Revenue Administrative Bulletin 2026-3

1. What is the excise tax on wholesale sales or transfers of adult-use marihuana imposed under the CRFTA?
2. Upon which party to a transaction is the excise tax on wholesale sales or transfers of adult-use marihuana imposed?
3. At what point is the excise tax on wholesale sales or transfers of adult-use marihuana imposed?
4. What is the tax base of the excise tax on wholesale sales or transfers of adult-use marihuana? What is meant by the “wholesale price” and “average wholesale price” of marihuana? What are “affiliated persons” and how will Treasury determine the price to be used with respect to transactions between affiliated persons?
5. Does the wholesale tax apply in addition to other taxes imposed on sales of adult-use marihuana?
6. What are the tax return and remittance requirements and procedures under the CRFTA?

Analysis and Discussion

1. Excise Tax on Wholesale Sales and Transfers of Adult-Use Marihuana

On October 7, 2025, the CRFTA was signed into law. The CRFTA imposes a new excise tax on wholesale sales of adult-use (sometimes called recreational) marihuana which took effect on January 1, 2026, and which is administered by Treasury under the Revenue Act (MCL 205.1 et seq.). The use, possession, and sale of adult-use marihuana to persons 21 years of age and over became legal in Michigan following voter approval of a 2018 ballot initiative which became the MRTMA. The MRTMA imposes a separate 10% excise tax on retail sales of adult-use marihuana.

Pursuant to Sec. 5 of the CRFTA (MCL 205.905), on January 1, 2026, Michigan began imposing an excise tax on wholesale sales or transfers of adult-use “marihuana,” as that term is defined in the MRTMA. The tax is imposed at the rate of 24% of the “wholesale price” of the marihuana product sold and is applicable to:

• The first sale or transfer of marihuana from a “marihuana establishment” (such as a marihuana grower or marihuana processor) to a marihuana retail licensee;

• Marihuana cultivated and processed for retail sale by a marihuana retail licensee itself (e.g., a marihuana microbusiness); and

• Sales or transfers of marihuana from medical marihuana provisioning centers to adult-use marihuana retail licensees.

Because the 24% wholesale tax took effect on January 1, 2026, the tax applies to all taxable sales and transfers of marihuana occurring on and after that date. The date that a particular sale or transfer occurs for purposes of the wholesale tax is when ownership of the marihuana transfers from the wholesaler to the marihuana retail licensee or, for microbusinesses, the date that the marihuana product is packaged for retail.

2. Imposition of the Wholesale Tax on Certain Parties

A. “Marihuana Establishments” Acting as Wholesalers

The CRFTA provides that the excise tax on wholesale sales of adult-use marihuana applies to, among other things, “the first sale or other transfer of marihuana from a marihuana establishment to a marihuana retail licensee.” MCL 205.905(a). The term “marihuana establishment” (the selling or transferring entity) has the same meaning as it does under the MRTMA, the statute that generally regulates adult-use marihuana. The term refers to any entity licensed by the CRA under the MRTMA that takes ownership of marihuana, including the following: class A marihuana growers, class B marihuana growers, class C marihuana growers, excess marihuana growers, marihuana processors, marihuana microbusinesses, class A marihuana microbusinesses, marihuana retailers, and provisioning centers. See MCL 333.27953(h). The CRFTA defines a “marihuana retail licensee” (the transferee or purchasing entity) as a CRA licensee holding a license issued under the MRTMA authorizing the entity to make retail sales of marihuana to individuals 21 years of age or older. MCL 205.903(j).

The CRFTA provides that the wholesale tax 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. MCL 205.905(a). It is the wholesaler entity that is legally responsible for paying the tax on all applicable transactions, as well as remitting the tax to Treasury. The wholesaler entity is required to pay and remit the 24% wholesale tax on all taxable sales and transfers of adult-use marihuana. The CRFTA imposes the wholesale tax directly on the wholesaler entity, and not on the retail licensee. The wholesaler is permitted to recoup its own expenditure for the tax due on a wholesale transaction by passing the tax through and collecting it from the purchaser (the retail licensee), but the wholesaler nevertheless remains legally liable for both the payment and remittance of the tax. Accordingly, wholesalers passing the tax through must pay and remit the tax even on sales made to retail licensees where the sales receivable is determined to be uncollectible by the wholesaler. The CRFTA does not provide for a deduction for "bad debt."

