Is the 24% ‘road tax’ burying Michigan’s social equity?

When Michigan voters legalized adult-use cannabis in 2018, the mandate wasn’t just about tax revenue — it was about repair. The Michigan Regulation and Taxation of Marihuana Act was written with a clear moral compass of ensuring communities disproportionately harmed by the war on drugs would have a front-row seat in the new legal economy.

But now the state’s new 24% wholesale excise tax — dubbed the “Pothole Tax” — is threatening to pave over that promise. While Gov. Gretchen Whitmer’s administration frames the tax as a necessary tool to “Fix the Damn Roads,” the collateral damage looks increasingly like what the state once vowed to protect against.

 

The math of exclusion

For a social equity licensee in Lansing — someone who may have used their life savings or a small grant to open a shop — the new tax structure is a financial death sentence by spreadsheet.

Unlike the existing 10% retail tax, this 24% tax happens at the wholesale level. It is a tax on a tax. When a grower transfers product to a retailer, they must remit 24% of that value immediately. For small, independent retailers who don’t grow their own product (non-vertically integrated shops), their cost of goods sold has effectively jumped by a quarter overnight.

Corporate giants like Ascend Wellness or multi-state operators likely have cash reserves to absorb new tax shocks or have the vertical integration to absorb internal pricing and soften the blow. But for a social equity microbusiness — the “mom and pop” shops that were supposed to be the heart of the industry — cash flow is now a crisis.

 

The credit crackdown: No more pay-later

Compounding this financial squeeze is an aggressive new move by the state’s Cannabis Regulatory Agency to address the industry’s debt issues. For years, the Michigan market ran on a “handshake and a net-30” credit system, where retailers would take product and pay the grower after they sold it.

Those days are coming to a hard stop. New CRA draft regulations aim to strictly penalize retailers who fail to pay their suppliers. Under these rules, the CRA could deny a license renewal to any operator with an outstanding civil judgment from unpaid debt. This effectively forces the industry to be set up as cash on delivery.

If you don’t have the liquid cash to pay for the product — including that new 24% tax baked into the wholesale price — you simply don’t get the inventory. For social equity owners who often lack access to traditional bank loans, this is a pincer maneuver: The tax makes the product more expensive, and the new credit rules ensure they can’t use bridge financing to survive the month.

 

From social equity to corporate survival

The CRA recently announced that 103 social equity licensees would share $1 million in grants for 2026. While that sounds like a win, it’s a drop in the bucket compared to the $420 million the state expects to rake in from the new tax.

In Lansing, we are seeing the “equity” dream turn into a “liquidation” reality. Small operators who fought for years to get their licenses are now looking at their margins and realizing they are essentially working for the Department of Treasury. By the time they pay their staff, their security and their now-inflated wholesale invoices (upfront, no less), there is nothing left.

 

Return of the legacy market

There is a bitter irony here. The social equity program was designed to bring people from the unregulated market into the legal, safe and taxed system. By imposing a tax rate and credit restrictions that push retail prices up by nearly 40%, the state is actively incentivizing a return to the legacy market.

Lansing residents are already noticing. At local dispensaries, the “budget ounce” is becoming an extinct species. For a consumer in a working-class neighborhood, the choice between a $150 legal ounce and an $80 ounce from an unregulated source is no choice at all.

 

Call to action: Be heard

If the goal of legalization was social repair, then taxing and regulating the smallest operators out of existence is a total policy failure. The next chance for the public to weigh in on these debt rules and the agency’s direction is at the upcoming CRA public meeting at 9:30 a.m. March 19 in Lansing (with a Zoom option available).

Lansing’s social equity pioneers didn’t sign up to be a piggy bank for the state’s infrastructure woes. They signed up for a fair shot. Right now, that shot looks like it’s being buried under six inches of fresh asphalt.