While we are waiting in anticipation for Governor Whitmer’s expected announcement on the medical and possibly recreational marijuana programs this week, we thought it may be a good idea to mention something that has floated under the radar but will certainly be welcome news to anyone reading this: The recreational marijuana program could be coming sooner than you think!
At this point, you may be thinking—the cannabis business attorneys at Marijuana Microbusinesses may be smoking their own product, but bear with me. There is some solid reasoning to back up this prediction. It is a result of an at the time little noticed provision in the MMFLA that deals with taxes imposed on Medical Marijuana provisioning centers.
MMFLA Excise Tax Set to Expire Soon
If you have researched the Michigan Cannabis market, you probably know that the Medical Marihuana Facilities Licensing Act (MMFLA) authorized a 3% excise tax applied to all consumer sales of Medical Marijuana here in Michigan. This is set forth in an MMFLA provision that specifically imposes the 3% excise tax. The last sentence of this provision holds the key. Specifically, it states that “If a law authorizing the recreational or nonmedical use of marihuana in this state is enacted, this section does not apply beginning 90 days after the effective date of that law.”
Notice that this provision does not say 90 days after the recreational marijuana program is implemented, it says 90 days after the recreational marijuana law is enacted. The law was officially enacted in December 6th, 2018, and 90 days from this date is March 6th, 2019. This means that the medical marijuana excise tax is officially set to expire on March 6th of this year.
Generally we expect any governmental agency—and the Department of Licensing and Regulatory Affairs (LARA) in particular—to take its time when coming up with these sorts of rules. Proposition One—also called the Michigan Regulation and Taxation of Marihuana Act, or simply the MRTMA—gives LARA exactly one year to implement rules governing the recreational marijuana program. As someone who has dealt with LARA throughout their entire legal career, my first thought was that LARA would take every day of that one year rulemaking period. The problem with this line of thinking it that this would leave a lot of tax money on the table, and as you probably know, the government likes to collect its tax revenue.
If LARA were to wait the full one year period to issue rules and implement the MRTMA program, then it would lose more than 9 months of tax revenue from Michigan marijuana consumers. This tax revenue was one of the major reasons that many municipalities decided to opt-in to the MMFLA—they simply needed or really wanted a piece of that pie. These municipalities have only begun to collect this excise tax as it is only being paid by fully licensed medical marijuana provisioning centers. Most municipalities are not even aware that this tax revenue is set to expire so quickly and will be in for an unwelcome surprise come March if and when the tax expires.
Three Possible Scenarios
At this point, there are three possible scenarios for how this will potentially play out:
- The State of Michigan passes a new law to fix the tax expiration provision and extend the taxes either until the recreational marijuana program is implemented or possibly indefinitely.
- Governor Whitmer pushes LARA to implement the MRTMA ahead of the one-year deadline in order to allow the collection of the 10% excise tax on recreational marijuana to make up for the expiration of the 3% excise tax.
- The State of Michigan simply decides to forego the extra nine months of tax revenue and let the medical marijuana program continue on without being able to impose the 3% excise tax.
In my opinion, the least likely of these three scenarios is the 3rd one. There is money on the table, and its not likely the State of Michigan will simply kiss goodbye millions if not tens of millions of dollars of additional tax revenue. That leaves us with the 1st two scenarios—the state passes a law to extend the MMFLA excise tax, or the state speeds up the implementation of the recreational marijuana program so that is can collect the 10% revenue on recreational marijuana sales.
It is hard to predict whether there is sufficient will in the Michigan legislature to extend the medical marijuana excise tax if there is a viable alternative available, especially when the alternative will mean even more money for the State. It is certainly possible that the state will simply extend this tax for another year or maybe more to ensure that it is collecting all possible revenue from medical marijuana sales. It is also possible that the Governor simply decides to speed up the recreational marijuana program instead, especially since the 10% excise tax will collect a lot more money than the 3% medical marijuana tax.
For this reason, there is good reason for the State of Michigan to rush the implementation of the recreational marijuana program here in Michigan, especially since there is already a set of rules for Medical Marijuana that can be easily adapted for Michigan’s recreational marijuana program. With the exception of the Cannabis microbusiness license, all the license types for the medical marijuana program have equivalents in the recreational program. While the plant counts for Class A, B and C growers are different, and the recreational marijuana program calls “provisioning centers” simply “marijuana retailers”, the other cannabis business licenses are virtually identical.
What Does this Mean for Microbusinesses?
So what does this mean for potential Michigan Marijuana Microbusiness licensees? We may be getting rules sooner than originally anticipated. Not only that, but the municipalities will be incentivized to enact microbusiness regulations sooner rather than later since the amount of money they receive from the state excise tax will be directly determined by how many dispensaries and microbusinesses they allow in their municipality. This is in stark contrast to the MMFLA, which tied the municipal revenues to how many total licensees were in that municipality.
With many municipalities wary of having too many dispensaries in their boundaries, the obvious solution would be to allow lots of microbusinesses. Even cities that have authorized a lot of dispensaries—such as the City of Detroit—will be incentivized to essentially “run up the score” with the microbusiness license to ensure they get an even greater slice of the recreational tax pie. This would mean lots of microbusiness opportunities for Michigan business owners looking to enter the state’s recreational market.
What’s the Bottom Line
We could be seeing the Michigan recreational marijuana rules coming sooner than originally anticipated, and if this is the case, then municipalities will be incentivized to quickly enact microbusiness programs to maximize the amount of tax revenues they receive. While it is possible that the state will enact legislation to fix this issue rather than fast track the recreational marijuana program, it is also possible that they will instead quickly implement the program to maximize the amount of tax revenue it can collect.
Our Marijuana Business Attorneys are ready to assist your Michigan microbusiness project. Our attorneys have practiced business, municipal and real estate law their entire careers. Unlike other “cannabis attorneys”, representing local businesses and start-ups is are specialty. If you would like to talk to an experienced Cannabis business attorney, contact us today.
Mr. Roberts is the founder and managing member of Scott F. Roberts Law, PLC, a Detroit-based business law firm. Mr. Roberts has spent his entire career representing businesses and helping them comply with municipal, local and state regulations.
Feel free to contact us for more information.