Pevita Pearce
Efforts to repeal Michigan’s newly instituted 24% wholesale marijuana tax are gaining momentum in the state legislature, driven by a bipartisan coalition of senators who argue the tax is detrimental to the burgeoning cannabis industry and potentially the state’s economy. Senate Bill 810, introduced by state Sen. Jonathon Lindsey (R-Coldwater), has garnered support from five Republican and three Democratic senators, signaling a potential shift in legislative sentiment. However, the path to repealing the tax, which was a critical component of the state’s road funding plan, is fraught with political and financial challenges.
The wholesale tax, implemented as part of the Comprehensive Road Funding Tax Act (House Bill 4951), has been met with significant opposition from cannabis industry stakeholders, who contend it is unsustainable and will lead to a cascade of negative consequences, including business closures, job losses, and a resurgence of the illicit market. This sentiment is echoed by some lawmakers who are now advocating for its reversal.
The Genesis of the Tax and Emerging Opposition
The 24% wholesale marijuana tax was controversially added to House Bill 4951, a bill ostensibly focused on road funding, through a substitute amendment introduced on September 25th. This legislative maneuver bypassed the typical public comment and debate periods, drawing criticism from opponents who argue it prevented affected parties from mobilizing in opposition. Rep. Samantha Steckloff (D-Farmington Hills) was the sponsor of the original House Bill 4951.
"The whole purpose of having the time there is so that people that are impacted can have time to mobilize," stated Karen O’Keefe, director of state policies at the Marijuana Policy Project. She believes legislators "rushed" the legislation through to circumvent anticipated opposition, a sentiment shared by many within the cannabis sector.
The rationale behind the tax, as presented by proponents, was its contribution to Governor Gretchen Whitmer’s $1.8 billion road funding initiative. Legislative analysts projected that the tax could generate approximately $420 million annually, a figure that opponents have contested as inflated. The passage of the tax was a key element in securing bipartisan agreement on the state budget, which had been stalled, leading to the approval of a temporary spending plan on October 1st before a full budget agreement was reached after an all-night session on October 3rd.
State Rep. Joseph Aragona (R-Clinton Township) acknowledged the reluctance surrounding the tax, telling MLive after its passage, "We didn’t want to do it. We don’t like it, but this is the deal that was cut." This statement highlights the compromise and political maneuvering that characterized the budget negotiations.
Industry Repercussions and Early Data
Since the implementation of the tax, concerns about its impact on the legal cannabis market have been mounting. Industry advocates and some lawmakers point to early data suggesting a downturn in sales. January revenue figures released by the state Cannabis Regulatory Agency indicated the lowest monthly sales since February 2023, with sales reaching $226 million, a notable decrease from the preceding 12-month average of $264 million.
Sen. Jeff Irwin (D-Ann Arbor), a co-sponsor of Senate Bill 810 and a vocal critic of the tax, expressed caution about directly attributing the January dip solely to the new tax, stating, "I don’t think we have the data yet to be able to show this steep drop is directly related. But when we unscramble all that spaghetti, I think it will show a significant decrease in out-of-state customer sales." He and others predict that the increased cost will deter out-of-state consumers, who represent a significant portion of the market, and ultimately fuel the black market.
The potential for increased illicit sales is a major concern. O’Keefe shared an anecdote about a legal business owner who, after investing her life savings into a cultivation business, stated that she would be unable to absorb the 24% wholesale tax. "If you have people that go out of the legal business, that have already put in all this money, that might create more illicit demand too," O’Keefe warned. This sentiment suggests that instead of eradicating the black market, the tax could inadvertently bolster it by pushing struggling legal businesses towards illicit operations.
Legal Challenges and Judicial Review
Adding another layer of complexity to the situation, the Michigan Cannabis Industry Association, the state’s largest marijuana lobby, filed a lawsuit challenging the legality of the tax. The lawsuit contended that the 24% wholesale excise tax constituted an amendment to the 2018 voter-approved law, which already included a 10% excise tax. Under the Michigan Constitution, changes to voter-enacted legislation require a three-fourths majority vote in both the House and Senate.
However, Michigan Court of Appeals Judge Sima G. Patel dismissed the argument that the tax amended voter-approved tax amounts on January 5th, ruling that the additional tax did not alter the voter-approved tax rates. While Judge Patel dismissed the argument regarding procedural violations, she did allow the lawsuit to proceed on the grounds that the tax could "arguably change the intent of the recreational marijuana law."
In her order, Judge Patel noted, "It is not certain on this record whether the 24% wholesale excise tax will impact prices to the extent purchasers will be driven to the illicit marijuana market." The lawsuit remains ongoing, with a status conference held in February to further address the legal arguments.
The Budgetary Tightrope and Future Implications
The potential repeal of the 24% wholesale marijuana tax presents a significant fiscal dilemma for the state. If the tax is removed, the projected $420 million in revenue would be lost, creating a substantial gap in the current budget. This would necessitate difficult decisions regarding budget cuts or the identification of alternative revenue streams to fund the road improvement plan.
Sen. Irwin, while advocating for repeal, acknowledged the budgetary implications: "I don’t think anybody, even the folks who put out the estimate that this was going to raise $420 million, I don’t think they believed that. If that number is reduced to zero, that creates a bigger hole than the one we’re already looking at. But this roads plan was passed with a hole already in it, structurally, because the revenue estimates were not realistic." This suggests that the initial revenue projections may have been overly optimistic, even before the tax’s impact on the market is fully realized.
The wholesale tax is scheduled to be collected quarterly, and as these payment deadlines approach, the financial strain on cannabis businesses is expected to intensify. O’Keefe predicts a "devastating effect" on the industry, warning of widespread job losses and the erosion of benefits for workers.
The Path Forward: Political Hurdles and Shifting Alliances
The repeal effort, while gaining bipartisan traction, faces an "uphill climb," according to Sen. Irwin. The bill has been referred to the Senate Committee on Government Operations, where its fate will be determined. For Senate Bill 810 to pass, it requires a simple majority in both the House and Senate.
The political landscape surrounding the marijuana tax is complex, intertwined with the state’s broader fiscal priorities and the ongoing debate over road funding. Lawmakers are now faced with the challenge of balancing the need to support a growing industry with the commitment to infrastructure improvements. As Sen. Irwin noted, "I think as members start to reckon with, not just the damage that’s being done to the industry—but also the businesses that are being shuttered, the jobs that are being lost, and the revenue that we’re not seeing to schools and local governments—when all those chickens come home to roost, I think there might be some members who change their minds."
The coming months will likely see intense lobbying efforts from both sides of the issue. The cannabis industry will continue to advocate for the repeal, presenting data and personal testimonies to illustrate the detrimental effects of the tax. Conversely, proponents of the road funding plan will emphasize the budgetary void left by the removal of the tax and the necessity of alternative funding solutions. The outcome of Senate Bill 810 will not only shape the future of Michigan’s legal cannabis market but also have significant implications for the state’s fiscal health and its commitment to infrastructure development. The legislative process, often characterized by compromise and shifting alliances, will be closely watched as lawmakers navigate this contentious issue.