Example A. Processing Co. sells 10 pounds of marihuana flower to Cannabis Store, a marihuana retail licensee, on the usual 30-day terms agreed to by the parties. Processing Co. calculates the wholesale tax due on the transaction and includes it in the total amount due from Cannabis Store. Cannabis Store suffers a financial setback and is unable to pay the receivable owed to Processing Co. Eventually, Processing Co. determines that the receivable is uncollectible. Even though Processing Co. is unable to collect the receivable, including the tax, from Cannabis Store, it must report and remit the wholesale tax due on the transaction on its quarterly wholesale tax return.

B. “Seed-to-Sale” Microbusinesses

In addition to typical wholesale transactions, the CRFTA provides that retail licensees under MRTMA that operate what are often called “seed-to-sale” businesses are also subject to the 24% wholesale tax. MCL 205.905(b). “Seed-to-sale” entities are typically licensed under the MRTMA as marihuana microbusinesses or class A marihuana microbusinesses, and these entities cultivate, process, and package their own adult-use marihuana products for retail sale, then sell those products to customers at retail. For these businesses, the wholesale tax applies to “the aggregate amount or quantity of marihuana that is cultivated or processed for retail sale by that marihuana retail licensee.” MCL 205.905(b). Specifically, “seed-to-sale” retail licensees should apply the 24% wholesale tax at the point that marihuana product is packaged for retail sale.

For seed-to-sale businesses (retail licensees that cultivate, process, and package their own product for retail sale), marihuana is considered "packaged for retail sale" when a final, retail-ready unit or package is created or produced. The wholesale tax applies once, at the point that a unit or package is first ready for retail display or sale. If a retail unit is later reworked (its contents are adjusted, repackaged, or relabeled), remediated (the product is treated for issues such as mold, bacteria, or excess moisture), destroyed, or converted to a different use, no additional tax will be imposed on the reworked or remediated retail unit. Similarly, the retailer is not entitled to any credit with respect to the wholesale tax paid on the initial retail-ready package.

Example B. Corner Cannabis, a MRTMA-licensed marihuana microbusiness that cultivates and processes for retail sale its own adult-use marihuana product, packages 5 pounds of flower into individual units for retail sale during each month of the second quarter of the year. The published average wholesale price for flower for the second quarter is $600 per pound. Corner Cannabis calculates the wholesale tax owed on the aggregate amount of flower packaged for retail sale during the quarter, i.e., 15 pounds, and reports and remits tax of $2,160 ([15 x $600] x .24 = $2,160) for the packaged flower on its wholesale tax return for the second quarter.

Example C. Corner Cannabis, a MRTMA-licensed marihuana microbusiness that cultivates and processes for retail sale its own adult-use marihuana product, packages and labels one pound of marihuana flower into retail-ready units on June 15. The current published average wholesale price for flower is $600 per pound. Corner Cannabis owes $720 in wholesale tax on the packaged units of flower ([5 x $600] × .24 = $720). On July 15, Corner Cannabis repackages and relabels some of the units into smaller retail-ready packages in order to increase sales of the product. Corner Cannabis places the new packages back in inventory on July 16. No additional wholesale tax is imposed on the flower that has been repackaged and relabeled.

C. Transfers from Provisioning Centers to Retail Licensees

Finally, the CRFTA provides that the 24% wholesale tax also applies to sales or transfers of marihuana from medical marihuana provisioning centers licensed under the MMFLA to adult-use retail licensees. MCL 205.905(c). This provision was primarily (but not exclusively) intended to apply to “dual licensees,” entities that themselves hold both a provisioning center license under the MMFLA and a marihuana retailer license under the MRTMA. CRA rules permit provisioning centers (that make sales from segregated medical marihuana inventory), under certain circumstances, to transfer marihuana from their medical inventory to the adult-use inventory they hold as a MRTMA retail licensee; following the transfer, the marihuana can be sold by the entity only under its MRTMA retail license as adult-use marihuana. CRA rules require such inventory transfers by dual licensees to be reported through the statewide monitoring system at the time that they take place. Accordingly, the wholesale tax will apply at the time each transfer of inventory from the provisioning center to the retail licensee takes place, and the transferred marihuana becomes adult-use marihuana.

D. Whether Wholesale Tax is Applicable to Tribes

The CRFTA wholesale marihuana tax does not apply to a transaction where either party to the transaction is a “tribal marihuana business,” as that term is defined in the MRTMA, which includes certain businesses wholly owned by a tribe, its members, or a combination of the tribe and its members, and the tribe has entered into an agreement with Treasury and the CRA under the MRTMA that is in effect at the time of the transaction.

