Michigan is the cannabis success story everyone loves to point to. Low taxes, open licensing, a $3 billion-plus annual market, and roughly 75% of sales happening in the legal marketplace — a number California would kill for.
But under the hood, Michigan's enforcement system fines operators thousands for data entry errors while taking years to shut down genuinely dangerous operations. And just when the industry thought things were stabilizing, Lansing dropped a 24% wholesale tax that threatens to blow up the whole model.
Two Years to Stop a Company Selling Contaminated Weed
In November 2023, CRA agents inspected Cherry Industries LLC in Detroit — a Class C grow licensed for up to 1,500 plants. They found more than 4,000 plants, thousands of untagged products, over 4,200 pounds of product in the tracking system that didn't physically exist, and another 41,000 pounds from 115 harvests that were never properly entered into Metrc at all.
Worse still, Cherry Industries had transferred marijuana that failed safety testing due to contamination with the banned pesticide Bifenthrin and sold contaminated pre-rolls directly to consumers. Surveillance footage was incomplete. Batch sampling was improper. This was a serious bad actor by any measure.
So how long did it take? The CRA issued a formal complaint on April 3, 2024. Cherry Industries didn't surrender its license until September 30, 2025 — nearly two years after the initial discovery.
As Crain's Detroit Business noted, the delay exposes a core flaw: under current rules, the CRA cannot suspend a license while a complaint is being adjudicated. That process can take years. A company can be caught selling contaminated product to consumers and the state essentially has to ask nicely for them to stop while the paperwork grinds forward.
The CRA is trying to fix this — House Bill 5106 would allow summary suspension when a licensee poses a risk to public health. During testimony, a CRA official acknowledged that Michigan may attract bad operators because penalties are too low. Refreshingly honest — and damning.
Meanwhile, Honest Operators Get Fined for Breathing Wrong
While Cherry Industries coasted for two years, the CRA has been issuing monthly disciplinary reports naming dozens of licensees for violations ranging from serious to laughably minor.
Cannabis attorneys at Dykema noted that the overwhelming majority of formal complaints target noncompliance that amounts to human error — an employee making a data entry mistake in Metrc, someone ringing up the wrong SKU. They even saw cases where licensees received formal complaints and significant fines for minor issues they had self-reported.
Punishing businesses for voluntarily reporting their own mistakes is how you build a system where nobody self-reports anything. That's the opposite of what good regulation looks like. It also scares off investment — if a prospective partner sees that even compliant operators are getting dragged through formal complaints over clerical errors, they start looking at other states or other industries entirely.
To its credit, the CRA responded. On July 1, 2025, the agency cut fines for about two-thirds of violations — many by 50%. Penalties for truly egregious conduct — like selling illicit cannabis — went up, to $50,000 plus potential license suspension. Lighter touch for honest mistakes, heavier hammer for bad actors. That's the right direction, but it took three years of industry pushback to get there.
Then Lansing Dropped the Tax Bomb
If enforcement was a slow-burning frustration, what came next was a gut punch nobody saw coming — or at least, nobody in the industry thought would actually happen.
On October 7, 2025, Governor Whitmer signed the Comprehensive Road Funding Tax Act, imposing a 24% wholesale excise tax on adult-use cannabis effective January 1, 2026 — on top of the existing 10% retail excise and 6% sales tax. The money goes to fix roads. Because apparently, that's the cannabis industry's job now.
The math is brutal. Because the law defines "wholesale price" to include taxes and fees, the tax effectively taxes itself recursively. Dykema's analysts calculated the effective rate at approximately 32%, and the total estimated tax burden on a cannabis transaction at roughly 51%.
Michigan's whole advantage was built on affordable legal cannabis. That's how the state got 75% of sales into the regulated market. Now sales are already sliding — down to $226.4 million in January 2026, an 8.2% yearover-year decline and the lowest monthly total since February 2023. Dispensaries are closing. A Hazel Park shop called Clarity shut its doors on Christmas Eve 2025.
The Michigan Cannabis Industry Association sued, arguing the tax unconstitutionally amends a voter-approved statute without the required three-fourths legislative majority. The court denied a motion to block it. A State Senator has since introduced a bill to repeal it entirely.
And here's the kicker: Michigan hasn't touched its 4% liquor tax since 1985. But cannabis — an industry supporting over 41,000 jobs and responsible for roughly 52% of net private-sector job creation from 2018 through 2024 — gets singled out to fix the roads. The liquor lobby, with decades of political donations, gets a pass. The cannabis industry gets the bill.
Michigan built the model other states looked to when they wanted to know how legalization should work. Affordable prices, strong consumer participation, a shrinking black market — that was the promise, and for a while, Michigan delivered. If Lansing keeps treating the industry like a piggy bank while enforcement takes years to stop companies selling contaminated weed to consumers, that model won't survive. And all they'll have to show for it is a few extra miles of repaved highway, a bunch of shuttered dispensaries, and a thriving black market that's happy to pick up the slack.
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