“If you put more of a tax burden on these companies…they’re going to start going out of business. What if this business is gone? Who are you going collect your taxes from then?”
Kyle Davidson is the Michigan Advance reporter.
The state’s budget negotiations came to a conclusion last week. Members of both the Democratic and Republican led House were able reach an agreement to provide additional funding to repair roads through a proposal that was the subject of much discussion: levied additional taxes for marijuana.
The cannabis industry was represented by hundreds of people who gathered at the Capitol and lined its halls last week to oppose the bill. This occurred as the lawmakers were working to finish the budget for the state.
The policy was supported by both parties, but its opponents were also bipartisan. Some lawmakers warned an extra 24 percent tax could have a number of negative effects, including suffocating small businesses, expanding the black-market, or even exposing the state to constitutional challenges.
Michigan Gov. Gretchen Whitmer, (D), signed the new tax bill on Tuesday. However, its future has been challenged by the Michigan Cannabis Industry Association, which filed a lawsuit the same day. The complaint argues that the law is in violation of what voters agreed when they legalized marijuana in 2018.
The new tax system: How to understand it
According to the new policy that is expected to go into effect on Jan. 1, 2026 the first transaction between a cannabis business and a retail store will be subject to a tax of 24 percent. Michigan Department of Treasury is going to collect tax from a retailer who has grown and processed their own marijuana.
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 said that CBD, hemp, and medical marijuana are not included in this tax.
Pollicella, however, emphasized the fact that this tax would affect each sector of the marijuana industry as businesses will raise prices in order to offset the extra tax.
Pollicella explained that, if recreational marijuana prices increase significantly to cover tax costs, the consumers will find it cheaper to purchase marijuana on the underground market.
Pollicella explained that one of the main complaints from the marijuana industry was the fact, after Michigan legalized cannabis, police stopped enforcing the illegal marijuana trafficking laws.
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.
We have always been fighting for these two issues. Pollicella explained that the product is safe and easily accessible. It has been tested in a lab, so it can be trusted to not contain fentanyl, cat hair, or mold. Pollicella said, “And that it is accessible. So that someone who wants to test it out or use it, can enter a well lit commercial facility, located in a district commercial of their municipality, during daylight hours and enjoy a safe and secure experience, and get a large variety of marijuana-based products.”
Danny Wimmer is a Department of Attorney General spokesperson who sent an email to Michigan Advance. He said that their office had “serious difficulties” prosecuting large-scale, illegal marijuana operations since Michigan legalized recreational marijuana.
Wimmer said that Michigan Regulation and Taxation of Marihuana Act is insufficient for punishing illegal marijuana grow operations and it’s incompatible with Michigan’s current legal cannabis landscape.
Wimmer added that the Department is aware of international criminal organisations traveling specifically to Michigan in order to set themselves up due to Michigan’s lax laws regarding illegal cultivation.
Pollicella, along with concerns over the black market for marijuana, also highlighted the heavy tax burden that marijuana businesses bear.
Pollicella explained that if the companies are not allowed to renew licenses and you place a higher tax on them, it will lead to their demise. If there’s no business in this sector, how are you supposed to collect taxes?
Due to marijuana’s federal status, business owners cannot take advantage of any tax incentives, except for those that cover the costs of the goods. Pollicella explained, that although this exception is beneficial to grow facilities and manufacturing facilities, retail stores are the ones who suffer.
Pollicella added that federal law bars marijuana companies from bankruptcy protection, and insurance rates for them are typically triple the rate of similar businesses.
In addition, the state charges an additional 10 percent in excise taxes that are collected at retailers along with its 6 percent sales tax.
Pollicella explained that the retail sector is currently experiencing thin margins. “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. They’re either already closing down or planning to do so after January 1.
Pollicella says that in addition to paying taxes to the government and licensing fees to marijuana companies, they also have to pay regulatory fees and penalties of up to $100,000.
Pollicella stated that it is extremely expensive to work in the industry, and also have a licence. The fact that either the House or Senate did not have the curiosity to investigate what burdens this industry already faces, or they knew what burdens this industry was under is not acceptable.
Impact
Jerry Millen, owner of Greenhouse of Walled Lake in Oakland County is the county’s first licensed recreational and medical marijuana dispensary. Millen stated that the Greenhouse of Walled Lake caters more to an adult customer base, as its average client age is 44.
We are a senior-friendly business. “We have many 80- and 90-year olds who come to the store every day,” Millen stated.
Millen, who spoke to the Advance Tuesday about the tax and its impact on marijuana users in general, stressed the therapeutic uses of the drug.
Every day, I come across seniors who are unable to sleep and have arthritis pain. Millen explained that she worked with cancer sufferers. Since 15 years, I’ve been using this medicine and would never have believed that it was a product. “I didn’t believe in it when I began, until I was able to see and meet these people.”
Millen has referred to the 24 percent tax on excise as an attempt by the state to grab money from customers. This will make it appear that the customer is being overcharged.
Millen suggested that it would be absurd to shop at one dispensary and receive a receipt with a tax of 16 percent on marijuana, then go into another with a tax of 40 percent on the bill.
You’re going to go crazy, he told me.
Millen stated that, however, the 24-percent tax will not appear on the invoice, because the cost of the item is hidden behind retailers.
Kevin May, Glacier Cannabis’ part-owner and a cultivator of craft cannabis in Manchester, Michigan said wholesalers couldn’t absorb the costs, so dispensaries had to pay the bill, then pass it on to customers.
Pollicella Millen, and May, all of whom agreed, said that when it came to the new taxes, the consumer will feel its impact.
It’s still a struggling industry. This is still an industry in trouble. May stated that the industry is about to collapse due to its oversaturation.
Millen stated that many patients have given up their medical marijuana cards since the legalization in California of recreational marijuana. The doctor warned that an increase of 24 percent in the price might prevent medical marijuana patients getting what they require.
Millen says that while his older customers are unlikely to use the black market anymore, the resurgence of the black markets is concerning for anyone under the age of 18.
Millen added, “Even those against marijuana have to take a stand, since marijuana is legal. It will be sold.” But now that black markets can return, it means that your kids will probably get their hands on some products from the black market that will be dangerous. “You should fight against this tax as well.”
Millen says that a new tax could also lead to the loss of jobs for “mom & pop” marijuana growers and processors.
Pollicella stated that there were easily another 40,000 jobs supporting the cannabis industry. These include accountants and attorneys as well as tax preparation, real estate developers, and entire banking departments.
May and Pollicella, although they disagreed on the idea that the new tax would decimate this industry completely within the State, agreed it was likely to result in consolidation.
Pollicella said: “Some people who work in the entertainment industry are very wealthy. But I’ll also admit that a large majority haven’t made back their money yet.” She added that tax increases will cause people to lose their jobs in an unstable time, when many are struggling with finding employment.
Even though there will be layoffs, those who are laid off now will have the opportunity to get a job in the future as businesses will fill up the voids left by the recession.
Although some tax opponents expressed concern that a price increase could scare away consumers in bordering communities, May was not concerned, pointing out that Michigan residents have the lowest prices on weed anywhere in the country.
May says that border states, like Ohio, have high prices, low quality products and strangely large quantities of the same product.
May continued, “I’m still convinced that the border shops are going boom.” If you are weak, not running properly and having trouble keeping your costs in check, then you will have an issue.
The original publication of this story is Michigan Advance.