Michigan HB 4951: How a 24% Wholesale Tax Will Destroy America's Most Successful Cannabis Market

Executive Summary

Bill: HB 4951 (Comprehensive Road Funding Tax Act)
Sponsor: Rep. Matt Hall (R-Richland Township)
Status: SIGNED INTO LAW (October 7, 2025), effective January 1, 2026
Vote: House 78-21 (September 25), Senate 19-17 (October 3)
Official Text: Michigan Legislature HB 4951
Tracker: Silent Majority 420 Legislation Tracker
Constitutional Challenge: Michigan Cannabis Industry Association lawsuit, hearing November 26, 2025, Detroit Court of Claims

Michigan built America's most successful adult-use cannabis market, capturing 85% legal market share—the highest in the continental United States and triple California's 28%. The state achieved this through moderate 16% total taxes (10% excise + 6% sales), abundant retail access (851 dispensaries), permissive home cultivation (12 plants), and aggressive price competition that reached parity with illicit markets ($63/oz legal vs. $50-75 illicit).

HB 4951 threatens to dismantle this success. The law imposes a 24% wholesale cannabis tax on grower-to-retailer transfers, pushing Michigan's effective total tax burden from 16% to 40%—matching the failed high-tax regimes of California and Washington that drove consumers back to illicit markets.

CBDT Framework Impact Analysis

Current Michigan: 85% legal market share (highest continental U.S.)
Projected Post-HB 4951: 69-77% legal market share (California-level failure)
Timeline: 12-18 months for full impact

The Tax Mechanics: From 16% to 40%

Understanding HB 4951's destructive potential requires grasping how the 24% wholesale tax compounds with existing retail-level taxes:

Example: $1,000 wholesale transaction

1. Grower sells to retailer: $1,000 wholesale price
2. HB 4951 wholesale tax (24%): $240 tax
3. Retailer's actual cost: $1,240
4. Retailer markup (50%): $1,860 retail price
5. Michigan excise tax (10%): $186
6. State sales tax (6%): $124
7. Final consumer price: $2,170

Effective total tax burden: $550 on $1,000 wholesale = 55% when fully passed through to consumers.

In practice, competitive pressure limits full pass-through, but even a conservative 60-70% pass-through creates a 35-40% effective consumer burden—a 140-150% increase from Michigan's current 16% rate.

Price impact on consumers:

• Current legal price: $63/oz average (September 2025)
• Post-HB 4951 price: $82-88/oz (30-40% increase)
• Illicit market price: $50-75/oz (unchanged)
• New legal premium: 30-50% above illicit (vs. near-parity today)

For heavy consumers (2+ oz/month), HB 4951 means $50-100+ monthly price increases. Michigan's permissive 12-plant home cultivation suddenly becomes economically attractive ($5-10/oz production cost), and the illicit market—dormant for years—becomes competitive again.

Seven Provisions That Will Devastate Michigan's Market

Provision 1: The 24% Wholesale Tax (-8 to -10 pp)

Text: "Beginning January 1, 2026, there is levied upon and shall be collected from licensed marijuana growers a tax of 24% on the gross retail value of marijuana sold or transferred to a licensed marijuana retailer."

Research consistently shows every 5-point tax increase reduces legal market share by 2-3 percentage points. HB 4951's effective 20-24 point increase (from 16% to 40% total) projects an 8-12 percentage point loss in legal market share.

Michigan's 85% legal share resulted from price parity: legal cannabis at $63/oz competed directly with illicit ($50-75/oz). Post-HB 4951, that equilibrium shatters. Legal prices rising to $82-88/oz create a 30-50% premium over illicit alternatives—exactly the gap that destroyed California's market (28% legal share) and limited Washington's (65% legal share, 37% total tax).

