7 things to know: What would Michigan’s new weed tax mean for you and your stash?

A new wholesale tax on marijuana could help fix the damn roads. But it could also raise prices for consumers and shake things up for businesses, industry leaders warn. 

MICHIGAN—A new budget plan announced this month by Gov. Gretchen Whitmer calls for higher taxes on cannabis products as part of her longstanding mission to “fix the damn roads.”

The plan could generate hundreds of millions of dollars annually to help fund infrastructure projects statewide. But industry leaders warn the new weed tax could also carry some unintended consequences for the industry at large—including higher prices for consumers, thinner profit margins for companies, and a resurgence in illegal, black market sales. 

Here are seven key things to know about Whitmer’s plan:

1. Prices at dispensaries would climb.

Michigan currently boasts some of the cheapest, legal weed in the country. An ounce of flower averages out to $67. And that’s thanks, in part, to the state’s relatively low tax rates.

Under the law, Michiganders now pay a standard 6% sales tax and an added 10% excise tax on all recreational marijuana products—for a total of 16% beyond the sticker price. That’s one of the lowest tax rates in the country, second only to New Jersey, reports Detroit Metro Times.

Whitmer is calling for a new wholesale tax on weed—potentially as high as 32%. And that would almost certainly translate to higher prices at the dispensary, industry leaders told MLive. 

A 32% price hike would raise the current average price of an ounce by about $21 to $88.

That’s still far cheaper than prices in neighboring Ohio or Illinois, but still a big change for Michigan stoners who are now growing accustomed to their bargain-basement prices.

2. The cannabis industry is on edge.

Marijuana sales have exploded in Michigan since legalization, topping $3 billion in sales last year. But many businesses are already struggling with razor-thin margins and oversupply.

Industry leaders told Crain’s Detroit Business that a new tax would only put further strain on cultivators and processors in an industry that’s already mired in layoffs and facility closures. One Michigan dispensary owner told Axios that higher taxes would force some shops to close.

Increasing the tax burden on the cannabis industry would “absolutely devastate the regulated market,” Robin Schneider, executive director of Michigan Cannabis Industry Association, a trade organization representing more than 400 members statewide, also told MLive this week. 

“(The plan is) disproportionately unfair to wholesalers—a death knell if implemented in current market conditions,” Brandon Kanitz, CEO of Grand Rapids-based Fluresh LLC, doing business as Tend.Harvest.Cultivate, told Crain’s this week. “There are better ways to raise revenue.”

3. The plan targets a so-called tax “loophole.”

Whitmer’s administration has framed the new tax as “closing a loophole”—namely because marijuana isn’t subject to the same wholesale tax on other smokable products like tobacco.

The new 32% tax would bring in an additional $470 million annually for road repairs, Whitmer estimates. In a release, her office also pointed to the various ways in which the industry wears down roads by transporting products between processors, testing labs, and dispensaries.

But industry advocates argue that the existing tax structure isn’t a loophole at all—but how the law was designed when voters approved the 2018 ballot initiative to legalize recreational weed.

“We intentionally kept the tax rate low enough to compete with the illicit market,” Schneider told MLive this week. “A wholesale tax would backfire and lead to less tax revenue because consumers would go back to the unregulated market where prices would be lower.”

4. A black market comeback is possible.

Michigan’s low prices have helped curtail the illicit market by making it easier for consumers to buy weed legally. But experts warn that higher prices at dispensaries could send more people back to the unregulated market, where taxes don’t apply and products aren’t tested for safety.

And that would essentially “undermine the primary goal of legalization,” which is to provide adults with safe, affordable, above-ground access to lab-test products of known purity, potency, and quality, according to the National Organization for the Reform of Marijuana Laws (NORML).

“This proposed tax increase will also likely hurt state-licensed businesses and their employees because it will increase their costs and reduce their customer base,” Michigan NORML said in a statement, urging lawmakers to reject any increase to the state’s current marijuana tax rate.

As a cautionary tale, industry leaders have also looked to California—where sky-high weed taxes have been blamed for a thriving black market, even several years after legalization.

5. Out-of-state buyers might stick around.

Border-town dispensaries in Michigan rely heavily on Ohio and Indiana customers who cross state lines for Michigan’s cheaper weed. While a new tax could raise prices, Michigan’s cannabis would likely remain a bargain compared to other states like Ohio or Illinois.

In December, an ounce of weed reportedly cost about $210 in Ohio and more than $275 in Illinois—which would still be much more expensive than Michigan’s rates, even with a new tax.  

6. It could be a long-term road funding solution.

The proposed tax is part of the Whitmer administration’s larger “MI Road Ahead” plan, which aims to secure a more stable, long-term funding source to support infrastructure statewide.

The marijuana tax alone is expected to bring in nearly half a billion dollars annually—which would provide a new and consistent revenue stream as the state’s gas tax revenues decline.

7. The details are still murky.

While initial estimates released from Whitmer’s office suggest the new marijuana tax could be as high as 32% to match the state’s wholesale tax on tobacco, Whitmer hasn’t specified exactly how large it would be or how it would work. The final numbers are still open to negotiation.

This week, House Speaker Matt Hall (R-Richland Township) told MLive that he doesn’t think any tax increase on weed will be necessary to solve the state’s long-term road funding problem.

READ MORE: 7 quick hits of cannabis news from across Michigan

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