Michigan’s cannabis market enters 2026 with a new 24% wholesale tax and other big changes on the horizon.

President Donald Trump signed an executive order at the end of last year to federally classify marijuana as a less dangerous substance.

At the state level, several proposals were introduced last year that, if signed into law, would potentially help to stabilize the industry.

Michigan’s cannabis industry enters 2026 poised for significant change.

After six years of legal recreational sales, Michigan’s marijuana market contracted last year for the first time since sales started in December 2019. Sales at recreational marijuana dispensaries declined by 3% last year to $3.17 billion, down from $3.28 billion in 2024, according to recently released figures from Michigan’s Cannabis Regulatory Agency.

Still, the state is one of the largest cannabis markets in the country by volume. Now, a 24% wholesale tax on marijuana products, which took effect on Jan. 1, threatens to disrupt this growth, as companies say they’ll struggle to absorb the tax, meaning prices for consumers will likely rise, potentially leading to fewer sales.

Two Michigan-based marijuana companies have already cited the new tax as a reason why they closed facilities and laid off employees.

The Upper Peninsula-based cannabis company Higher Love, which has 10 dispensaries, laid off about 60 of its 200 employees in December 2025 because of the new 24% wholesale tax.

The Upper Peninsula-based cannabis company Higher Love, which has 10 dispensaries, laid off about 60 of its 200 employees in December 2025 because of the new 24% wholesale tax. Photo By Bob Pearl Photography, Provided By Higher Love

Other big changes are on the horizon. At the federal level, President Donald Trump signed an executive order at the end of last year to federally classify marijuana as a less dangerous substance, which could ultimately lead to savings for these companies.

At the state level, several proposals were introduced last year that, if signed into law, would potentially help to stabilize the industry, cannabis industry leaders say.

Below are some figures and topics the Detroit Free Press will be keeping an eye on in 2026.

A 24% wholesale tax goes into effect

Michigan’s cannabis industry started the year with a new 24% wholesale tax on cannabis products to pay for a road funding plan.

More on the tax: Michigan’s cannabis market is on the verge of a shake-up with new tax, license cap proposal. The tax faces legal challenges. The Michigan Cannabis Industry Association, which represents more than 400 marijuana businesses across the state, is appealing a state judge’s decision against striking down the new tax as unconstitutional. A Michigan Court of Claims judge recently decided to allow that lawsuit to proceed.

John Fraser, a Lansing-based cannabis attorney with the law firm Dykema (the firm is co-counsel in the suit brought by the Michigan Cannabis Industry Association), said he wouldn’t be surprised to see additional legal challenges to the tax now that it has been implemented.

Should consumers expect to pay more for marijuana?

As these legal challenges develop and proceed, though, Michigan cannabis businesses must still pay the tax and decide if they’ll absorb the tax, or pass it along.

Fraser said he hasn’t heard from a single wholesale marijuana client that can absorb the tax.

“The industry has been struggling for a long time with cash flow,” he said. “A lot of folks are consistently behind on their receivables and their payables. So you add this tax on top of that (and) it hurts.”

Consumers won’t see a price increase from the tax all at once, though. Fraser said he heard from retail stores that loaded up on inventory prior to January, so it might not be until February when consumers start seeing the higher prices at stores.

Some companies have publicly come out and said what consumers should expect to pay.

Cannabis plants rest in plant support cages inside the grow room at the Pleasantrees facility in Mt. Clemens on Thursday, Aug. 1, 2024.

Cannabis plants rest in plant support cages inside the grow room at the Pleasantrees facility in Mt. Clemens on Thursday, Aug. 1, 2024. David Rodriguez Munoz, Detroit Free Press

The president of the Upper Peninsula-based marijuana company Higher Love said in December that the company is absorbing the tax, but in order to remain profitable, it laid off about 60 of its 200 employees.

Lume Cannabis Co., one of the biggest marijuana companies in Michigan, said customers should expect that prices for some items will go up, but not by 24%.

Doug Hellyar, Lume’s president and COO, said in a statement from December that the company is working with its vendors to control costs wherever possible.

“These efforts will allow Lume to limit price increases on many products well into 2026,” Hellyar said. For example, some items that cost $10 before the tax will increase in price from about 60 cents to $1.20, he said.

The interior of a Lume Cannabis Co. dispensary in Southfield.

The interior of a Lume Cannabis Co. dispensary in Southfield. Audrey Richardson, The Detroit Free Press

What does this mean for businesses?

This tax comes amid a backdrop of stabilizing sales. Michigan’s cannabis market has shown signs in recent months of slowing growth after experiencing rapid sales growth through 2023 and early 2024, according to a December report from Headset, a cannabis market intelligence firm.

The slowing of sales growth comes even as Michigan stands out amongst other states with legal recreational marijuana markets for its “exceptionally low average item price,” Headset said, which was $8.45 in December. That average item price can buy a pre-rolled joint or a package of edibles.

“This pricing environment has fueled high unit volumes and kept the market accessible to a broad consumer base,” the report said.

Cannabis industry leaders expect when prices rise due to the tax it will impact sales, and revenue for businesses will decrease, leading to layoffs and closures.

A customer purchases recreational marijuana flower with the help of a House of Dank salesperson at its dispensary on Fort Street in Detroit.

A customer purchases recreational marijuana flower with the help of a House of Dank salesperson at its dispensary on Fort Street in Detroit. Mandi Wright, Detroit Free Press

Marijuana could be rescheduled

There could be some good news for businesses on the horizon. President Trump signed an executive order in December directing the U.S. attorney general to “take all necessary steps to complete the rulemaking process related to rescheduling marijuana to Schedule III. …”

If marijuana is rescheduled, it would change from a Schedule I drug — considered highly dangerous, addictive and without medical use — to a Schedule III drug — like Tylenol with codeine and ketamine — which would mean it can be lawfully prescribed as medication. 

For Michigan cannabis businesses, the biggest benefit would be eliminating the Section 280E tax implications.

Section 280E — the Internal Revenue Code that prohibits taxpayers who are engaged in the business of trafficking certain controlled substances from deducting typical business expenses associated with those activities — would likely not apply to these companies.

Fraser said now, marijuana companies can’t deduct many legitimate business expenditures such as rent, utilities and labor. He said many retailers who are unprofitable would become profitable if marijuana is rescheduled.

“If retailers are making more money, it helps everyone along the supply chain because then they’ll be able to pay their vendors on time,” he said. “All these things trickle up.”

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