New Michigan Marijuana Tax Could Shutter Businesses And Actually Reduce The State’s Cannabis Revenue, Industry Says

*“If you put more of a tax burden on these companies…they’re going to start
going out of business. If there are no more businesses in this industry,
who in the heck are you going to collect the taxes from?”*

*By Kyle Davidson, Michigan Advance*

As state budget negotiations drew to a close last week, members of the
Democratic-led Senate and the Republican-led House were able to reach a
deal to bring in additional funding for road repairs through a plan that
drew much debate: levying additional taxes on marijuana.

Hundreds of individuals from the cannabis industry came out in opposition
to the proposal last week, gathering on the Capitol lawn and lining the
halls of the building as lawmakers worked to finalize the state budget.

While the policy won support from both sides of the aisle, its detractors
were similarly bipartisan as some lawmakers warned that an additional 24
percent tax on wholesale marijuana could carry a host of issues, from
smothering small businesses to expanding the black market, and even opening
the state up to a potential constitutional challenge.

Although Michigan Gov. Gretchen Whitmer (D) put her pen to the new tax law
on Tuesday, the future of the law has already been challenged, with the Michigan
Cannabis Industry Association filing a complaint the same day, arguing the
law improperly alters the law initiated by voters when they agreed to
legalize marijuana in 2018.

*Navigating the new tax*

Under the new policy, which is scheduled to take effect on January 1, 2026,
the first sale or transfer between a marijuana business and a retailer is
subject to a 24 percent tax. If a retailer has cultivated or processed its
own marijuana, the Michigan Department of Treasury will collect a tax based
on the wholesale price on the total amount of marijuana the retailer
cultivates and processes for sale.

Denise Pollicella, an attorney at Omnus Law who largely works with clients
in the cannabis industry, said the details on how the tax will be
administered–including the tax rate for companies who produce their own
retail product–will be fleshed out by the Department of Treasury as the law
takes effect.

She noted that the tax applies to products in the recreational adult-use
industry, not CBD, hemp or medical marijuana.

However, Pollicella emphasized that the tax will touch each part of the
industry, as marijuana businesses raise their prices to compensate for the
additional tax.

If the price of recreational marijuana increases significantly in order to
cover the price of the tax, there will come a time when it is significantly
less expensive for consumers to get their marijuana on the black market,
Pollicella said

“One of the biggest complaints and concerns of the cannabis industry since
2018 is that once marijuana was legalized in Michigan, law enforcement
basically either stopped altogether trying to enforce unregulated marijuana
trafficking, or they were stopped from enforcing it because there weren’t
enough teeth left in the laws to allow prosecutors to actually prosecute
it,” Pollicella said.

The unregulated market in Michigan never went away, Pollicella said, though
it has shrunk and will continue to shrink provided customers have access to
a better alternative–such as safe and accessible marijuana.

“Those are the two things we have always fought for. Safe and accessible,
meaning, it’s been lab tested so you know it’s not laced with fentanyl or
cat hair or mold, you know, it’s not gonna make you sick,” Pollicella said.
“And then that it’s accessible, so that a person who really wants to try it
or use it can go into a well-lit commercial facility in a commercial
district of their municipality, in the daytime and have a safe experience
and access a wide variety of marijuana products.”

In an email to the Michigan Advance, Danny Wimmer, a spokesperson for the
Department of Attorney General said their office has faced “serious
problems” in prosecuting illegal, large-scale marijuana growing operations
in the years since recreational marijuana was legalized in Michigan.

“The criminal statutes protecting Michigan residents from these practices
are squarely outdated,” Wimmer said, calling the Michigan Regulation and
Taxation of Marihuana Act insufficient in punishing illegal grow operations
and incompatible with the state’s current legal marijuana landscape.

The department is also aware that international criminal organizations are
traveling to Michigan specifically to set up shop due to the state’s lax
laws on illegal cultivation, Wimmer said.

Alongside concerns about the black market, Pollicella also pointed to the
tax burden borne by marijuana businesses.

“If you put more of a tax burden on these companies, and they’re not
allowed to renew their licenses, they’re going to start going out of
business,” Pollicella said. “If there are no more businesses in this
industry, who in the heck are you going to collect the taxes from?”

Because marijuana remains illegal at the federal level, marijuana business
owners are barred from taking advantage of tax breaks, save for the cost of
goods. Pollicella explained that while that exception helps grow facilities
and processing facilities, retailers are taking it on the chin.

Federal law also bars marijuana businesses from receiving bankruptcy
protections and insurance rates are often triple what other businesses are
charged, Pollicella said.

