Tag: excise tax

After delivering a serious blow to Michigan’s already struggling cannabis industry by imposing a 24% wholesale tax, state lawmakers are now trying to make amends with a set of bills aimed at limiting competition in the oversaturated market.

Democrats who control the state Senate introduced a set of bills on Oct. 2 that would impose limits on new dispensaries and eliminate new large cultivation licenses. 

While the legislation would benefit many established businesses, it would hurt consumers and smaller cities like Hazel Park and Ferndale by reducing tax revenue, eliminating cannabis jobs, and paving the way for regional monopolies, according to state analyses obtained by Metro Times. 

Senate Bill 597, introduced by state Sens. Sam Singh, D-East Lansing, and Jeremy Moss, D-Southfield, would limit each municipality to one dispensary for every 10,000 residents. If approved, the legislation would prevent the state Cannabis Regulatory Agency (CRA) from approving new dispensary licenses in municipalities that already exceed the limit. Municipalities with fewer than 10,000 residents would be limited to one retail license. 

The bill wouldn’t force existing dispensaries to close, but once one shuts down, it couldn’t be replaced until the municipality falls below the cap. 

On Oct. 15, the Senate Regulatory Affairs Committee voted 11-0 in favor of the bill that would cap new dispensaries. 

The caps would defy the voter-approved initiative that legalized recreational marijuana in Michigan in 2018 and called for unlimited cannabis licenses. 

When voters approved recreational cannabis in 2018, the ballot initiative called for unlimited business licenses. So any change to the initiative would require a three-quarter supermajority in the Senate and House. 

While many in the industry support the legislation, it threatens smaller cities like Hazel Park (pop. 19,431), Ferndale (pop. 15,064), and Inkster (pop. 25,108), which have become cannabis hubs and rely on the tax revenue. Hazel Park has 10 dispensaries, Ferndale has six, and Inkster has seven, according to CRA records. The new legislation would limit Hazel Park and Ferndale to one dispensary each and Inkster to two.

Cash-strapped municipalities have come to rely on cannabis revenue. With a 10% excise tax on recreational cannabis sales, hundreds of millions of dollars have gone to local governments, schools, and roads since 2020. 

Municipalities shared nearly $100 million from excise taxes collected last year, according to the Michigan Department of Treasury. For each dispensary within their boundaries, cities and townships receive more than $58,000 annually.

This year, Hazel Park received $582,300, a major source of revenue for a city with rapidly rising pension obligations. Without that money, the city “would have had to make cuts in services or pass those costs on to taxpayers,” Hazel Park City Manager Edward Klobucher told Metro Times in 2024. 

Ferndale received $349,400 in excise tax revenue, and Inkster collected $407,600.  

An Oct. 13 analysis by the Senate Fiscal Agency warns that a cap on licenses will harm small cities and towns and “create regional monopolies or oligopolies preventing new businesses from entering the marijuana market.”

The agency points out that larger cities like Detroit have not yet reached their dispensary limit, but smaller municipalities have. In Detroit, which has a population of 645,705, there are 61 active dispensary licenses. The city’s cap would be 64.  

“If small cities and villages were prevented from increasing the number of dispensaries while larger cities were not, there would be a shift of payments from small towns to larger cities,” the report states. 

The legislation would also bar new large cultivation licenses that permit operators to grow as many as 2,000 plants. 

The bills came in response to a new 24% wholesale tax that will be slapped on the struggling cannabis industry beginning on Jan. 1. With no feedback from the industry or consumers, the House approved the bill 78-21 in late September, and the Senate narrowly approved the tax 19-17 after cannabis business owners spoke out. Gov. Gretchen Whitmer signed the tax into law on Oct. 7.

Hours later, the Michigan Cannabis Industry Association filed a lawsuit against the state, alleging the Senate lacked the three-quarters supermajority required to change a voter-approved initiative. Voters agreed to a 10% excise tax and 6% sales tax on retail cannabis sales. Any new or higher tax, the association contends, amounts to an amendment of the ballot measure and therefore needs a supermajority vote.

Records obtained by Metro Times show lawmakers knew the increase was going to harm the industry and ultimately lead to a drop in excise taxes. On Sept. 26, a day after the House approved the tax hike with no public input, the Michigan Department of Treasury estimated the new tax will shrink the wholesale market by 14%.  

By the state’s own estimates, lawmakers are harming cities that have embraced cannabis legalization and leaving consumers with higher prices and fewer choices. 

At the same time, cannabis businesses are struggling to hang on in an industry that has more product than it can sell. Prices have plummeted, and sales continue to decline this year. Profit margins are razor thin, and many businesses have closed or are on the cusp of calling it quits. 

Reducing competition would control oversupply and help existing businesses survive in a tough, competitive, and expensive industry, advocates say. 

At a Senate Regulatory Affairs Committee meeting on Oct. 15, Moss blamed the wholesale tax vote on House Speaker Matt Hall, R-Richland Township. 

“He said he would shut down the government if the 24% didn’t pass,” Moss said. 

Moss pledged the Senate would “demonstrate in good faith that we are serious about listening to the industry,” which he said was “struggling with too many operators both in the grow and retail space, leading to unprofitability of product.”

Robin Schneider, executive director of the Michigan Cannabis Industry Association, which represents more than 400 cannabis businesses, told the committee that her organization supports the limit on new dispensaries and large-scale cultivation licenses. She said the surplus of marijuana has created “stockpiles of cannabis that are currently sitting in facilities, rapidly losing value across the state.”

“Unlimited cultivation licenses have created oversupply, causing wholesale prices to plummet, financially harming businesses all the way down the supply chain,” Schneider told the committee. “As we’ve seen in other states, unlimited cannabis production in the license market leads to failing businesses and sometimes diversion of product into the illicit market, and that puts our entire program at risk of federal noncompliance.” 

But not all cannabis operators support the cap on licenses. At Alien Tech Farms, a relatively new grower of high-quality cannabis in Vassar, a small city of 2,727 located outside of Flint, the goal was to eventually open a dispensary. But Vassar already has more than one dispensary for every 10,000 residents, so opening one there would be impossible if the cap is passed. 

“This would effectively freeze us all out from vertically integrating or expanding,” Alien Tech Farms owner Steve Wagner said. “That would be pretty tough. … It’s now feeling like we can’t go anywhere.”

He added, “The little guys are seemingly stomped on.”

It’s not yet clear if lawmakers can round up enough votes for a supermajority to approve the bills.

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