The Illicit Market Is Growing — and Here's Why That's Everyone's Problem
Jamie
Head Cultivator
You can walk into a licensed dispensary in Detroit, Flint, or Grand Rapids and buy tested, tracked cannabis with the swipe of a card. So why are so many Michiganders still buying weed from a guy they know? The answer isn't simple — and the new 24% wholesale tax that kicked in January 2026 is making the choice even harder for budget-conscious consumers.
Why the Black Market Still Competes With Legal Cannabis #
The black market persists because illicit sellers avoid taxes, testing costs, and regulatory overhead that legal businesses must pay. Even after six years of adult-use legalization, unregulated cannabis remains a stubborn competitor in Michigan — not because consumers prefer mystery weed, but because price and convenience still drive decisions for many buyers.
The legal market in Michigan is enormous. Dispensaries moved over $250 million in product every month back in 2023, putting the state on pace for more than $3 billion annually according to Cannabis Business Times Michigan market analysis. Prices have collapsed from over $400 per ounce in 2020 to around $69 in 2024 as supply flooded the market, per TJID3.org Michigan market data. You'd think that would crush the illicit trade. It hasn't.
Here's what the numbers show: even as legal stores multiplied, purchases "through a friend or dealer" only dropped from 50% of consumers in late 2021 to 37% in late 2023 according to Cannabis Business Times consumer trends research. That's progress — but it still means more than one in three cannabis buyers in Michigan are shopping outside the regulated system. And 80% of recreational shoppers say price is their top priority when choosing what to buy.
| Factor | Legal Market | Illicit Market |
|---|---|---|
| Taxes | 24% wholesale + 10% excise + 6% sales | None |
| Testing | Required for potency, pesticides, mold, heavy metals | None |
| Tracking | Seed-to-sale monitoring | None |
| Compliance | Security, packaging, reporting costs | None |
| Average flower price (2024) | ~$69/oz | Often 30-50% lower |
| Consumer protections | Recall system, verified testing | None |
The illicit market isn't winning on quality or safety. It's winning on the total cost of getting weed into someone's hands. When a legal ounce carries $20-40 in layered taxes and compliance costs before the shop makes a dime, unregulated sellers have room to undercut dramatically.
How Michigan's 24% Wholesale Tax Widens the Price Gap #
The 24% wholesale tax that took effect January 1, 2026 stacks on top of existing taxes and is expected to push retail prices up by 25-30% if fully passed through to consumers, according to the Michigan Department of Treasury wholesale marijuana tax guidance. That's not a small bump — it's a potential price shock that changes the math for budget-conscious buyers.
Here's how the tax layers work now in Michigan:
| Tax Type | Rate | Applied At | Approximate Impact on $100 Product |
|---|---|---|---|
| Wholesale tax | 24% | Producer to processor/retailer | +$24 |
| Retail excise tax | 10% | Dispensary sale | +$10 |
| Sales tax | 6% | Final purchase | +$6 |
| Total tax burden | ~40% effective | — | +$40 on $100 base |
Industry analysts estimate that a $100 purchase before taxes could now cost consumers $131 to $145 out the door depending on how much of the wholesale tax retailers absorb versus pass through, according to HighRock Cannabis wholesale tax analysis. Some shops in competitive markets may eat part of that cost to keep customers — but thin margins make that hard to sustain.
The Michigan Cannabis Industry Association challenged the tax in court, arguing it effectively "pyramids" taxes on taxes and violates the original voter-approved legalization framework, as reported by Bridge Michigan. A Court of Claims judge denied a request to block implementation in late 2025, so the tax took effect as scheduled while litigation continues.
The risk for consumers is straightforward: when legal prices jump and unregulated prices don't, some percentage of buyers will shift back to the illicit market. That doesn't mean consumers are making a free choice — it means policy is pushing price-sensitive people toward untested product.