3. When the Wholesale Tax is Imposed

A. First Sale or Other Transfer of Marihuana to Retail Licensee

The CRFTA provides that the wholesale tax applies to, among other things, “the first sale or other transfer of marihuana from a marihuana establishment to a marihuana retail licensee.” MCL 205.905(a). As explained previously, the CRFTA defines a “marihuana establishment” as any entity licensed by the CRA under MRTMA, and a “marihuana retail licensee” as a CRA licensee authorized to make retail sales of adult-use marihuana. Therefore, the wholesale tax generally applies to sales and transfers of adult-use marihuana from traditional wholesalers to retailers. “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 – a sale from a marihuana grower to a marihuana processor, for example, are not subject to the tax. Accordingly, the imposition of the tax on the “first sale or transfer” to a retailer ensures fairness by precluding the possibility that the same product will be taxed multiple times, at different points in the chain of production.

Example D. Green Co., a MRTMA-licensed marihuana grower, sells 100 pounds of marihuana flower to Processing Co. The wholesale tax is not imposed on this 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.

Example E. Processing Co. has a white-label agreement with John Celebrity Co., pursuant to which it produces various “John Celebrity” branded marihuana products and sells those products to retailers. Processing Co. purchases 100 pounds of flower from Green Co., a MRTMA-licensed marihuana grower, to be processed into “John Celebrity” products. The wholesale tax is not imposed on the sale from Green Co. to Processing Co., because that transaction does not represent the “first sale or transfer” of marihuana product to an entity licensed by the CRA to make sales of adult-use marihuana. The wholesale tax will be imposed when Processing Co. later sells the “John Celebrity” products to MRTMA-licensed retailers.

Example F. Processing Co. sells 10 pounds of marihuana flower to Cannabis Store, a marihuana retail licensee. Processing Co. reports and remits the calculated tax due on the transaction on its quarterly wholesale tax return. After making the purchase from Processing Co., Cannabis Store experiences a temporary cash-flow problem, and decides to resell 5 pounds of the flower it purchased to another retail licensee. Because the wholesale tax was already imposed on the “first sale or transfer” of the marihuana product – the transaction from Processing Co. to Cannabis Store – the subsequent resale by Cannabis Store of part of the product to another retail licensee is not subject to the wholesale tax. The subsequent transaction does not represent the “first sale or transfer” to a retail licensee.

Example G. Processing Co. sells 50 pounds of marihuana flower to Cannabis Store, a licensed marihuana retailer, passing through the cost of the wholesale tax by including it on the retailer’s invoice. On its next quarterly wholesale tax return, Processing Co. reports and remits the tax due on the sale. Subsequently, the product fails quality testing, and Cannabis Store (per the parties’ contract) elects to return the product to Processing Co., citing the low quality. Processing Co. credits Cannabis Store’s account for the full purchase price of the returned product, including the wholesale tax that was included on the invoice, and Processing Co. deducts the overpaid tax on its next quarterly return. Processing Co. returns the product to inventory and, one month later, sells the product to a different retailer, Corner Leaf. Because the original product was returned to Processing Co., the original sale was rescinded. Accordingly, the subsequent sale of the returned product now constitutes the “first sale or transfer” of the product to a retail licensee, and Processing Co. must report and remit the wholesale tax due on the sale to Corner Leaf.

B. Determining When a Sale Occurs

The date that a particular sale or transfer occurs for purposes of the wholesale tax is when ownership of the marihuana transfers from the wholesaler to the marihuana retail licensee or, for microbusinesses, the date that the packaging event triggering the tax takes place.

When ownership of tangible personal property (such as marihuana) transfers from seller to buyer can depend on various factors. Often, the contractual relationship between the parties determines the point that transfer of ownership takes place. For example, a wholesaler’s contract with a retailer may provide that risk of loss (and, therefore, title to the marihuana) passes to the buyer at the time that the goods are picked up by a third-party transporter, when the goods are actually delivered to the retailer, or alternatively, ownership may be deemed to transfer when the purchase order is signed or otherwise finalized. In general, in the absence of an agreement between the parties, ownership transfers at the point that the seller completes its performance; typically, upon physical delivery of the goods to the buyer. Because it is possible for ownership to transfer at various commercially reasonable points, taxpayers are required to determine when ownership to marihuana transfers to the buyer and a taxable sale occurs. Each taxpayer’s books and records should support those determinations. Additionally, taxpayers should not look to CRA’s statewide monitoring system to determine when transfer of ownership takes place. CRA and Treasury are separate agencies with differing statutory responsibilities regarding marihuana. CRA protocols are established for regulatory purposes, not tax purposes, and inputs into CRA’s statewide monitoring system should not be used to determine when a sale takes place and the wholesale tax is imposed.

