Michigan’s cannabis excise tax: A local-level lifeline under siege

Michigan’s legal cannabis industry, a relatively recent addition to the state’s economic landscape, has become a significant revenue generator. The cornerstone of this revenue stream is the 10% excise tax levied on retail cannabis sales. This tax, paid by consumers at the point of purchase, feeds into the state Marihuana Regulation Fund, managed by the Department of Treasury and the Cannabis Regulatory Agency.

The distribution of this fund is where the real magic happens, especially for places like Lansing and the broader mid-Michigan region. The state’s allocation formula is designed to ensure that the benefits of cannabis legalization are felt at the local level.

• Municipal and county distributions: 30% of the excise tax revenue is allocated to municipalities and counties where licensed retail stores and microbusinesses operate. This distribution is based on the number of licensed establishments within each jurisdiction. For example, Lansing’s substantial $1.4 million share and Ingham County’s $1.8 million intake reflect their robust cannabis retail presence. This money is used as the local government sees fit.
• School Aid and Michigan Transportation funds: The remaining 70% of the excise tax revenue is split evenly between the School Aid Fund and the Michigan Transportation Fund. This ensures that the cannabis industry contributes to critical state-level priorities, namely education and infrastructure.

The disbursement isn’t just a number; it’s a critical component of local budgets. Imagine a city council meeting: discussions about park maintenance, afterschool programs or even crucial infrastructure repairs. These are the very line items that get a boost from the cannabis tax revenue.

For Lansing, the $1.4 million is a tangible injection of funds that allows the city to address immediate needs. Perhaps it’s used to repair potholes that have plagued residents for years, or to fund a new community center that provides vital services to underserved populations. In smaller towns like Leslie or Webberville, even the $58,000 received per licensed establishment can make a significant impact. It might mean the difference between keeping a community pool open during the summer or having to shut it down due to budget constraints.

These funds empower local leaders to make decisions that directly benefit their constituents. It’s about local control and local impact. The cannabis industry, through its tax contributions, is essentially becoming a partner in local governance, providing the financial resources needed to address the unique challenges faced by each community. And that’s why Gov. Gretchen Whitmer’s proposed 32% wholesale tax on recreational marijuana, which would create a significantly higher tax burden for cannabis businesses, is so concerning: It threatens to choke off this vital revenue stream, leaving cities scrambling to fill the gaps.

• Impact on pricing and consumer behavior: The wholesale tax would inevitably be passed on to consumers in the form of higher retail prices. This could drive consumers to the black market or to unregulated hemp-derived products, undermining the legal cannabis market and its associated tax revenue.
• Financial strain on local businesses: Small- and medium-sized cannabis businesses, which form the backbone of the industry in Mid-Michigan, would be particularly vulnerable to the increased tax burden. Many of these businesses are already operating on thin margins, and the added tax could force them to close their doors.
• Ripple effects on local economies: The closure of cannabis businesses would lead to job losses, reduced local tax revenue and a decline in economic activity. This would have a ripple effect throughout the local economy.
• Equity concerns: The proposed tax would disproportionately impact social equity licensees, who already face significant challenges in the cannabis industry. This could undermine the state’s efforts to create a more equitable and inclusive cannabis market.

The timing of this proposed wholesale tax is also questionable. The market is still maturing, and the current tax structure is already producing substantial revenue. The sudden change could be devastating.

It’s crucial for policymakers to engage in a comprehensive analysis of the potential impacts of the proposed wholesale tax. They must consider the economic realities of the cannabis industry, the needs of local communities and the importance of maintaining a fair and equitable regulatory environment. The future of Michigan’s cannabis industry, and its contribution to local economies, depends on it.