What You're Actually Getting: Legal vs. Illicit Cannabis #
Legal cannabis in Michigan is tested for potency, pesticides, mold, and heavy metals; illicit cannabis has no verification whatsoever, which means consumers have no way to know what's in it. That difference matters for your health in ways the price tag doesn't show.
Licensed Michigan cannabis goes through mandatory lab testing before it hits shelves. Testing checks for:
- Potency verification — THC and CBD levels are accurate within a tight margin
- Pesticide screening — detects chemical residues from unapproved pest control
- Microbial testing — identifies mold, yeast, and harmful bacteria
- Heavy metals — screens for lead, arsenic, cadmium, and mercury absorbed from contaminated soil
- Residual solvents — ensures concentrates don't contain harmful extraction chemicals
Illicit cannabis skips all of this. A 2025 raid on an illegal grow operation in Lake County found over 13,000 plants — and authorities specifically warned that "cannabis produced in illegal operations often contains harmful substances including hazardous chemicals, pesticides, mold, and heavy metals," per ElevatedMT dispensary safety reporting.
The Michigan Department of Agriculture and Rural Development issued a separate May 2025 safety advisory warning consumers about unapproved cannabis-based ingredients in foods and supplements. MDARD noted these unregulated products can cause serious side effects including liver toxicity, seizures, elevated heart rate, and hallucinations.
When you buy legal, you get a lab report. When you buy illicit, you get a guess.
Consumer Safety: The Hidden Costs of Untested Weed #
Untested cannabis poses real health risks that many consumers don't consider until they experience them — including respiratory infections from mold, chemical exposure from pesticides, and unpredictable effects from synthetic additives. The savings from buying illicit can evaporate quickly if the product makes you sick.
Here's a breakdown of the main contamination risks and what they do to your body:
| Contaminant | Common Source | Health Risk | How Lab Testing Catches It |
|---|---|---|---|
| Mold/fungi | Improper drying, storage | Lung irritation, respiratory infections, allergic reactions | Microbial screening |
| Pesticides | Unapproved pest control sprays | Toxicity, neurological effects, long-term health unknown | Chemical residue testing |
| Heavy metals | Contaminated soil, fertilizers | Lead poisoning, organ damage, developmental harm | Metal detection assays |
| Residual solvents | Unsafe extraction methods | Neurological damage, respiratory injury | Solvent screening (concentrates) |
| Synthetic additives | Unregulated vape products | Severe lung injury (EVALI-type), unknown chemical exposure | Purity verification |
The most visible public health warning came from MDARD in May 2025, specifically calling out unregulated cannabis-based ingredients in consumable products. The department advised consumers to check product labels carefully and avoid items with unapproved additives.
For medical cannabis patients — people using weed to manage pain, nausea, seizures, or other conditions — contaminated product isn't just inconvenient. It can actively worsen the symptoms they're trying to treat. A patient with compromised immunity doesn't need mold spores in their medicine.
Why Price-Conscious Consumers Still Choose Illicit #
Price remains the single biggest driver of illicit market purchases, with 80% of recreational shoppers ranking cost as their top priority and unregulated sellers routinely undercutting legal shops by 30-50%. That gap isn't about greed — it's about the cost structure legal operators are forced to carry.
Let's be honest about the economics. A budget-conscious consumer weighing a $70 legal ounce against a $45 illicit ounce is making a rational short-term calculation. The legal option costs 55% more. For someone on a fixed income, working hourly wages, or managing tight finances, that difference matters.
But the calculation often misses the hidden costs:
- Health costs — treating mold exposure or pesticide reactions
- Legal risks — possession of unregulated cannabis isn't protected like licensed purchases
- Inconsistent product — today's good batch isn't tomorrow's
- No recourse — unregulated sellers don't offer refunds for bad product
The Michigan Cannabis Industry Association noted in early 2026 that the market is entering "a year of upheaval" as the new wholesale tax takes effect alongside other policy shifts. When legal shops have to raise prices to cover a 24% tax increase, the price gap with illicit sellers widens — and some percentage of consumers will follow their wallets.