Example H. Processing Co.’s terms of sale are printed on its purchase orders, and those terms specify that risk of loss passes to the buyer at the time that the goods are picked up by a third-party transporter. Processing Co. sells 10 pounds of marihuana flower to Corner Leaf, a marihuana retailer licensed under the MRTMA. The packaged order is picked up by Shipping Co. on May 2. Processing Co. records May 2 as the date of the sale to Corner Leaf for wholesale tax purposes.

Example I. Processing Co. uses 3PL, a third-party logistics partner, to warehouse, pick, pack, and ship orders to its retailer customers. 3PL is an intermediary acting solely on instructions from Processing Co., and ownership of the marihuana never passes to 3PL. Processing Co.’s purchase orders state that title to purchased goods passes to the buyer upon physical delivery. Corner Cannabis purchases 10 pounds of marihuana flower from Processing Co. on April 3. 3PL packs and ships the order per Processing Co.’s instructions, and it is delivered to Corner Cannabis on April 10. Processing Co. is the entity making the “first sale” to a retailer for tax purposes; 3PL is not the entity making the “first sale” because it never owns the marihuana and therefore has no ability to transfer ownership. Processing Co. records April 10 as the date of the sale for wholesale tax purposes.

Example J. Green Cultivation, a small marihuana cultivator, transfers 5 pounds of marihuana flower to Processing Co. to be processed into specialty products. The transfer is made pursuant to a tolling agreement between the parties which provides that Processing Co. is performing a service and never takes title to the marihuana that it processes under the agreement. The transaction is entered into CRA’s statewide tracking system as a “tolling transfer.” Because this transaction does not represent the “first sale or transfer” of marihuana to a MRTMA-licensed retailer, and because Processing Co. never takes ownership of the marihuana, the transaction is not subject to the wholesale tax.

C. Product Returns and Non-conforming Goods

Situations may arise where a wholesale sales transaction is consummated between a wholesaler and a retailer, and the tax owed on the transaction has been paid and remitted to Treasury by the wholesaler, but the marihuana product sold is later returned by the retailer because of non-conformity, or for some other reason. In these cases, if the wholesaler provides a refund or credit to the retailer for the purchase price of the returned marihuana product, the wholesaler is entitled to deduct the tax paid on the transaction on its next quarterly wholesale tax return as an overpayment. However, the wholesaler is only entitled to the deduction if the product return occurs within the time period specified in the wholesaler’s written refund policy or within 180 days after the original sale, whichever is earlier. Similarly, where the wholesaler provides a refund or credit to the retailer because the product sold subsequently fails to meet the retailer’s testing, and the CRA orders the product to be destroyed, the wholesaler may deduct the tax paid on the transaction on its next quarterly wholesale tax return in the same manner. The wholesaler should retain appropriate documentation of the product return or CRA-ordered product destruction, as well as the refund or credit provided by the wholesaler to the retailer.

Example K. On June 1, Processing Co. sells 100 pounds of marihuana flower to Cannabis Store, a licensed marihuana retailer, for $600 per pound. On its next quarterly wholesale tax return, Processing Co. reports and remits tax of $14,400 on the sale ([100 × $600] × .24 = $14,400). Subsequently, the product fails Cannabis Store’s testing, and the CRA orders destruction of the flower. Processing Co. credits Cannabis Store’s account for the amount of the purchase price. On its next quarterly return, Processing Co. reports a $14,400 overpayment due to the credit and destroyed product and deducts that amount from the tax due for that quarter, per the return instructions. Processing Co. retains documentation of the credit provided to Cannabis Store, and the CRA-ordered destruction of the product.

4. Wholesale Tax Base: “Wholesale Price” of the Marihuana Sold

The 24% tax on wholesale sales and transfers of adult-use marihuana is levied and imposed on the “wholesale price” of the marihuana product that is sold or transferred in each taxable transaction. MCL 205.903(m). However, the CRFTA defines the term “wholesale price” in two separate ways, depending upon whether the parties to the transaction are “affiliated persons,” or are not “affiliated persons.” Id. This distinction is important because, in transactions where one of the parties maintains a certain level of control over the other party, the transactional price may not represent a true market-based, arms-length price.

