Michigan could gain millions in tax revenue in legal marijuana market

LANSING — A fully developed legal market for medical marijuana in Michigan could lead to millions of dollars in new state tax revenue.

Exactly how much is open to interpretation, but some analysts’ estimates suggest it could top $63 million a year.

New regulations for the state’s medical marijuana industry, signed by Gov. Rick Snyder and taking effect in December (though a licensing system won’t be active until December 2017), will require a 3 percent excise tax on dispensaries’ gross sales receipts.

That could yield $21.3 million annually in revenue to the state, based on roughly 204,000 registered medical marijuana patients in the 2016 fiscal year, according to the Senate Fiscal Agency. The agency estimated Michigan’s medical marijuana market could exceed $711 million, should prices and customers’ buying habits mimic those in Colorado, which has a more established market today.

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Additional revenue is expected if marijuana retail sales are subject to Michigan’s 6 percent sales tax — to the tune of $42.7 million — and with the collection of state and local licensing fees, the fiscal agency wrote.

Michigan could be the third-largest state medical marijuana market by 2020, with $556 million in projected sales that year, according to a 2016 report from ArcView Market Research, which analyzes cannabis industry trends and statistics through San Francisco-based The ArcView Group. Michigan would rank behind California and Colorado, and ahead of Arizona and Oregon, the report suggests.

This year, legal marijuana sales in the U.S. could reach $7.1 billion, up 26 percent from 2015, according to ArcView. The figure includes recreational adult use. It estimates legal marijuana sales in the U.S. will top $22 billion by 2020, with recreational adult use comprising slightly more than half of total sales.

The Tax Foundation, based in Washington, D.C., forecast in May that a mature cannabis industry could produce as much as $28 billion in tax revenue at federal, state and local levels.

“The industry supporters, the people advocating for it, want to tax it because they view (taxation) as a step toward legitimizing it,” said Joe Henchman, vice president of legal and state projects for the Tax Foundation. “It kind of scrambles some of the traditional narratives.”

Even among advocates, though, is the concern in Michigan that new taxes and other regulatory fees will raise the price of marijuana products, potentially to the point they’re no longer affordable, said Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, or NORML, a Washington, D.C.-based advocacy group.

“The notion is, what we do not want to do is attach so many fees associated with the legal market that that market can no longer compete with the illegal market,” Armentano said, “and therefore we continue to allow that illegal underground market to flourish.”

There is some evidence that could happen. The Tax Foundation studied tax structures in the four states that legalized recreational adult use of marijuana; several initially imposed tax rates in the double digits, according to the Tax Foundation. Some of those states now are lowering their rates, Henchman said.

Colorado, for instance, charges a 15 percent tax on the wholesale marijuana price and a 10 percent state tax on the sales price; the latter will go to 8 percent in July 2017, according to the Tax Foundation.

Washington state charges a 37 percent excise tax on the retail sales price, while Oregon levies a 25 percent excise tax on the sales price; Oregon’s rate will fall to 17 percent later this year.

“A lot of people switched, but not enough, and that suggested the rates were too high,” Henchman said. Lowering rates could be a way to ensure taxes are “not so high that it’s inducing people to go and find a black market dealer.”

Gary Wolfram, William E. Simon professor in economics and public policy at Hillsdale College, in February published a report estimating that Michigan’s excise and sales tax windfall from the new regulations would range from $44.3 million to $63.5 million annually. The lower amount was based on several factors, including roughly 182,000 registered patients in Michigan in the 2015 fiscal year and an assumption that two-thirds of them would buy marijuana from a licensed dispensary.

The amount could increase to $52 million if 80 percent of current patients bought cannabis from a dispensary, and $63.5 million if Michigan’s patient count increased to 219,000, Wolfram found.

About The Author

Lindsay VanHulle

Lindsay VanHulle covers business and Lansing for both Bridge and Crain's Detroit Business. She can be reached here. 