This isn't a moral failure by consumers. It's a policy challenge: how to keep legal cannabis affordable enough to compete with the unregulated market while funding regulation, testing, and enforcement that protect public health.
What Michigan's Regulators Are Doing to Fight the Illicit Market #
The Michigan Cannabis Regulatory Agency has stepped up enforcement in 2025-2026, revoking licenses for untracked plants, placing violators on exclusion lists, and conducting raids that have seized thousands of illegal plants — but the illicit market's scale still outpaces enforcement capacity.
The CRA's most visible 2025 enforcement action came in January, when the agency revoked four adult-use cultivation licenses from HongRui Enterprises after a Michigan State Police raid. Investigators found 10,738 plants where only 6,000 were permitted — plus unsecured grow rooms, non-functioning surveillance cameras, and loading doors that weren't properly secured, according to CRB Monitor enforcement reporting. A follow-up inspection found 3,171 untagged, untracked plants that weren't in the state's monitoring system.
The CRA didn't just pull the licenses. They placed the company and two individual owners on Michigan's license exclusion list — essentially banning them from participating in the legal cannabis industry going forward. State police seized surveillance equipment and security data during the raid, suggesting potential evidence of broader violations.
Other enforcement actions include:
- Product seizures from unlicensed operators selling intoxicating hemp-derived products
- Heavy fines for track-and-trace violations and data entry failures
- Criminal referrals to law enforcement for serious violations
- Treating THCA hemp products as marijuana when sold outside the licensed system
Critics note that enforcement has sometimes been inconsistent — GreenBlazer reported in March 2026 that Michigan "took 2 years to shut down a grower selling contaminated weed — but fines honest operators for data entry errors." The challenge isn't just writing rules; it's applying them fairly and effectively at market scale.
How Federal Banking Restrictions Make Everything Harder #
Federal prohibition forces most Michigan cannabis businesses to operate cash-heavy, which increases security costs, complicates tax collection, and makes the legal market less efficient than it could be — ultimately contributing to higher prices consumers pay. The banking problem is upstream of the price problem.
Because cannabis remains federally illegal under the Controlled Substances Act, banks face money-laundering and aiding-and-abetting risk if they handle cannabis proceeds. Most major banks won't touch the industry. The result:
- Cash-only operations remain common even for multi-million-dollar businesses
- No credit card processing — customers pay cash or use limited workarounds
- Difficult payroll — paying employees without normal banking rails
- Limited lending — expansion requires cash on hand, not credit access
- Security overhead — armored transport, safes, and guards add cost
Michigan hasn't stood still on this. House Bill 5144 protects state financial institutions that serve licensed cannabis businesses from state-level penalties, encouraging more banks to enter the market. And Attorney General Dana Nessel joined a bipartisan coalition of state AGs in July 2025 pushing for federal banking reform under the SAFER Banking Act.
The SAFER Banking Act (formerly SAFE) would create a federal safe harbor for banks serving state-compliant cannabis businesses. It wouldn't legalize cannabis nationally — recreational would remain Schedule I — but it would let legal Michigan businesses operate like normal companies. That efficiency would eventually flow through to consumer prices.
Until then, every legal dispensary pays a "banking tax" in the form of added security, cash handling, and financial friction. That cost lands on the price tag.
What Would Actually Reduce the Illicit Market #
Reducing the illicit market requires narrowing the price gap between legal and unregulated cannabis through a combination of tax policy, regulatory efficiency, enforcement consistency, and consumer education about safety risks. No single lever works alone.