A. Affiliated Persons

For purposes of the wholesale tax, an “affiliated person” is defined in the CRFTA as “a person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, another person.” MCL 205.903(a). A non-affiliated person is a person that does not meet the definition of “affiliated person.”

1. Direct and Indirect Control

Generally, direct control means ownership of more than 50% of an entity, while indirect control means control exercised through a chain of other companies, such as a parent company that owns a subsidiary, which in turn owns another subsidiary; in such a scenario, the parent has indirect control over the second-level subsidiary. Indirect control also exists where an individual person holds a controlling ownership interest in the two entities engaged in the sale transaction or where a parent company holds a controlling interest in two subsidiaries that engage in a sale transaction. Affiliate determinations will be based primarily on direct and indirect ownership of equity or voting interests; more than 50% ownership of either will establish control. Factors such as management agreements, service contracts, intellectual property licenses, or negative covenants existing between the parties to the sale do not, by themselves, constitute "control" for purposes of determining whether the parties are affiliated persons. However, such factors may be considered if the totality of the circumstances with respect to a particular transaction or set of transactions indicates an intent to show non-affiliation where, in fact, actual control exists. Additionally, “affiliated person” determinations made for purposes of administration of the wholesale tax are separate from and have no bearing on CRA licensing requirements; licensees should continue to follow applicable CRA guidance with respect to CRA licensing requirements.

Example L. Grow Green Inc., a large marihuana grower licensed under the MRTMA owns 100% of its subsidiary, Processing Co., a licensed marihuana processor. Processing Co. owns 80% of its subsidiary Cannabis Store, a retailer licensed under the MRTMA; the other 20% of Cannabis Store is held by an unrelated investor. Grow Green Inc. and Processing Co. are affiliated persons, as are Processing Co. and Cannabis Store, as well as Grow Green Inc. and Cannabis Store.

Example M. Grow Green Inc. is owned by three individuals: Person A holds a 51% ownership interest, Person B holds a 25% interest, and Person C holds a 24% interest. Corner Cannabis is a retail licensee under the MRTMA that is unrelated to Grow Green Inc. in any formal capacity, except that Person A also holds a 60% ownership interest in Corner Cannabis. Even though Person A does not formally act as a director or manager of Grow Green Inc. or Corner Cannabis, Person A’s ownership interest in both entities is controlling. In this case, Grow Green Inc. and Corner Cannabis are affiliated persons.

Example N. The operations of Processing Co., a licensed marihuana processor of adult-use marihuana, are managed by a three-person board of directors. Two of the directors are also on the three-person board that manages the operations of Cannabis Store, a retailer licensed under the MRTMA. Processing Co. and Cannabis Store have no common ownership. Processing Co. and Cannabis Store are not affiliated persons for purposes of the wholesale tax.

B. “Average Wholesale Price” Applicable to Transactions Between Affiliated Persons

For transactions between persons that meet the definition of affiliated persons, including transactions between provisioning centers and marihuana retail licensees (primarily dual licensees), and for marihuana that is cultivated and processed for retail sale by the marihuana retail licensee itself (“seed-to-sale” businesses), the “wholesale price” upon which the 24% wholesale tax is imposed is defined under the CRFTA is the “average wholesale price” of the marihuana. MCL 205.903(m)(ii). “Average wholesale price” means “the price of marihuana that is calculated and published by the department each quarter based on the best available information.” MCL 205.903(b). The actual price charged in a transaction involving affiliated parties may not reflect or be based on true market considerations; therefore, affiliated parties are required to calculate the wholesale tax using an “average” price that is set by Treasury on a quarterly basis.

Treasury calculates and publishes on its website the “average wholesale price” for a defined group of agricultural and processed marihuana products for each quarter. Treasury uses the same marihuana product categories and the same units of measurement used by the CRA’s statewide monitoring system, with which wholesale taxpayers may already be familiar. Treasury will use and rely upon the descriptions established by the CRA for each product category. For product category descriptions, see the “Compliance Best Practice Guide” issued and updated regularly by the CRA. The most recent version of the Guide can be found on the CRA’s website at https://www.michigan.gov/cra. For all product categories, including trade samples, it is the wholesale entity’s responsibility to maintain adequate books and records demonstrating that all transactions have been recorded in the proper product category. Specific questions regarding product category descriptions should be directed to the CRA.

The “average wholesale prices” are published prior to the beginning of each quarter and “marihuana establishments” acting as wholesalers in affiliated transactions, seed-to-sale businesses (such as microbusinesses and class A microbusinesses), and provisioning centers transferring inventory to their adult-use license are required to use these prices to calculate their wholesale tax liability for that quarter.