The mathematics are brutal:

• Light users (< 0.5 oz/month): May absorb price increase ($10-15/month)
• Moderate users (0.5-1.5 oz/month): Vulnerable to switching ($20-60/month increase)
• Heavy users (2+ oz/month): Will switch to home grow or illicit ($50-100+/month increase)

Heavy consumers drive 60-70% of total cannabis consumption. Losing even 20-30% of this cohort reduces legal market share by 8-12 percentage points.

CBDT Impact: -8 to -10 pp (Price Gap lever, 4× weight)

Provision 2: "Average Wholesale Price" for Vertical Integration (-0.5 to -1 pp)

Text: "For marijuana sold or transferred by a licensed marijuana grower that also holds a marijuana retailer license, the marijuana grower shall pay the tax imposed under subsection (1) based on the average wholesale price for similar marijuana sold or transferred by other licensed marijuana growers to licensed marijuana retailers."

This provision punishes efficiency. Vertically integrated operators (cultivation + processing + retail) must pay tax on the "average wholesale price" even when transferring internally at cost.

Example:

• Vertically integrated operator grows at $500/lb actual cost
• Transfers internally at $500 cost (no markup)
• But HB 4951 taxes based on $1,042/lb average wholesale price
• Tax owed: $250 (24% of $1,042) = 50% effective rate on actual cost

Vertical integration creates efficiencies: reduced transaction costs, quality control, supply chain coordination. Oregon and Colorado encouraged vertical integration and achieved strong legal market share. HB 4951 incentivizes corporate separation or diversion to avoid punitive taxation.

CBDT Impact: -0.5 to -1 pp (Price Gap + Access levers)

Provision 3: Medical Exemption Creates Two-Tier Market (-0.5 pp)

Text: "The tax levied under this section does not apply to marijuana sold or transferred to a licensed marijuana provisioning center [medical dispensary]."

Medical cannabis remains exempt from the 24% wholesale tax, creating a 40-percentage-point tax differential:

• Medical: 0% total tax (no excise, no wholesale)
• Adult-use: 40% total tax (24% wholesale + 10% excise + 6% sales)

When Michigan's medical and adult-use programs operated under a 16% differential (adult-use 16%, medical 0%), medical patients collapsed 67%—from 240,000 (2020) to 80,000 (2024). The differential wasn't worth the registration hassle.

A 40% differential reverses this dynamic. Heavy consumers ($100+/month) save $40-80 monthly by registering medical. Suddenly the $40 registry fee and doctor certification ($100-200) pencil out economically.

But this creates inefficiency:

• Administrative burden (doctor visits, registry maintenance, renewals)
• Grey market arbitrage (medical cardholders reselling to adult-use consumers)
• Market fragmentation (dual inventory systems, pricing confusion)
• Revenue loss (medical sales generate zero tax revenue)

CBDT Impact: -0.5 pp (Convenience + Price Gap levers)

Provision 4: Revenue to Roads, Not Cannabis Regulation (-1 to -2 pp)

Text: "All revenue collected from the marijuana grower excise tax shall be deposited in the state general fund and allocated to the comprehensive transportation fund for road repairs and infrastructure improvements."

HB 4951 projects $420.7 million annually in wholesale tax revenue. Every dollar goes to road repairs—zero to cannabis regulation or illicit market enforcement.

Michigan's Cannabis Regulatory Agency (CRA) already struggles with enforcement. The illicit market, dormant at 15% of total consumption, will expand to 23-31% post-HB 4951—an additional $400-600 million in illicit sales annually. Without enforcement funding increases, the CRA cannot respond.

California's experience is instructive: high taxes → illicit growth → enforcement overwhelmed → legal market collapse → revenue shortfall → further tax increases → death spiral. Michigan risks the same trajectory.

CBDT Impact: -1 to -2 pp (Enforcement lever, 0.6× weight but amplified by Access closures)

Provision 5: Tie-Bar to Companion Bills Creates Legal Uncertainty (-0.5 pp)

Text: "This act does not take effect unless all of the following bills of the 103rd Legislature are enacted into law: House Bills No. 4183, 4961, and 4968."