Industry observers and policy analysts suggest several approaches that could help:
| Strategy | Mechanism | Current Status in Michigan |
|---|---|---|
| Tax reform | Lower wholesale tax burden | 24% tax just implemented; MCIA litigation pending |
| Banking access | Reduce cash-handling costs | HB 5144 passed; SAFER Banking stalled federally |
| Enforcement focus | Target worst illicit actors | Increased 2025-2026 but capacity-constrained |
| Consumer education | Highlight safety benefits | Limited state-funded campaigns |
| Regulatory streamlining | Reduce compliance overhead | Ongoing rule revisions by CRA |
| Local access expansion | More licensed retailers in underserved areas | Varies by municipality |
The irony of Michigan's situation is that the legal market has gotten almost too efficient in some ways. Wholesale flower prices collapsed from $400/oz to $69/oz between 2020 and 2024 as cultivation capacity exploded. That price compression should have crushed illicit competitors. Instead, it squeezed legal operator margins so thin that a 24% tax increase becomes an existential threat for some businesses — while unregulated sellers just keep undercutting.
The illicit market isn't a competitor playing by the same rules. It's a shadow system that doesn't pay for testing, tracking, security, or taxes. Competing with it on price alone is a race to the bottom that the legal market can't win without sacrificing the safety standards that justify regulation in the first place.
How to Spot and Avoid Illicit Cannabis #
The safest way to avoid unregulated cannabis is to buy only from licensed Michigan dispensaries that can show you testing results and track their products through the state's seed-to-sale system. Short of that, there are warning signs that suggest product may be illicit or unsafe.
Red flags that your cannabis might be unregulated:
- No packaging with license numbers — Michigan requires specific labeling
- No lab test results available — legal product has potency and safety data
- Sold by individuals, not businesses — pop-up "gifts" or cash-only deals
- Prices way below market — if it seems too good to be true, it probably is
- No recall information — licensed product can be traced if problems emerge
- Unusual appearance or smell — mold, chemical odors, or off-colors
Legitimate Michigan dispensaries display their CRA license prominently. Products come in child-resistant packaging with required labeling including the license number of the facility that produced it. Most importantly, you can ask to see the Certificate of Analysis (COA) — the lab report showing potency and safety screening results.
If you're buying from a "friend of a friend" at a price that seems dramatically lower than dispensary rates, you're almost certainly looking at unregulated product. The savings aren't free — you're paying in lost safety verification.
FAQ #
Q: Why is the black market still big after legalization? #
A: Price and convenience keep the illicit market competitive despite legal options. Unregulated sellers avoid taxes, testing costs, and compliance overhead that legal businesses must pay. In Michigan, 37% of consumers still reported buying through friends or dealers in late 2023 — down from 50% in 2021, but still substantial. The illicit market undercuts legal shops by 30-50% on price, which drives decisions for budget-conscious buyers.
Q: How much cheaper is illicit cannabis compared to legal in Michigan? #
A: Illicit cannabis typically costs 30-50% less than legal product because unregulated sellers avoid Michigan's layered tax burden. Legal cannabis carries a 24% wholesale tax, 10% retail excise tax, and 6% sales tax — totaling roughly 40% in taxes before the shop's margin. An ounce that costs $70 legally might sell for $40-50 illicitly. That gap widened when the 24% wholesale tax took effect in January 2026.
Q: What safety risks come with buying unregulated weed? #
A: Unregulated cannabis may contain mold, pesticides, heavy metals, or synthetic additives that lab-tested legal product would flag. Michigan's MDARD specifically warned in 2025 that unregulated cannabis products can cause liver toxicity, seizures, elevated heart rate, and hallucinations. Without testing, you have no way to know what you're inhaling or ingesting.
Q: Does the 24% wholesale tax make the illicit market worse? #
A: Industry analysts expect the new tax to push legal prices up 25-30%, which could shift some price-sensitive consumers back to unregulated sellers. When legal shops raise prices to cover a 24% wholesale tax while illicit prices stay flat, the price gap widens. The Michigan Cannabis Industry Association warned this exact scenario could undermine the legal market's ability to compete.
Q: Why do consumers still buy from dealers when dispensaries exist? #
A: Price remains the top factor for 80% of recreational shoppers, and illicit sellers offer significantly lower prices without the tax burden. Some consumers also value the convenience of home delivery by friends, or live in areas with limited dispensary access. For budget-conscious buyers, the price gap often outweighs the safety benefits of tested product.