1. Methodology for Calculating “Average Wholesale Prices.”

Treasury calculates the “average wholesale price” for each product category using retail prices and sales quantities published monthly by the CRA. The data published by the CRA is available timely and is calculated from entries made in the CRA’s statewide monitoring system used by all MRTMA licensees. The CRA oversees the monitoring system and recorded transactions, and the system has been in place for a substantial period of time. Accordingly, the data drawn from the statewide monitoring system and published by the CRA is both consistent and reliable, making it appropriate for use here. Treasury has determined that this data represents the best available information for calculating the “average wholesale price” for each marihuana product category.

The list of “average wholesale prices” is determined using data from a three-month period. This longer period (as opposed to a single month) serves to insulate the retail prices from instability caused by unusual circumstances in any one month. If there is a change in the industry that impacts prices and that lasts longer than one month, the impact of that change on the “average wholesale prices” for that quarter will be greater. Because Treasury publishes the prices at the beginning of each quarter, the data used to calculate the prices will always be from the three-month period, ending one month before the start of the quarter. Due to the timing of the CRA’s data publication, this represents the most recent available data. For example, the “average wholesale prices” published at the beginning of the quarter starting on January 1, 2026, were determined using data from September, October, and November 2025.

Current and past average wholesale price information can be found at: https://www.michigan.gov/taxes/business-taxes/wholesale-marihuana-tax/average-wholesale-prices.

Example O. Processing Co., a licensed marihuana processor, is affiliated with Cannabis Store, a retailer licensed under the MRTMA. In the fourth quarter of a given year, Processing Co. sells 100 pounds of marihuana flower to Cannabis Store for $500 per pound, a price that largely reflects its own cost plus a small markup. The “average wholesale price” published on Treasury’s website for the fourth quarter is $620 per pound for flower. Because the parties are affiliated persons, the wholesale tax owed by Processing Co. on the sale must be calculated using the “average wholesale price” of $620 per pound. The tax owed by Processing Co. will be $14,880 (100 x $620] x .24 = $14,880).

Example P. Assuming the same parties as in Example O, Processing Co. sells one-half pound of concentrate to Cannabis Store in the third quarter of a given year for $500. The “average wholesale price” published on Treasury’s website for the current quarter is $2,000 per pound for concentrate. Because the parties are affiliated persons, the wholesale tax owed by Processing Co. on the sale must be calculated using the “average wholesale price” of $2,000 per pound. However, the amount sold to Cannabis Store is less than one pound; therefore, Processing Co. must prorate the price. The tax owed by Processing Co. will be 24% of $1,000 ($2,000 ÷ 2 = the average price for one-half pound of concentrate).

Example Q. Processing Co. is a licensed marihuana processor. On March 31 of a given year, Processing Co. sells 100 pounds of marihuana flower to its affiliated retail entity, Cannabis Store, for $500 per pound. Because the parties are affiliated persons, the wholesale tax owed by Processing Co. on the sale must be calculated using the “average wholesale price” published quarterly by Treasury on its website. The “average wholesale price” published on Treasury’s website for the first quarter of the year is $620 per pound for flower, and the “average wholesale price” published on the website that will apply for the second quarter of the year is $575 per pound for flower. The parties do not have a specific agreement regarding when transfer of ownership of the marihuana occurs; accordingly, ownership is presumed to transfer on April 5, the date that delivery of the product to Cannabis Store is completed. (See Sec. 3.B., “Determining When a Sale Occurs,” for information regarding transfer of ownership.) Processing Co. records the date of the taxable sale to Cannabis Store as April 5 and calculates the tax due on the transaction using the price of $575 per pound, the “average wholesale price” published by Treasury for the second quarter of the year.

C. Wholesale Price Applicable to Transactions Between Non-Affiliated Persons.

For transactions between non-affiliated persons, the “wholesale price” upon which the 24% wholesale tax is imposed is defined under the CRFTA as the “actual price paid to a marihuana establishment by a marihuana retail licensee to acquire marihuana from the marihuana establishment,” and 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.” MCL 205.903(m)(i). Sales of non-marihuana products reflected on the same invoice are not subject to the tax. The definition prohibits reduction of the wholesale price due to any rebate, trade allowance, exclusivity agreement, or other discount or reduction given by the marihuana establishment. For non-affiliated parties, the use of the “actual price paid” as the tax base includes non-retail transactions such as product donations and sales of trade samples, which are typically transferred free of charge or for a nominal amount. For all transactions, it is the wholesale entity’s responsibility to maintain adequate books and records demonstrating the “actual price paid,” and for non-retail transactions such as product donations and trade samples, to maintain evidence that the product was properly designated and treated as a donation or a trade sample.