HB 4951 is tied to:

• HB 4183: Motor fuel tax increases
• HB 4961: Income tax changes
• HB 4968: Auto insurance reforms

If any companion bill is invalidated by courts or referendum, HB 4951 may not take effect. The Michigan Cannabis Industry Association's constitutional challenge argues the voter-approved Michigan Regulation and Taxation of Marihuana Act (MRTMA) is the exclusive mechanism for cannabis excise taxes—any change requires 3/4 legislative supermajority. The Senate passed HB 4951 by just 19-17 (52.8%), far short of 75%.

Legal uncertainty freezes investment, confuses consumers, and creates planning paralysis. Businesses cannot model 2026 cash flow. Consumers don't know future pricing. Even if HB 4951 ultimately takes effect, the uncertainty itself damages market confidence.

CBDT Impact: -0.5 pp (primarily Access and Price Gap through investment hesitation)

Provision 6: Ban on Volume Discounts Eliminates Competition (-0.5 pp)

Text: "A licensed marijuana grower shall not provide any discount, rebate, or other inducement that has the effect of reducing the gross retail value on which the tax under this section is calculated."

Standard business practice: volume discounts reward bulk purchases and drive supply chain efficiency. Buy 10 lbs at $1,042/lb, or 100 lbs at 18% discount ($854/lb). Retailers pass savings to consumers, consumers benefit from lower prices.

HB 4951 bans this. Every transaction—whether 1 lb or 1,000 lbs—must occur at full retail value with no discounts. This:

• Eliminates price competition among cultivators
• Raises consumer prices artificially
• Benefits inefficient operators (protected from price competition)
• Drives consumers toward illicit markets (which offer volume discounts)

Nevada and Massachusetts allow volume discounts, fostering robust wholesale competition and consumer savings. Michigan moves backward.

CBDT Impact: -0.5 pp (Price Gap lever)

Provision 7: No Phase-In Period Guarantees Maximum Disruption (-1 pp)

Text: "This act takes effect January 1, 2026."

Effective January 1, 2026. No grace period. No phase-in. From 16% to 40% overnight.

Responsible tax policy phases in major increases:

• Year 1: 8% wholesale tax (24% total)
• Year 2: 16% wholesale tax (32% total)
• Year 3: 24% wholesale tax (40% total)
• Monitor: Legal market share, revenue trends, business failures

Washington's experience illustrates the cost of immediate implementation. The state imposed a 25% excise tax at launch (2014), with no phase-in. Legal market share struggled for 2-3 years before stabilizing at 60-65%—still below optimal. A gradual increase might have preserved market share during the critical early years.

Immediate implementation creates:

• Consumer sticker shock: 30-40% price increases overnight
• Immediate illicit flight: Price-sensitive consumers switch January 2-7
• Business cash flow crisis: Operators accustomed to 16% taxes face 40% January 1
• Supply chain disruption: Cultivators close → processor shortages → retailer inventory gaps

CBDT Impact: -1 pp (amplifies all negative impacts across all levers)

Winners and Losers

Winners

Illicit cannabis operators: HB 4951 is a $400-600 million annual gift to the black market. As legal market share drops 8-12 points (from 85% to 73-77%), illicit operators gain that consumption—at zero tax burden. Large-scale illicit cultivators with unlimited cheap supply ($0.08-0.15/gram wholesale fresh-frozen) can undercut legal prices by 30-50%.

Road construction contractors: $420.7 million annually (if projections hold—revenue will likely fall short as legal sales decline 15-25%).

Losers

Consumers: Pay 20-30% more for legal cannabis or switch to untested, unregulated illicit products with unknown potency and potential contamination.

Licensed cannabis businesses: Only 27% of Michigan operators were profitable pre-HB 4951. Expect 20-40% closures within 18 months as margins evaporate. Cultivators face 24% tax + collapsing wholesale prices ($1,042/lb declining further). Retailers face consumer backlash and inventory losses.

