Michigan could have some of the lowest tax rates on recreational marijuana in the nation if Michigan residents choose to legalize it at the polls in November.
To date nine states have legalized marijuana use, each with their own approach to taxing the substance.
The Michigan proposal would make recreational marijuana legal for those 21 and over, with a 10 percent excise tax on the sale price, as well as the standard state sales tax rate of 6 percent. Excise taxes are paid by the retailer under the proposal, while sales tax is paid by the consumer.
“We didn’t want to be the highest in the country,” said Josh Hovey, spokesman for the Coalition to Regulate Marijuana Like Alcohol. “Where we sit with the rest of the country is a good thing.”
Discouraging the black market
The Coalition to Regulate Marijuana Like Alcohol consists of multiple cannabis activist groups, the ACLU and drug policy reform groups. They’ve hired Hovey, a vice president at the public relations firm Truscott Rossman, to lead communications.
The coalition drafted a proposed law to legalize the recreational use of marijuana, limiting its use to those over 21 and continuing bans on smoking in public places or driving under the influence. After the legislature declined a chance to pass it themselves, the law will be decided on by voters during the Nov. 6 election.
“It’s not a huge tax, but it’s significant,” said Matthew Abel, a senior partner at Cannabis Counsel, a boutique marijuana law firm in Detroit, and the executive director of the Michigan chapter of the National Organization for the Reform of Marijuana Laws.
Abel was on the Coalition to Regulate Marijuana Like Alcohol’s drafting committee for the proposed law.
“The argument against taxing the hell out of (recreational marijuana) and making the tax as high was we could is that having a lower tax encourages people to shop in the legal marketplace as opposed to staying in the illegal market,” Abel said.
Medical marijuana carries a 3 percent excise tax and the 6 percent sales tax. The excise tax would go away on medical marijuana if voters decide to legalize, Hovey said.
Opponents to legalization in Michigan claim the proposed 10 percent excise tax rate on recreational weed would be the lowest in the country.
“Michigan would become the Marijuana Capital of America if this passes,” said Scott Greenlee, president of Healthy and Productive Michigan — a group backed by the national anti-legalization campaign Smart Alternatives to Marijuana. “The 10 percent tax rate is the lowest of any state that has recreational marijuana, and yet people would be able to have more of it on them (2.5 oz) and in their homes (10 oz) than anywhere in America. Even if you favor recreational marijuana, this is just a bad, poorly-written proposal.”
Lower taxes than Colorado
Michigan’s proposed tax rates would be lower than the rate in Colorado, where there’s a 15 percent excise tax and 15 percent sales tax on recreational marijuana. In 2017, revenue from taxes, licenses and fees in Colorado was $247.4 million, according to state figures.
States with lower tax rates include Oregon, which charges a 17 percent sales tax on marijuana with local taxes up to 3 percent, and Massachusetts, where there’s a 6.25 percent excise tax, 10.75 percent sales tax and up to 3 percent in local taxes.
In Washington, marijuana has a 37 percent sales tax — which brought in $315 million in revenue for the state in 2017. That year saw total sales of legal marijuana of $1.3 billion, according to state figures.
Nevada also has a higher combination of excise and sales tax than what is proposed in Michigan: 15 percent excise tax on the wholesale sale, which is paid by the cultivator; and 10 percent excise tax on the retail sale, paid by the retail store. That combination garnered $30 million in the first six months after marijuana was legalized in the state in July 2017.
Every state that has legalized marijuana has come up with a different tax approach, which makes them difficult to compare to each other, Hovey said. In California, legal weed undergoes a 15 percent sales tax, plus taxes of $9.25 per ounce of flowers and $2.75 per ounce of leaves — as well as local taxes that could be up to 8 percent.
$200M in revenue
Hovey said soft estimates for Michigan’s tax revenue expectations are $100 million to $200 million. The coalition behind the ballot proposal is planning to hire a research firm for an economic impact study to present more solid figures, Hovey said.
Anecdotally, Hovey is optimistic that the tax revenue will be much higher: Michigan has the second-largest medical marijuana market in the country, and has a population that is nearly double the size of Colorado.
Greenlee cast doubt on the ability of tax revenue from recreational marijuana to pay off for the state.
“The pro-pot side says this will create new tax dollars ($200 million) for our roads and schools…but really that projection appears to be a gross number versus a net number, and it is a projection,” Greenlee said.
Money for school, roads and research
Under the proposed legislation, the tax revenue would be used to cover administration of the program and $20 million annually to research the use of marijuana in treating U.S. military veterans and preventing veteran suicide for at least two years until 2022.
Any remaining funds would be divided:
– 15 percent to cities with marijuana retail stores or micro businesses
– 15 percent to counties with marijuana retail stores or micro businesses
– 35 percent to the school aid fund for K-12 education
– 35 percent to the Michigan transportation fund for roads and bridges
Abel said the excise tax will generate large revenues in the first several years — but it won’t be a sustainable source of income in the long term as marijuana becomes more ubiquitous and the price drops.
“As the price goes down the revenues will drop,” Abel said, explaining the legislature will have to act in the future to keep revenue coming in from recreational marijuana.
Comparatively, revenue from the 12 percent wholesale tax on liquor was $163 million and revenue from the $0.10 per cigarette tax and 32 percent tax on other tobacco products was $951 million in 2017, according to state figures.