Example R. Processing Co., a licensed marihuana processer, sells 50 rechargeable standard 510 threaded vape batteries to Corner Cannabis, a retailer licensed under the MRTMA, along with 100 cannabis vape cartridges (these fit the rechargeable batteries but are sold separately at retail), and 25 “all-in-one” disposable vape units where the battery and cannabis oil are manufactured as a single-use, non-reusable product. All three products are invoiced together. Processing Co. calculates the wholesale tax due on the transaction using the price charged for the 100 vape cartridges and the price charged for the 25 disposable vape units; the 50 rechargeable batteries are not included in the tax base for the transaction because the batteries that are sold separately at retail are not a marihuana product.

1. Charges and Fees Reflected on the Invoice.

For purposes of the wholesale tax, the term "wholesale price" does not include charges or fees for bona fide services that are unrelated to the acquisition of the marihuana product, such as marketing services, data integration services, menu placement services, and information technology services, provided that all such charges are:

• Commercially reasonable in amount relative to the service provided and to the price of the marihuana sold;
• Separately stated on the invoice or bill of sale;
• Supported by contemporaneous documentation, such as a contract or service agreement between the parties; and
• 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.

The wholesaler bears the burden of establishing that all such charges or fees are bona fide services not integral to the acquisition of the marihuana product.

Example S. Processing Co., a licensed marihuana processor, sells 100 units of vape cartridges to Corner Retailer, a retailer licensed under the MRTMA. The invoice includes three separate line items: (1) 100 vape cartridges at $4.00 per unit, totaling $400; (2) a $20 shipping fee; and (3) a $30 fee for data integration services. The invoice totals $450; however, the data integration service charge is unrelated to the acquisition of the marihuana product, is separately stated on the invoice, and can be documented by a service agreement between the parties. When calculating the tax due on the sale, therefore, Processing Co. is not required to include the $30 charge for data integration services in the wholesale price. Conversely, the shipping charge relates directly to the acquisition of the marihuana and must be included in the wholesale price for tax purposes. Processing Co. correctly calculates and remits wholesale tax of $100.80 ($420 x .24 = $100.80) on the transaction.

Example T. Processing Co., a licensed marihuana processor, sells 15 pounds of mixed marihuana shake and trim to Leaf Store, a small retailer licensed under the MRTMA. The two entities are not affiliated with each other. Processing Co. sells the product to Leaf Store for $200 per pound, and the invoice includes as a separate line item a $50 handling fee due to a special request made by Leaf Store regarding the product packaging. The wholesale tax owed by Processing Co. will be 24% of $3,050, the “actual price paid” by Leaf Store to acquire the marihuana product, including the special fee charged by Processing Co.

2. Prohibited Discounts and Price Reductions.

The CRFTA’s definition of “wholesale price” applicable to transactions between non-affiliated parties explicitly prohibits reduction of the wholesale price “due to any rebate, trade allowance, licensing or exclusivity agreement, volume or other discount, or any other reduction given by the marihuana establishment.” MCL 205.903(m)(i). For purposes of the “wholesale price” definition, a prohibited rebate, trade allowance, volume or other discount, or other reduction means a discount or price reduction that is:

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

This includes tiered pricing based on number of retail outlets or volume purchased, incentives for purchasing or promoting certain products, and special discounts or other incentives available to licensees or similar contractual partners. The term does not include legitimate chargebacks or credits given for previous quality control or similar issues. The wholesaler bears the burden of establishing that any price reduction appearing on the invoice that is not included in the “wholesale price” used to calculate the tax does not constitute a prohibited discount or price reduction under the CRFTA.

Example U. Citywide Cannabis, a large retailer with several locations, uses a new wholesale supplier, Best Cannabis, to purchase some of the products carried by Citywide. The parties, who are not affiliated, negotiate prices for quantities of marihuana flower, vape cartridges, and edibles. Best Cannabis agrees to prices on the lower end for the vape cartridges and the edibles, because it hopes to secure more of Citywide’s business in the future. The invoice from Best Cannabis to Citywide reflects the products ordered at the prices negotiated between the parties. Best Cannabis uses the invoice prices to determine the wholesale tax that is due on the transaction. The prices reflected on the invoice and used to calculate the tax are the prices negotiated between the parties. There is no prohibited discount or reduction.

