Michigan's New Wholesale Cannabis Tax (Mis)Guidance

On March 17 (Happy St. Patrick's Day!), Michigan's Department of Treasury issued Revenue Advisory Bulletin 2026-3, a formal interpretation of Michigan's new wholesale cannabis tax.

RAB 2026-3

As we covered in a prior post, Michigan law gives Treasury the authority to issue revenue administrative bulletins (RABs). RABs explain how Treasury interprets Michigan tax laws, and taxpayers can rely on them. Like tax forms, RABs can only apply the law as written—they cannot rewrite Michigan law or impose new substantive requirements. The ability to make those types of changes is reserved for the Legislature or the formal rulemaking process.

Treasury's publication of RAB 2026-3 comes more than two months after Treasury released its first draft addressing the "Comprehensive Road Funding Tax Act" ("CRFTA"). The RAB incorporates feedback from multiple consultation meetings with different stakeholder groups and comments solicited from the industry. Helpfully, RAB 2026-3 contains 25 real-world scenarios detailing how Treasury believes CRFTA's requirements should apply. Although much of the RAB's substance is an extension of the first draft, there are several notable points.

When Taxes Must Be Paid

In initial guidance, Treasury stated that the first wholesale marijuana tax payments would not be due until January of 2027. Treasury has now announced that payments will be due in just over four weeks—on 4/20. But Treasury cannot accept credit card payments yet, and said the tax form won't be ready until November. Because "we want to help businesses adjust smoothly as we implement this policy," though, Treasury will waive penalties and interest as long as a business submits at least 75% of taxes due each quarter and pays in full by January 20, 2027.

What Transactions Are Taxed?

Under CRFTA, the tax applies to "the first sale or other transfer of marihuana from a marihuana establishment to a marihuana retail licensee." MCL 205.905(a). (Transfers from a medical provisioning center to adult use retailer are also taxed, and microbusinesses are taxed when marijuana "is cultivated and processed for retail sale.")

RAB 2026-3 echoes the statute:

• [T]ax is imposed on the entity acting as the wholesaler in each taxable transaction—in other words, the "marihuana establishment" that makes the first sale or other transfer of marihuana to a retail licensee.
• "First sale or transfer" means just that—the tax is imposed at the point that a wholesaler entity first makes a sale or transfer to a retailer.
• Sales or transfers of the same product that may have taken place previously in the production cycle—sales from a marihuana grower to a marihuana processor, for example, are not subject to the tax.
• The wholesale tax is not imposed on [a] sale of marihuana product from a marihuana grower to a marihuana processor, because this transaction does not represent the "first sale or transfer" of marihuana product from a wholesaler entity to an entity licensed by the CRA to make retail sales of adult-use marihuana.

When Are Transactions Made?

A transaction occurs when ownership of the product transfers—generally upon delivery to the retailer, but not always. For example, ownership could transfer at the time product is picked up by secure transport. Treasury cautions that "taxpayers should not look to [Metrc] to determine when transfer of ownership takes place."

How Is The Value of a Transaction Determined?¹

For sales between unaffiliated parties, CRFTA bases the tax on the actual price paid, with two important exceptions or adjustments. First, the actual price includes "any tax, fee, or other charge reflected on the invoice, bill of sale, purchase order, or other document evidencing the sale or transfer of the marihuana." Second, the wholesaler must add back "any rebate, trade allowance, exclusivity agreement, or other discount or reduction."

With respect to taxes, fees, or other charges, Treasury states that the excise tax itself is not included. The RAB also establishes (without rulemaking) a test for excluding "charges or fees for bona fide services that are unrelated to the acquisition of the marihuana product," e.g., marketing services. To be excluded, the charges must be:

1. Commercially reasonable in amount relative to the service provided and to the price of the marihuana sold;
2. Separately stated on the invoice or bill of sale;
3. Supported by contemporaneous documentation, such as a contract or service agreement between the parties; and
4. Not used as a means of falsely reducing the price of the marihuana sold in order to avoid the imposition of the tax on the entire amount.

If Treasury challenges the exclusion of a charge, the burden is on the wholesaler to prove that the test is met. The RAB is clear that invoiced shipping charges are taxable—although it says nothing about how they're treated if the retailer is billed by a secure transporter and is responsible for directly paying shipping costs.

The RAB also creates a test to define what constitutes a discount or price reduction that must be added back to the price paid. Under Treasury's test, this means a discount that is:

1. Published or advertised by the wholesaler or on a third-party platform;
2. Available to any retailer or class of retailers; and
3. Typically stated on the invoice or other document showing evidence of the sale.

Importantly, the RAB does make clear that a negotiated price (not based on a set discount) is the actual price paid for purposes of the tax.

How Does Treasury Determine "Average Wholesale Price?"

For sales between affiliated parties or by microbusinesses, CRFTA bases the tax on a so-called "average wholesale price," which must be "calculated and published by the department each quarter based on the best available information." Treasury has decided that the average wholesale price will be based on the Cannabis Regulatory Authority's ("CRA's") monthly review of Metrc data, claiming that it "is both consistent and reliable, ... [and] represents the best available information."

