Proposed 32% tax hike leaves marijuana business owners worried

Michigan’s marijuana enthusiasts pay a small price – the lowest price per ounce of marijuana in the country. But Whitmer recently proposed a 32% tax hike on wholesale marijuana products as part of her “Mi Road Plan” to help fund roads.

The 32% tax would be atop the current 10% excise tax and the 6% sales tax on marijuana products. This added cost would be passed to consumers, which would drive these record-low prices even lower, and Michigan marijuana businesses worry this will shut down already struggling doors.

In the past year, adult-use marijuana costs have dropped nearly 30%, from a little over $90 to just around $65 per ounce of marijuana. Crain’s Reporter Dustin Walsh told Stateside that the tax hike would hurt the state’s marijuana growers.

“The real issue is that these cultivators in these processes just aren’t paying that wholesale tax now, and they’re relying on the retail outlets to sell the product and return the money to them,” Walsh said.

In her press release, Whitmer wrote that the tax hike would fund roads with an additional $470 million. In the 2024 fiscal year, the state received more than $331 million from the Michigan Marijuana Regulation Fund. Michael Ward, CEO of marijuana grower Harbor Farmz, said that the tax hike would take money away from both Michigan and its cannabis industry.

“It’s like a catch-22-tax-us-to-death, which is going to kill us. Well, if the taxes see death and we all die, they will not get the money that they’re looking for from the tax revenue from the cannabis industry, which is also already contributing hundreds of millions of dollars to municipalities and the state.”

Businesses also worry that the tax proposal could revive the black market. Low marijuana prices kept the product in the legal market because the black market couldn’t sell it at a cheaper rate. The tax hike could change that.

Walsh said desperate marijuana businesses might have higher incentive to participate in the illicit market.

“You’re now going to create more desperate operators, more cultivators and processors that are desperate because now that money, they owe more money now in taxes,” Walsh said. “And if it drives them into more desperate situations, you’re going to see them potentially loading trucks up with marijuana and shipping it to markets where it’s more expensive or doing other illicit market products.”

The adult-use marijuana market is still relatively new, meaning that everyone is dealing with the “growing pains,” according to Walsh.

Anyone can get in the industry and play as long as they can raise the amount of money, there is no sort of guardrails on that sort of thing,” Walsh said.

For now, he said the Michigan legislature seemed to have taken a step back from the proposal once reporting came out.

“The administration has been very clear with me and others that, ‘Hey, this is just a framework, where we want to negotiate about it,” Walsh said. “This was just an idea. It seemed like they sort of started stepping back away from this tax a little bit after reporting on it came out.”

Whitmer’s office told Stateside that they look forward to negotiating the specifics of the proposal with the Michigan legislature.

Hear the full conversation with Dustin Walsh on the Stateside podcast.