In an effort to raise short-term revenue, Michigan recently adopted a cannabis tax structure that is already proving economically counterproductive and strategically shortsighted. For years, Michigan was widely regarded as one of the most successful legal cannabis markets in the United States. The explanation was simple. Michigan, wisely, had adopted one of the lowest cannabis tax rates in the country.
The state imposed a 10 percent adult-use excise tax, shared between the state and local governments, plus the standard 6 percent sales tax, for a total effective rate of 16 percent. By comparison, California's cannabis tax burden was more than twice as high, even approaching 40 percent in some cities.
The contrast was notable because both California and Michigan share deep medical cannabis histories. California became the first state in the nation to legalize medical cannabis in 1996. Michigan later developed one of the most robust caregiver-based medical cannabis markets in the country during the 2000s and 2010s. Both states built strong cultural and policy foundations around the idea that cannabis is medicine.
When adult-use legalization arrived, however, the two states moved in different directions. Michigan largely maintained the view that cannabis should be treated more like medicine than vice. It adopted a moderate tax structure that kept legal prices competitive. California, by contrast, layered on heavy taxes and regulatory costs that treated cannabis more like a luxury or vice product than a therapeutic good.
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