Products are to be categorized using the descriptions in the "'Compliance Best Practice Guide' issued and updated regularly by the CRA." In other words, Treasury has decided that using Metrc categories is the best it can do, even though that leads to obviously ridiculous results, such as an average wholesale price of $343.91 per pound for trim. Treasury has also now outsourced the determination of the applicable category (and therefore tax) to a non-binding guide that can be updated on a whim with no formal rule addressing how CRA sets categories, and no public process. CRA's Compliance Best Practice Guide was updated most recently six days ago with edits to—you guessed it—"the Product Categorization section." So while Treasury will publish average wholesale prices before the start of each fiscal quarter, the categories themselves may change in the middle of a quarter.

What About Bad Debt or Product Returns?

Because the wholesaler is obligated for the tax at the time of transfer, a wholesaler is not allowed to deduct for bad debt on sales on credit to a retailer who later cannot pay. If product is returned, however, essentially voiding the sale, the wholesaler can take a credit for the associated taxes on the wholesaler's next quarterly return. While this makes sense, the RAB imposes conditions not found in the law, allowing the reduction only if the return occurs before the earliest of any date for product returns set in the wholesaler's written refund policy or 180 days after the original sale.

Burying the Lede: Treasury's FAQs

Besides publishing the RAB, Treasury has also updated its wholesale marijuana tax FAQs. These contain far more significant directives than are found in the RAB.

As noted above, Michigan law gives Treasury the authority to issue RABs that explain Treasury's interpretation of tax law, and taxpayers can rely on an RAB. None of that is true for Treasury FAQs. As Treasury explained in RAB 2016-20, "FAQs are provided for informational purposes only. Furthermore, FAQs are not to be construed as promulgated rules." Notwithstanding these principles, Treasury's wholesale marijuana FAQs most definitely "explain Treasury's interpretation of tax law" and appear to supplement the RAB with requirements that aren't based in the law and have never gone through notice and comment rulemaking.

What Transactions Are Really Taxed?

CRFTA imposes the tax on the first sale or transfer to a retailer, a policy choice placed into law by the Michigan Legislature and reflected in the RAB. Treasury's Tax Liability FAQs begin by echoing CRFTA and the RAB:

• Who does the Wholesale Marijuana Tax apply to? The tax will apply to (a) the first sale or transfer of marijuana from a marijuana wholesaler to a marijuana retailer...
• Does the Wholesale Marijuana Tax only apply to the first sale or other transfer from a wholesaler to a retailer? Yes. The imposition of the tax [is] on the "first sale or transfer" to a retailer ... For example, the wholesale tax would not be imposed on a transfer of adult-use marijuana from a grower or cultivator to a processor, because that transaction does not represent the "first sale or transfer" to an entity licensed to make retail sales of adult-use marijuana.
• Which entity, the wholesaler or the retailer, is legally responsible for paying the Wholesale Marijuana Tax and remitting it to the Michigan Department of Treasury? The statute provides that the new 24% wholesale tax is imposed on the wholesaler – the "marijuana establishment" that makes the first sale or transfer of marijuana to a retailer.

Under the plain language of CRFTA, the RAB, and these FAQ's, then, if a product is sold from Processor 1 to Processor 2 and then to Retail 1, the tax applies to the transfer from Processor 2 to Retail 1. Processor 2 is obligated to pay the wholesale tax. Similarly, if a product is sold from Processor 1 to Retail 1 and then to Retail 2, the tax applies to the transfer from Processor 1 to Retail 1. Processor 1 is obligated to pay the wholesale tax.

But Treasury's FAQs don't stop there, instead adding this gem:

• We are a cannabis wholesaler. Some of our customers hold both processor and retailer licenses and they are requesting that we do not apply the 24% wholesale tax when we sell them retail ready marijuana products. Is this allowed? A marijuana establishment that holds both processor and retailer licenses cannot use the processor license to avoid the Wholesale Marijuana Tax. If there is no indication that the product will undergo further processing, rebranding, etc., the product should be sold to the retailer license and subject to the 24% Wholesale Marijuana Tax.

Effectively, Treasury is revising CRFTA to say that if a product is sold from Company A Processor 1 to Company B Processor 2 and then transferred to Company B Retail 1, the tax is now the obligation of Company A Processor 1. It is no longer being applied at the first transfer to a retailer. The tax is still being paid, just at a different point than what the law plainly provides. Perhaps Treasury will argue that the tax isn't being shifted—instead, they're just directing Company A to ask Company B what Company B intends to do with the product and not to sell it to Company B's Processor if they don't like the answer. Treasury, of course, has no right to tell a marijuana licensee that it cannot engage in a transaction that is explicitly authorized under Michigan's adult use statute. If Treasury is perceiving a tax mitigation strategy the Department doesn't like, there is a solution—get the Legislature to amend the law.

Treasury's FAQs also reveal that the Department intends to capture tax on the second sale to retail in some circumstances. According to Treasury's FAQs, if product was purchased by or transferred to a retailer before January 1, 2026, and then transferred to a different retailer after January 1, the first retailer has to pay a wholesale tax. Does this include retailers owned by the same company that may routinely move product between stores? Treasury doesn't say (but presumably the answer is "yes").

What About Product Returns Again?

Finally, Treasury's Remittance FAQs add one more restriction to the RAB's limitations on when wholesalers can receive a credit for taxes paid on returned product. Per the FAQ, wholesalers can get credit "provided the merchandise was voluntarily returned." So a wholesaler who sues a deadbeat retailer for the return of unsold product, or who exercises rights pursuant to a purchase money security interest can get the product back, but still has to pay a wholesale tax—again—if that product is ever resold.

Footnote

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.