Starting January 1, 2026, Michigan cannabis businesses face a significant new tax burden that could reshape profit margins and pricing strategies across the industry. If you operate a cultivation facility, processing operation, or retail dispensary in Michigan’s adult-use cannabis market, understanding the Comprehensive Road Funding Tax Act (CRFTA) isn’t optional—it’s essential to your financial survival.
The new 24% wholesale excise tax adds another layer of complexity to an already heavily regulated and taxed industry. For cultivators and processors, this means immediate changes to how you price products and manage cash flow. For retailers, it means higher costs from your suppliers and critical decisions about whether to absorb costs or pass them to consumers. And for vertically integrated “seed-to-sale” operations, the calculation becomes even more intricate.
Understanding the New Wholesale Tax Structure
The CRFTA imposes a 24% excise tax on wholesale sales of adult-use cannabis, but this isn’t replacing existing taxes—it’s stacking on top of them. Michigan cannabis businesses now navigate three separate tax layers: the new 24% wholesale tax, the existing 10% retail excise tax under MRTMA, and the standard 6% state sales tax.
Who pays the tax? The wholesale tax falls on the entity making the first sale or transfer of cannabis to a retail licensee. If you’re a cultivator or processor selling to dispensaries, you’re legally responsible for collecting, reporting, and remitting this tax. While you can recoup the cost by collecting it from your retail customers, you remain liable if payment or remittance issues arise.
What transactions trigger the tax? The wholesale tax applies to three specific scenarios: sales from licensed cannabis establishments (growers, processors, microbusinesses) to retail licensees; cannabis cultivated and processed for retail sale by the retail licensee itself; and transfers from medical provisioning centers to adult-use retail operations.
Calculating Wholesale Price: Two Different Approaches
How you calculate the taxable wholesale price depends on your business relationship with the buyer.
For arms-length transactions between unaffiliated businesses, the wholesale price is straightforward—it’s the actual price paid by the retail licensee to acquire the cannabis. This includes all taxes, fees, and charges on the invoice except the 24% wholesale tax itself. Importantly, you cannot reduce the wholesale price due to rebates, trade allowances, exclusivity agreements, or other discounts.
For affiliated persons and vertically integrated operations, the calculation becomes more complex. The wholesale price is based on the “average wholesale price” determined and published quarterly by the Michigan Department of Treasury. This affects transactions between commonly controlled entities, transfers from medical provisioning centers to affiliated retail operations, and seed-to-sale microbusinesses that cultivate, process, and sell their own products.
The Treasury is still developing the methodology for calculating average wholesale prices. If your business falls into one of these categories, monitoring Treasury announcements is critical for compliance planning.
What This Means for Your Cannabis Business
For cultivators and processors: Your cost structure just changed dramatically. The 24% wholesale tax increases the price your retail customers pay, which could affect order volumes and demand patterns. You’ll need to evaluate whether your current pricing supports the additional tax burden while maintaining competitive margins. Cash flow management becomes more critical, as you’re responsible for tax remittance even if retail customers delay payment.
For retail dispensaries: Your cost of goods sold is increasing by 24% on wholesale purchases. This creates immediate pressure on retail pricing strategies. Can you maintain current retail prices and accept lower margins? Will your market support price increases to offset higher wholesale costs? How will this affect your competitive position if competitors make different pricing decisions?
For vertically integrated operations: You face unique challenges since your “wholesale price” will be determined by Treasury’s average wholesale price calculations rather than actual transaction values. This removes some pricing flexibility and requires careful attention to how Treasury’s methodology affects your tax liability compared to actual operational costs.
Preparing for Implementation
The Department of Treasury anticipates quarterly filing and remittance requirements, though specific details remain under development. What you can do now:
Review your business structure and transaction flows. Identify which of your sales or transfers trigger the wholesale tax and whether you’re dealing with affiliated or unaffiliated parties. This determines your calculation methodology.
Assess financial impact on cash flow. Model how the 24% tax affects your working capital needs. If you’re collecting tax from retail customers, factor in potential payment timing gaps. If you’re absorbing the cost, understand the margin impact.
Update contracts and pricing agreements. If you have existing supply agreements, review how they address this new tax. Future contracts should explicitly address whether wholesale prices are quoted inclusive or exclusive of the CRFTA tax.
Establish compliance processes. Even though filing details aren’t finalized, start planning your systems for tracking taxable transactions, calculating tax due, and maintaining documentation to support your filings.
Looking Ahead: Strategic Considerations
Beyond immediate compliance, this tax creates strategic questions for cannabis businesses. Some operators may reconsider vertical integration strategies if the average wholesale price calculation creates tax advantages or disadvantages. Others might evaluate operational efficiency improvements to offset the tax impact on margins. Market consolidation could accelerate if smaller operators struggle with the combined tax burden and compliance costs.
Industry pricing dynamics will likely shift as businesses throughout the supply chain adjust to the new tax structure. Early movers who adapt their business models and pricing strategies effectively may gain competitive advantages in a market facing significant cost pressures.
Getting Expert Guidance
Cannabis businesses already operate in one of the most complex regulatory and tax environments in any industry. Adding another 24% tax layer—with different calculation methodologies depending on business relationships—creates significant compliance risk and strategic implications.
HBK’s Cannabis Solutions team specializes in helping cannabis businesses navigate tax complexity, optimize business structures, and develop financial strategies that protect profitability in highly regulated markets. Our experience across Michigan’s cannabis industry gives us insight into how different operators are responding to this challenge and what approaches prove most effective.
The wholesale tax takes effect January 1, 2026. Don’t wait until Treasury finalizes filing procedures to start planning. Schedule a consultation with our Cannabis Solutions team to assess your specific situation, model financial impact, and develop a compliance and pricing strategy that positions your business for success under the new tax regime.
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