Small and social equity operators: Disproportionately harmed. Lack capital reserves to weather 12-18 months of losses. Large multistate operators can absorb short-term pain; small operators fail.

Cannabis workers: Michigan employs 40,446 licensed cannabis workers. A 20-40% business failure rate means 8,000-16,000 job losses.

State tax revenue: HB 4951 projects $420.7 million annually in wholesale tax revenue. But if legal sales decline 15-25% (as market share drops and businesses close), actual revenue: $280-350 million. Net gain after lost excise and sales taxes: possibly negative. California raised cannabis taxes in 2018 and lost net tax revenue by 2021 as the legal market collapsed.

Local governments: HB 4951 repeals the 20% revenue share for municipalities hosting cannabis businesses. Cities like Ann Arbor, Detroit, and Lansing lose $60-80 million annually in cannabis revenue—forcing property tax increases or service cuts.

Michigan's national reputation: From being the nation's model market (85% legal share) to a cautionary tale of short-sighted overtaxation (73-77% legal share).

2026 Outlook: Collapse, Consolidation, or Course Correction?

January-March 2026: Initial Shock

January 1, 2026: HB 4951 takes effect. Wholesale prices immediately incorporate the 24% tax. Retailers face difficult choices: absorb the increase (and operate at losses), pass it through (and lose price-sensitive customers), or close.

Weeks 1-2: Retail prices increase 20-30%. Consumer complaints flood social media and the CRA. "Why did my $60 eighth suddenly cost $80?" Heavy consumers begin exploring alternatives.

Months 1-2: Price-sensitive consumers test illicit alternatives. Home cultivation surges (12 plants = unlimited supply at $5-10/oz). Medical registrations spike as heavy users seek the 40% tax exemption.

Month 3: First quarterly data arrives. Expect 10-15% legal sales decline vs. Q4 2025. Marginal operators begin distress signals—missed tax payments, inventory liquidation, staff layoffs.

April-June 2026: Business Failures Begin

April-May: First wave of closures. 10-15% of operators (220-330 out of 2,200 licenses) shut down in Q2 2026. Small cultivators and retailers hit hardest. Consolidation begins—profitable operators acquire distressed assets.

Cash flow crisis: Operators who survived Q1 face tax payment deadlines. Many default on the 24% wholesale tax. The CRA initiates collections—but lacks resources for aggressive enforcement.

Supply chain disruption: Cultivator closures create processor shortages. Retailers struggle to maintain inventory. Premium brands disappear; budget products dominate. Quality declines as operators cut costs to survive.

Market share decline: Legal share drops from 85% to 79-82%—a 3-6 point decline in six months.

July-December 2026: Adaptation or Acceleration

Two scenarios emerge:

Scenario A - Adaptation (40% probability):

• Surviving operators adapt: vertical integration, cost cutting, focus on convenience/quality
• Consumers grudgingly accept higher prices for legal convenience
• Legal market share stabilizes at 77-80% (still 5-8 points below pre-HB 4951)
• Revenue shortfall becomes evident: $320-380M actual vs. $420M projected
• Political pressure builds for reform

Scenario B - Acceleration (60% probability):

• Second closure wave in Q3-Q4 2026 (additional 10-15% of remaining operators)
• Supply chain collapses in secondary markets (rural areas lose access)
• Illicit market aggressively expands with coordinated delivery networks
• Legal market share continues declining to 73-77% by December 2026
• Revenue disaster: $280-320M actual vs. $420M projected
• Emergency legislative session called for 2027 reform

2027-2028: Long-Term Trajectories

Path 1: California-Style Death Spiral (35% probability)

If HB 4951 remains unchanged and Scenario B materializes:

2027:

• Legal market share drops to 68-73% (down 12-17 points from 2025)
• 30-40% of 2025 operators closed (660-880 out of 2,200 licenses)
• Revenue shortfall forces additional tax increases or cuts to other programs
• CRA budget slashed, enforcement collapses further
• Michigan becomes cautionary tale alongside California

2028:

• Legal market share stabilizes at 65-70% (permanently damaged)
• Oligopoly emerges—5-10 large multistate operators control 70%+ of legal market
• Social equity program failures—small operators systematically eliminated
• Annual illicit market size: $600-800M (vs. $400M pre-HB 4951)

Path 2: Stabilization at Suboptimal Equilibrium (45% probability)

If Scenario A materializes and limited reforms occur:

2027:

• Legislature partially repeals HB 4951: reduces wholesale tax from 24% to 15%
• Legal market share recovers slightly to 76-79%
• Business failures slow but don't stop
• Revenue stabilizes at $350-400M annually (still below projections)

2028:

• Legal market share reaches new equilibrium at 78-81%
• Michigan "okay but not great"—better than California (28%), worse than pre-2026 (85%)
• Political appetite for further reform exhausted

Path 3: Full Repeal and Recovery (20% probability)

If constitutional challenge succeeds or political pressure forces full repeal:

2027:

• Courts invalidate HB 4951 or Legislature repeals entirely
• Market returns to 16% total tax burden
• Legal market share recovers to 82-84% within 12 months
• Consumer confidence restored, business investment returns

2028:

• Legal market share reaches 85-87% (modest improvement over 2025)
• Michigan reclaims title as national model
• Revenue exceeds $500M annually from excise and sales taxes alone

The Verdict: A Preventable Disaster

Michigan built something remarkable: an 85% legal market share achieved through evidence-based policy—moderate taxes, abundant access, permissive home cultivation, and aggressive price competition. The state demonstrated that legal markets can dominate when designed correctly.

HB 4951 dismantles this success for $420 million in projected revenue that will likely never materialize. The 24% wholesale tax will:

1. Reduce legal market share by 8-16 percentage points (to 69-77%) within 18 months
2. Close 20-40% of licensed operators (440-880 businesses)
3. Cost 8,000-16,000 jobs in the cannabis industry
4. Expand the illicit market by $400-600 million annually
5. Generate $280-350 million in actual revenue (vs. $420M projected)—possibly less than current revenue
6. Destroy Michigan's reputation as America's cannabis policy leader

The research is unequivocal: every 5-point tax increase reduces legal market share by 2-3 percentage points. HB 4951's effective 20-24 point increase guarantees catastrophic damage. California tried this with a 30%+ tax burden—legal market share collapsed to 28%. Washington imposed 37% taxes—struggled to reach 65% legal share. Illinois implemented 40%+ taxes—maintains just 55-60% legal share despite being surrounded by prohibition states.

Michigan had 85%. HB 4951 will reduce it to California levels.

The path forward:

1. Immediate repeal or substantial reform: Reduce wholesale tax to 8-10% maximum, phase in over 3 years
2. Constitutional challenge success: If courts invalidate HB 4951, Legislature must respect MRTMA voter intent
3. Revenue reinvestment: Any cannabis tax revenue should fund cannabis regulation and enforcement, not unrelated road repairs
4. Market monitoring: Implement real-time tracking of legal market share, business failures, illicit market expansion
5. Federal advocacy: Push for Schedule III rescheduling and SAFE Banking to reduce 280E burden and cash operation costs

Michigan voters approved cannabis legalization in 2018 with 55.9% support. They created the framework for America's most successful legal market. HB 4951 represents a betrayal of that voter mandate—short-term revenue grabs at the expense of long-term market health.

The choice is Michigan's: preserve a functional legal cannabis market or join California in the graveyard of failed cannabis policies.

For market analysis methodology: Consumer-Driven Black Market Displacement (CBDT) Framework

Related: Michigan Cannabis Market Analysis

Analysis by The Silent Majority 420 | Published November 2025 | Updated continuously via tracker