Example V. Green Canopy, a licensed marihuana processor, sells directly to retailers, but also sells product through a third-party sales platform. Green Canopy offers a percentage discount to retailers for volume purchases of several of its most popular products. The discount percentages are stated on the third-party seller’s platform. Corner Cannabis purchases a large quantity of vape cartridges from Green Canopy, using the third-party seller. Corner Cannabis’s invoice reflects a price for the vape cartridges, then a separate line item stating “10% volume discount” with an amount deducted from the original price. Green Canopy passes the cost of the wholesale tax on to its retail customers, so the third-party seller calculates the wholesale tax due on the transaction and adds that amount to the invoice. The third-party seller correctly uses the original price of the vape cartridges to calculate the tax, because the volume discount cannot be subtracted from the sales price for purposes of the tax.

Example W. Corner Cannabis, a licensed marihuana retailer, enters into an agreement with Green Canopy, a licensed marihuana processer, whereby Corner Cannabis agrees to purchase all its infused oil products from Green Canopy, and to give those products featured shelf space. In return, Green Canopy receives a discount on its purchases of infused oil products, which appears as a “partner discount” on each invoice. Green Canopy should calculate the wholesale tax due on each transaction with Corner Cannabis using the non-discounted prices for the infused oil products, because the “partner discount” based on the exclusivity agreement cannot be subtracted from the sales price for purposes of the tax.

Example X. Processing Co. ships 15 pounds of marihuana flower to Citywide Cannabis on June 10, invoicing the retailer $10,000 for the product and $2,400 for the passed-through wholesale tax. Citywide pays the invoice. The product subsequently fails quality testing and, pursuant to the parties’ contract, Citywide issues a $4,000 chargeback to Processing Co. against its next order. On June 30, Processing Co. ships another 15 pounds of marihuana flower to Citywide, invoicing $10,000 for the product and subtracting the $4,000 chargeback amount. Processing Co. calculates the wholesale tax owed on the net amount, $6,000, and adds $1,440 to the invoice. Processing Co. has correctly calculated the tax owed, because the chargeback applied to the order is a reduction for a contractual remedy and does not constitute a prohibited discount from the wholesale price.

3. Whether “Any Tax” Includes the Wholesale Tax Itself.

The definition in the CRFTA of “wholesale price” that is applicable to transactions between non-affiliated persons states that the defined 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.” MCL 205.903(m)(i). The phrase “any tax” in the definition of “wholesale price” does not include the wholesale tax itself. The term instead captures other taxes and fees that are or may be imposed by other laws, including federal law.

Example Y. Processing Co., a licensed marihuana processor, sells 20 pounds of mixed marihuana shake and trim to Leaf Store, a small retailer licensed under the MRTMA. The two entities are not affiliated with each other. Processing Co. sells the marihuana product to Leaf Store for $200 per pound. Processing Co. passes the cost of the wholesale tax on to Leaf Store, and the product invoice includes a separate line item in the amount of $960 for “wholesale tax.” When Processing Co. calculates its wholesale tax liability at the end of the quarter, the amount of the sale to Leaf Store on which it must report and pay the 24% tax is $4,000, the price of the marihuana product sold, not $4,960, the price of the product combined with the wholesale tax passed through to Leaf Store.

5. Applicability of Other Taxes.

The CRFTA states that the 24% wholesale tax is imposed on taxable transactions “in addition to all other taxes.” MCL 205.905. Accordingly, the 24% wholesale marihuana tax applies in addition to the existing 10% excise tax on retail sales of adult-use marihuana imposed under the MRTMA, as well as the 6% state sales tax that is imposed on all non-exempt sales of tangible personal property. The current 10% excise tax and the 6% sales tax are applied at the time of retail purchase, while the CRFTA wholesale tax is applied on the earlier transaction between the wholesaler and the retailer.

6. Return and Remittance Requirements and Procedures.

The CRFTA does not set forth specific requirements or restrictions regarding tax return procedures or remittance to Treasury of the 24% wholesale tax. Instead, Treasury is afforded broad authority under the CRFTA to create necessary forms, and to “implement this act and prescribe a method and manner for payment and collection of the taxes imposed under this act.” MCL 205.907(2). For information regarding current return and remittance requirements and procedures please visit Treasury’s website at https://www.michigan.gov/treasury; taxpayers should click on “Go to Taxes,” then “Business Taxes.”