John James Calls for Repeal of Michigan's 24% Marijuana Tax

James Targets State Excise Tax in Senate Campaign

John James proposed eliminating Michigan's 24% excise tax on adult-use marijuana sales, a levy that generates approximately $290 million annually for state and local governments. The call, amplified by Americans for Tax Reform on September 21, marks one of the first direct cannabis tax repeal proposals from a major-party Senate candidate in a legal state. James framed the tax as a barrier to small business competitiveness. It's also driving illicit market activity, he argued.

Michigan voters approved adult-use legalization in 2018 under Proposal 1, which imposed a 10% excise tax on top of the state's 6% sales tax. Four years later, the legislature raised the excise rate to 24%, citing budget needs. Licensed operators now face a combined 30% tax burden at the register.

Michigan's Tax Structure and Revenue Context

The 24% excise tax is collected at the point of sale and distributed across state education funds, local municipalities, and transportation infrastructure. In fiscal year 2025, the tax generated $287 million, according to Michigan Department of Treasury data. Roughly 35% of that revenue flows to K-12 schools, 35% to municipalities hosting dispensaries, 15% to the Michigan Transportation Fund, and 15% to county governments.

The tax applies only to products sold through the state's Cannabis Regulatory Agency-licensed supply chain. Hemp-derived intoxicating cannabinoids—THCA flower, delta-8 vapes, and THC-O edibles—remain exempt under the 2018 Farm Bill's definition of hemp as cannabis containing ≤0.3% delta-9 THC by dry weight. Michigan hasn't closed this loophole.

Hemp Loophole Undercuts Licensed Market

Untaxed THCA flower and delta-8 products now account for an estimated 18-22% of Michigan's total intoxicating cannabinoid sales by volume, according to industry estimates. These products are sold in gas stations, smoke shops, and online retailers. No seed-to-sale tracking. No lab testing. No excise tax collection. The price gap is stark: a 3.5-gram jar of THCA flower retails for $15-$25 untaxed, while an equivalent eighth of adult-use marijuana costs $35-$50 after the 30% tax load.

THCA (tetrahydrocannabinolic acid) is the non-intoxicating precursor to delta-9 THC. When you heat it—through smoking, vaping, or cooking—THCA decarboxylates into delta-9 THC at a roughly 87.7% conversion rate. A THCA flower testing at 25% THCA converts to approximately 22% delta-9 THC upon combustion, functionally identical to traditional marijuana.

Michigan's dual market—one taxed and tested, one not—creates a competitive imbalance that no amount of compliance investment can overcome.

Operator Margins Under Pressure

Michigan's licensed cultivators and retailers report gross margins compressed to 8-14%, down from 22-28% in 2021, driven by oversupply, falling wholesale prices, and tax-driven price disadvantages. Wholesale flower prices dropped from $1,800 per pound in early 2023 to $600-$800 per pound in mid-2026. Retail prices followed. But the fixed 24% excise tax doesn't adjust with deflation, meaning the tax now represents a higher percentage of operators' net revenue.

Several mid-tier Michigan operators have filed for Chapter 11 bankruptcy protection in 2026, citing the inability to compete with untaxed hemp products while servicing 280E-inflated federal tax bills. Section 280E of the Internal Revenue Code prohibits cannabis businesses from deducting ordinary business expenses, effectively raising their federal tax rate to 40-70% of gross profit.

Political and Enforcement Variables

James's proposal faces uncertain prospects in Michigan's divided legislature, where Democrats hold narrow majorities in both chambers and have prioritized cannabis tax revenue for education funding. Governor Gretchen Whitmer hasn't signaled support for excise tax reduction, though her administration has discussed potential hemp regulation. The Michigan Cannabis Regulatory Agency has enforcement authority over hemp-derived intoxicants under MCL 333.27954. It hasn't exercised it.

Federal enforcement remains the wild card. The DEA's proposed rescheduling of marijuana to Schedule III—currently stalled in administrative review—wouldn't resolve the THCA loophole, which hinges on the Farm Bill's delta-9 THC threshold. A legislative fix would require Congress to amend the 2018 Farm Bill's definition of hemp to include total THC (THCA + delta-9) rather than delta-9 alone. No such bill has advanced in the 119th Congress.

What Operators Are Watching

Michigan's cannabis industry is tracking three variables: state hemp regulation, federal Farm Bill reauthorization, and potential excise tax adjustment in the 2027 legislative session. The Michigan Cannabis Industry Association has advocated for a tiered excise tax based on product potency, similar to Oregon's model, rather than a flat percentage. That structure would lower the effective rate on lower-potency products while maintaining revenue from high-THC concentrates.

Enforcement timelines remain unclear. Michigan's Attorney General could issue an opinion clarifying THCA's legal status under existing controlled substances law, but no such opinion has been requested. Until then, the dual market persists. And licensed operators continue to lose share to untaxed competitors.