Q: What's Michigan doing to shut down illegal operations? #
A: The CRA has stepped up enforcement with license revocations, raids, and criminal referrals — but the illicit market's scale exceeds enforcement capacity. In January 2025, the CRA revoked four licenses from an operator found with 10,738 plants versus a 6,000-plant limit. The agency also maintains an exclusion list banning violators from future participation. Critics note enforcement remains inconsistent, with some bad actors operating for years before facing consequences.
Q: How does federal banking law hurt legal cannabis businesses? #
A: Federal prohibition forces most cannabis businesses to operate cash-heavy, increasing security costs and reducing efficiency that would otherwise lower consumer prices. Because banks face money-laundering risk for handling cannabis proceeds, legal businesses can't access normal banking services — credit card processing, loans, electronic transfers. Michigan's Attorney General Dana Nessel joined a 2025 bipartisan push for the SAFER Banking Act to address this.
Q: Is illicit cannabis really that dangerous? #
A: Without testing, you have no way to verify potency or safety — and unregulated product has been found contaminated with mold, pesticides, and heavy metals. The health risks aren't theoretical. Michigan authorities specifically cite hazardous chemicals, mold, and heavy metals as common problems in illegal grow operations. For medical patients using cannabis to treat conditions, contaminated product can worsen symptoms rather than help.
Q: What would actually reduce the illicit market in Michigan? #
A: Narrowing the price gap through tax policy reform, banking access, and enforcement consistency would help — but no single solution works alone. The illicit market competes on price, so reducing the legal market's cost structure is essential. That means addressing the 24% wholesale tax burden, passing federal banking reform, and streamlining compliance costs while maintaining safety standards.
Q: How can I tell if my cannabis came from a legal source? #
A: Legal Michigan cannabis comes in child-resistant packaging with license numbers, required labeling, and access to lab test results (COAs). Licensed dispensaries display their CRA license prominently. If your product lacks proper packaging, lab results, or comes from an individual rather than a business, it's likely unregulated. When in doubt, ask to see the Certificate of Analysis.
Q: Does price compression in the legal market help or hurt? #
A: Price compression helps consumers short-term but squeezes legal operator margins so thin that tax increases become existential threats — potentially pushing consumers toward illicit options. Michigan's legal flower prices fell from $400/oz in 2020 to $69/oz in 2024, which should have undercut illicit competitors. Instead, thin margins make legal operators vulnerable to policy shocks while unregulated sellers just keep undercutting.
Q: What happens if I get caught with illicit cannabis? #
A: Possession of unregulated cannabis isn't protected by Michigan's legalization framework in the same way licensed purchases are — and supporting the illicit market carries legal and safety risks. While personal possession of small amounts is decriminalized, buying from unregulated sources supports criminal operations and provides none of the consumer protections built into the licensed system.
The Bottom Line: Your Choices Shape the Market #
The illicit cannabis market isn't a victimless alternative to dispensary shopping. Every dollar spent on unregulated product flows to operators who skip testing, ignore safety standards, and free-ride on the legal system's regulatory investment. Meanwhile, every dollar spent at a licensed shop supports the infrastructure that keeps cannabis tested, tracked, and accountable.
The new 24% wholesale tax makes that choice harder for price-sensitive consumers. When legal prices jump and unregulated prices don't, the market pushes people toward riskier options through economic pressure rather than preference. That's a policy failure — and it affects public health whether you personally buy illicit product or not.
If you're curious to try cannabis that's been grown with care and tested for safety, explore our sun-grown organic flower at Divine Toke. We believe the best way to compete with the illicit market is to offer clean, tested product at fair prices while advocating for policies that don't force consumers to choose between their budget and their safety.
This article is for educational purposes only and is not medical advice. Always consult your healthcare provider before starting any new wellness routine.
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