Welcome to The Straight Dope, a weekly series exploring Michigan’s cannabis industry.
While Michigan’s legal cannabis industry continues to struggle with falling prices and business closures, Gov. Gretchen Whitmer proposes more than tripling the state’s recreational marijuana excise tax to help repair the state’s crumbling infrastructure.
However, by raising the excise tax from 10% to 32%, Whitmer’s plan risks destroying the state’s cannabis industry and fueling the black market, dispensary owners and cultivators tell me. This tax is in addition to Michigan’s existing 6% sales tax.
Michigan’s increased tax rate would be the second highest among the 24 states that have legalized recreational cannabis, trailing only Washington.
Let’s say you’re used to paying $25 for an eighth of cannabis at a dispensary. Today, state sales and excise taxes would cost you an extra $4. However, under Whitmer’s proposal, you would pay a $9.50 tax on the same eighth, bringing the total to $34.50.
Raising taxes would only exacerbate problems for Michigan’s struggling cannabis businesses, driving more customers to the illicit market, where prices are lower and state regulations, such as testing for dangerous banned substances, are not required. Legal marijuana is supposed to deter illegal sales, not drive customers back to them.
“The margins are incredibly tight in this industry, and companies are literally going out of business left and right,” says Stuart Carter, the owner of Detroit-based dispensary Utopia Gardens. “This would drive people to the black market.”
To justify her aggressive tax increase, Whitmer’s administration falsely claims that it would simply “close a loophole” that allowed the cannabis industry to avoid paying higher taxes.
Whitmer maintains that marijuana should be taxed at the same rate as cigarettes, which kill 460,000 Americans each year and remain the leading cause of preventable death, according to the Centers for Disease Control and Prevention.
When Michigan voters approved recreational marijuana in 2018, they specifically agreed to a 10% excise tax. Whitmer’s proposal contradicts voters’ intentions.
Also, equating cannabis with tobacco is deceptive. Cannabis is far less harmful than tobacco and has been shown to provide health benefits.
Incredibly, Whitmer is ignoring the lessons learned from other states that imposed high tax rates. In California, high tax rates have forced thousands of legal businesses to close, giving new life to the unregulated market.
Recreational marijuana sales are subject to state, local, and county taxes, which significantly raise retail prices. In addition to a 15% state excise tax and a 7.25% state sales tax, cannabis businesses must pay local taxes. Cannabis customers must pay an additional 10% local tax in cities such as Los Angeles, Oakland, and San Jose.
Tiffany DeVitt, a board member of the California Cannabis Industry Association and the head of regulatory affairs for CannaCraft, says it’s no surprise that two out of every three cannabis purchases are made in the illicit market.
Despite this, California’s combined tax rates remain lower than Whitmer’s proposal in Michigan.
Oregon faces similar challenges. An oversupply of cannabis and high taxes drove growers and retailers out of business, leaving customers with fewer legal options and enabling the illicit market to thrive.
Other states with high cannabis taxes, such as Washington and Colorado, are feeling the pain.
These cautionary tales explain why Michigan voters imposed only a 10% excise tax.
So why would Whitmer jeopardize Michigan’s cannabis industry, endangering the jobs of over 46,700 people? Unfortunately, Whitmer’s office declined to respond to my numerous inquiries.
Despite an oversaturated market that drives down prices, Michigan’s marijuana industry will generate a record $3.3 billion in sales in 2024, up 9.9% from 2023.
The intense competition has resulted in record-low recreational marijuana prices — around $69 per ounce of flower. Although many in the cannabis industry believe the low prices are unsustainable in the long run, they are a major reason many consumers avoid the black market. Imposing a combined 38% on products would change this.
The low prices are the primary reason Michigan ranks second in the nation in legal marijuana sales per resident, trailing only Alaska, where tourism has boosted sales.
Whitmer claims that raising the excise tax will generate an additional $470 million in taxes, but her administration’s estimate ignores the reality that her proposal would drive consumers away from the legal market. In California, tax revenue from cannabis sales fell from $361.4 million in 2021 to $263.1 million last year, as the black market expanded.
Cannabis business owners argue that Whitmer’s plan, which still requires approval from the Republican-led Legislature, is a quick way to upend an already struggling industry.
“The industry is struggling, businesses are closing, and the black market is thriving,” says Jerry Millen, who owns the Greenhouse of Walled Lake, Oakland County’s first licensed dispensary.
“Increased taxes will only make matters worse. Unlike alcohol and cigarettes, cannabis benefits people, so why punish those who use it? Politicians must stop viewing this as just another cash grab and instead prioritize the well-being of patients.”
Fortunately, Whitmer cannot impose the tax alone. It’s unclear whether she’ll be able to persuade the anti-tax Republican Legislature to support her proposal.