Additionally, the state already charges a 10 percent excise tax which is
collected at the retailer alongside the state’s 6 percent sales tax.

“The retail facilities are the ones on very thin margins right now,”
Pollicella said. “I already have a lot of clients who are small
operators–one or two shops, maybe five–they don’t have the economy of
scale, they’re not operating at a big enough scale to withstand this. I
mean, they’re already either closing or, you know, planning to close after
the first of the year.”

On top of the taxes the industry already pays to the state and their
licensing fees, Pollicella said marijuana businesses also face burdensome
regulatory fees and fines that can range up to $100,000.

“It’s extraordinarily expensive to be in this industry and have a license,”
Pollicella said. “The fact that the House and Senate passed this bill
either knowing what kind of burden the industry is already under, or not
having the curiosity to find out what kind of burden this industry is under
was not responsible.”

*The impact*

Jerry Millen owns the Greenhouse of Walled Lake, the first licensed medical
and recreational marijuana dispensary in Oakland County. The shop caters to
a more adult clientele, Millen said, with the average age of 44.

“We cater to seniors. We have a lot of 80 and 90 year olds that come in
every day,” Millen said.

In an interview with the Advance on Tuesday, Millen pushed back on the
notion that the new tax is only hitting “stoners” and “weedheads,”
emphasizing the medicinal uses for marijuana.

“I see seniors every day that can’t sleep or have arthritic pain. I work
with cancer patients,” Millen said. “I’ve seen this product as a medicine
for 15 years now, and I wouldn’t have believed it myself. I didn’t when I
first started, until I saw and I met these people.”

Millen slammed the 24 percent excise tax as a money grab from the state,
which will appear as price gouging to customers who are unaware of the tax.

Imagine shopping at a dispensary with a 16 percent tax on marijuana on your
receipt, and then going in the next, with a 40 percent tax on your bill,
Millen said.

“You’re gonna lose your mind,” he said.

However, the 24 percent tax won’t appear on the receipt, as the cost is
hidden behind the retailer, Millen said.

Kevin May, part owner of Glacier Cannabis, a craft cannabis cultivator in
Manchester, Michigan, said there’s no way for wholesalers to eat that cost,
leaving dispensaries to pick up the tab and pass the cost along to the
customer.

Pollicella, Millen and May all agreed, when it comes to the new tax, the
customer is the one who will feel the impact.

“That’s not because the growers or the dispensaries are making another
penny, they’re still not making anything. It’s still a struggling industry
that way. Because it’s already oversaturated, people are about to go out of
business,” May said.

Although patients with a medical marijuana card do not have to pay the 10
percent tax on marijuana sales at the dispensary, Millen said many people
have gotten rid of their card following the legalization of recreational
marijuana in the state. He warned that a 24 percent increase in price could
bar some medical marijuana patients from getting what they need.

While Millen said his older clientele are not the type to turn to the black
market, a resurgent black market creates concerns for those who are
underage.

“Even the people that are against marijuana should have a problem with
this, because at the end of the day, marijuana is legal, it’s going to be
sold,” Millen said. “But now that the black market can resurge, that means
your kids are probably going to get a hold of some black market products
that are going to be unsafe. So you should be going against this tax too.”

The new tax will also cost people jobs, Millen said, with “mom and pop”
growers, processors and dispensaries in threat of going out of business.

While there are roughly 47,000 cannabis industry jobs in the state,
Pollicella said there are easily another 40,000 that help support the
industry, including accountants, attorneys, tax preparers, real estate
developers and whole banking divisions.

Although May and Pollicella disagreed with the notion that the tax would
wholly decimate the industry within the state, both agreed that it would
likely result in a consolidation of the industry.

“There are some people in this industry who are wealthy, but I will also
say this: a majority of the people in this industry haven’t even made their
money back yet,” Pollicella said, emphasizing that the tax increase will
cost people their livelihood during an uncertain time when people are
already struggling to find jobs.

While there will be people laid off in the short term, May said those
people will still be able to find jobs as successful companies pick up real
estate and work to fill the holes left in the market.

Though some opponents of the tax raised concerns that an increase of prices
could drive away customers in communities on the border of the state, May
disagreed, noting that people who buy their weed in Michigan have enjoyed
the cheapest prices in the nation.

In border states like Ohio, prices are still high, the product is not as
high quality and it’s sold in strange quantities, May said.

“I still believe the border stores are going to boom,” May said. “If you’re
weak and you’re not operating properly and you’re having a hard time with
your costs staying in line, you’re going to have a real big issue now.”

*This story was first published by Michigan Advance.*

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