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Comments

James
Mon, 10/17/2016 - 8:04am
As politicians destroy old and reliable sources of state revenue, you will hear more cries why gambling, prostitution, and drug legalization will all bring lost revenue to the state. It's true. But, at what cost to morality is never discussed in any meaningful way. What should not be forgotten are the incumbent politicians that have gotten to this deplorable state and vote them out of office.
Barry Visel
Mon, 10/17/2016 - 8:32am
Our sales tax is 6%, period. Why would we even consider any additional taxes or fees? Our tax on liquor should also be 6%, and no more. Special carve outs for certain products is the same as special carve outs for tax credits, deductions and incentives...which leads to more than $30Billion of tax expenditures each year, just in Michigan. We don't need new taxes...we don't need new fees. Just collect what we give away now and use the windfall to reduce current tax rates, cover additional legitimate needs, take care of legacy problems, and we'll do just fine. The side benefit would be getting government out of our lives.
Lola Johnson
Mon, 10/17/2016 - 8:50am
I still don't understand why there should be an "excise tax" on medical marijuana. People use this product INSTEAD of prescription drugs. If such drugs are not subject to sales tax, why should medical marijuana be? To add an excise tax on top of a sales tax is just plain greed, one more way to get out of taxing corporations. We need to make up our mind if pot is for medicine or recreation, THEN decide about taxing.
Steven M Smewing
Mon, 10/17/2016 - 9:32am
That 3%excise tax is a huge win for medical marijuana. The state has to implement a seed to sale system. The spread between the cost and tax is slim. As for those who are saying the state is going to hell for allowing medical marijuana, your ignorance and lack of compassion will put you there first.
John Kroneck
Mon, 10/17/2016 - 10:08am
In general, for every dollar we collect in taxes on alcohol and tobacco, we take on $10 in social costs to address the issues people have in using these products. It is reasonable to expect the same type of relationship with marijuana products. In addition, when availability increases so does use and intensity of use by our youth. Therefore, from a projection of 44.3 to 63.5 million in tax revenue, we can project 443 to 635 million we will be expending through counseling and other social programs along with losses to businesses. Ironically, with all the talk about THC, science tells us that it is the CBD in marijuana that far and away has the most medicinal value. Plus, CBD does not have the "side effect" of altering consciousness and therefore, brings limited public health concerns and social costs. History tells us, though, that the "medical marijuana" will be focused on higher and higher THC levels.
John S Porter
Mon, 10/17/2016 - 7:27pm
Mr kroneck, where do you get these numbers? They sound absurd.
ArtZ
Thu, 10/20/2016 - 7:32pm
Yup raise new revenue source. The FDA covers/regulates cigarettes, sugar tran fats alcohol & many others. No studies warning labels age restrictions in Colorado only state sets standards for the new found honey pot.
***
Sat, 10/22/2016 - 7:17am
Some people would avoid the tax by growing it on their own in a basement with grow lights or outside somewhere.
Heather Thronson
Fri, 11/11/2016 - 11:03am
I was so skeptical about medical marijuana. It just seemed like a way for people to get high when it first became legal in 2008. I was strongly against it. But then my elderly fathee was diagnosed with stage 3 lung cancer. This was the worst and darkest time in my family. We tried everything and in 2 months he was almost gone. Then we learned about the medicinal benefits of marijuana. While I, like most people, only know about the THC compound that makes people feel "stoned" and "high" there are over a hundred other compounds that are really great for the body. One is CBD! The CBD compound stops cancer cells from feeding and growing by plugging up little receptors on cells and tumors. When they are all plugged up the cell starts to kill itself! Marijuana makes cancer cells commit suicide. We found a local group of caregivers who educated us more, put us in touch with a doctor to get our medical marijuana card, and then those guys have is all the CBD we could possibly need. My Dad took it as suppositories they made, as well as the CBD oil by mouth. The guys we got it from made sure it was the best as sooooo many CBD oils are available but each oil is good for different conditions. What I did learn is that the body neesa not just CBD but also THC too to help kill these cells, but don't worry! You can find different types of marijuana that have lots of CBD but little THC so you get all the health benefits and no "high" feeling. My father is still alive and he still gets his oil from those guys. His cancer is completely gone, though he'll never stop taking the oil he says. We have since met a family who had a daughter aged 9 with terrible seizures. She has since started on a CBD oil and she rarely gets seizures anymore!!!! She's only had 2 this year (normally she would have had as many as 25 by now), and when she has gotten them, they've rubbed CBD on her feet and it stopped the seizure in like 90 seconds! Let's be hard on our government to enforce the law, but to allow small businesses to open and sell this miracle medicine! Medical marijuana really saves lives! I know people driving hours just to find medicine because locals in southwest Michigan are afraid! The sad part is meeting people who just lost loved ones to cancer, ALS .... And they don't even know about this stuff! If you need to know where to find medicine, look up these guys Graeat Lakes Crops Company. They grow their own medicine, make their own oil from the plant, get all their products tested for purity, clearly labeled and child proof packaging too. They saved me dads life! Don't let these lies about the plant stop us from healing! Don't forget that our government has a PATENT on the medicinal benefits in marijuana! Yes - the government has a patent on using marijuana to fight cancer and other diseases....but we are just now getting access.