Reforms could help medical pot generate $63M in taxes

Jonathan Oosting
Detroit News Lansing Bureau

Lansing – Regulating and taxing the medical marijuana industry could generate up to $63 million a year for the state and local governments, according to a new economic analysis.

It’s a conservative estimate, said Gary Wolfram, director of economics at Hillsdale College and a former deputy state treasurer for taxation and economic policy. He released the calculations Monday on a legislative package approved last year by the state House but not yet taken up by the Senate.

“This is going to generate revenue — probably a lot of revenue,” Wolfram said Monday on a conference call organized by the Michigan Cannabis Development Association, which commissioned the report.

The House bills Wolfram analyzed would require the state to license medical marijuana storefront dispensaries, growers, processors, distributors and safety testers. Registered patients who purchase the drug at a dispensary would pay the state’s 6 percent sales tax and retailers would pay a 3 percent tax on gross profits.

Wolfram estimated that the proposed taxes would generate $44.3 million in annual revenue for the state and local governments if roughly two-thirds of existing medical marijuana patients bought their product at a licensed dispensary, rather than from a caregiver.

If 80 percent of registered patients became regular dispensary customers, the taxes would generate $52.9 million. And if the regulated system encouraged a 20 percent increase in registered patients, the taxes could generate $63.5 million, according to the analysis.

Wolfram said his study was informed by data from states such as Colorado, which had a regulated medical marijuana system long before voters approved recreational sales in 2012. But he did not analyze what effect the proposed tax rates would have on patient numbers and customer behavior.

“There could be some drop-off, but given what we know about … how responsive demand is to price changes in the marijuana industry and other industries like it, it’s fairly inelastic,” Wolfram said.

He estimated a licensed and regulated medical marijuana industry could sustain an estimated 10,000 jobs, including people who might already work at existing dispensaries not currently licensed by the state.

Michigan’s 2008 medical marijuana law created a system of patients and caregivers who are allowed to grow a limited number of plants. But the law did not address retail dispensaries, which have continued to operate in some parts of the state despite a 2012 state Supreme Court ruling that empowered county prosecutors to shut them down.

The Michigan Cannabis Development Association is among a handful of business-minded groups urging the state Senate to take up the House-approved medical marijuana licensing bills.

“People just want guidance and regulation,” said association vice president Willie Rochon. “They want their legislators to act now without more delay.”

Patient advocates have long called for legalized dispensaries, but one of the state’s top associations dropped support for the House bills late last year when the Senate modified them to create a tiered licensing system, which they fear would drive up prices.

The legislation is stuck in the Senate Judiciary Committee, where Chairman Rick Jones says he does not have the votes to move them but is asking leadership to discharge them to the floor.

“I think it’s critical that we act because we now have cities that are out of control with dispensaries popping up everywhere like dandelions, and I’m fearful that some people may be selling product that’s not safe,” said Jones, R-Grand Ledge.