three-fourths vote required to amend a voter-approved law.

The same argument was previously rejected by the state’s Court of Claims, which upheld the tax. 

In 2018, Michigan voters approved a citizen-led ballot initiative legalizing recreational marijuana for adults 21 and older. The measure established a regulatory framework for the cannabis industry and set specific taxes on marijuana sales, including a 10% excise tax on recreational cannabis, with revenue directed toward schools, transportation and local governments.

“The 24% wholesale tax violates the will of the voters who approved the 2018 citizen ballot initiative on cannabis, and we will not back down from fighting for the will of the people in court,” said Rose Tantraphol, a spokeswoman for the MiCIA, in a Dec. 23 press release.

The wholesale tax will not impact those with a medical marijuana card.

A new tax system went into effect that is changing the way Michigan taxes fuel.

Michigan is eliminating its 6% sales tax on gasoline and replacing it with a higher cents-per-gallon fuel tax, effective January 1st. The change will increase the state’s per-gallon fuel tax from 31 cents to 52.4 cents.

While the 21-cent hike may seem like a major increase, advocates say the impact on drivers will be minimal.

“Today what has happened is that the 6% sales tax is no longer being charged at the pump. It is now all gas tax,” said Brian Shoaf, vice president of public policy and business advocacy with the Detroit Regional Chamber.

The key difference lies in where the money goes. Unlike the sales tax revenue, which previously went into the state’s general fund, all money collected under the new fuel tax structure will be dedicated to road construction and repair.

“This doesn’t increase your cost to get from point A to point B, but does make sure that extra revenue goes to our roads,” Shoaf said.

The rise in gas prices comes from the yearly adjustment to the fuel tax for inflation. The Treasury Department set the increase at 2.7% for 2026.

The change has drawn mixed reactions from Michigan drivers. While some say they’re happy to see the funding go toward fixing the roads, others don’t see the benefit of the tax swap.

The gas tax restructuring is part of a broader transportation funding package. State lawmakers are also implementing a new 24% wholesale tax on marijuana and earmarking funds from corporate income tax revenue, aiming to generate nearly $2 billion annually for road funding.

Drivers of electric and plug-in hybrid vehicles will also see higher costs beginning in 2026.