In the most recent edition of our Local Government Newsletter, we reported on the State’s new Medical Marihuana Facilities Licensing Act, Public Act 281 of 2016 (“Act 281”). Under Act 281, municipalities have the option of allowing five types of marihuana facilities in their jurisdiction. The five types of facilities that can be licensed and permitted include the following: grower, processor, provisioning center, secure transporter and safety compliance facility.
Importantly, however, no municipality is required to allow any of these facilities in their jurisdiction. Act 281 is an “opt in” statute, meaning that all such facilities are prohibited in a municipality, unless a municipality “opts in” by adopting an ordinance to expressly permit them.
As municipalities across the state are beginning to consider the merits of potentially allowing these new types of marihuana facilities in their jurisdiction, an issue that often arises is the extent to which these facilities might provide a new source of revenue to the community. Aside from the usual types of revenues that any type of new commercial use might provide (e.g., property taxes, jobs, visitor spending, etc.), Act 281 specifically provides for two types of new revenue sources for a municipality in which a marihuana facility is located.
To assist our clients with evaluating the potential financial benefits of allowing marihuana facilities, we are providing further information about the new revenue sources authorized by Act 281.
The first new potential source of revenue arises from a State tax placed on the sale of marihuana by provisioning centers. Under Section 601 of Act 281, a tax is imposed on each provisioning center at the rate of 3% of the provisioning center’s gross retail receipts. Those tax revenues are initially paid to the State, but a portion of those tax revenues are to be returned to municipalities in which marihuana facilities are located. Specifically, Act 281 provides that 25% of the tax is to be paid by the State to municipalities in which a marihuana facility is located, allocated in proportion to the number of marihuana facilities within the municipality. Another 35% of the tax is to be paid by the State to counties in which a marihuana facility is located, allocated in proportion to the number of marihuana facilities within the county – with a portion earmarked solely for the support of county sheriffs.
Although the 3% tax is applied to the gross retail receipts of provisioning centers, it is not necessary to have a provisioning center in your jurisdiction to obtain the benefits of this tax. Act 281 provides that 25% of the tax revenues are returned to municipalities in which a “marihuana facility” is located, which would include any of the five types of facilities. So, for example, a municipality could permit only a grower or only a processing center in its jurisdiction, and still be eligible to receive its proportionate share of the 3% tax from the State.
The second new potential source of revenue arises from a fee authorized by Act 281. Section 205 of Act 281 provides that “[a] municipal ordinance may establish an annual, nonrefundable fee of not more than $5,000.00 on a licensee to help defray administrative and enforcement costs associated with the operation of a marihuana facility in the municipality.”
Some municipalities have viewed this $5,000 fee as a potential source of new general fund revenues, and have favorably considered allowing marihuana facilities for this reason. However, caution needs to be exercised in this regard. Section 205 of Act 281 is written in a way to suggest that the fee can be used only for the purpose of defraying the administrative and enforcement costs associated with the operation of a marihuana facility, and not for general fund purposes.
Furthermore, with respect to the amount of the fee, some legal commenters have concluded that a municipality cannot automatically adopt and impose the maximum fee of $5,000 mentioned by Act 281. It has been suggested that the amount of the fee must be set at a level that is reasonably proportionate to the actual costs incurred by a municipality for administering and enforcing its marihuana facility permitting ordinances. It is possible that a fee that does not meet this standard could be invalidated, as constituting a “disguised tax,” rather than being a valid regulatory fee. However, because Act 281 is new and has not been subject to legal analysis by the courts, there is room for debate and disagreement about the lawfulness of a flat $5,000 fee.
Accordingly, if your municipality is considering the adoption of an ordinance to allow marihuana facilities, we recommend that you consult with your municipal attorney at Mika Meyers to ensure that any fee specified in the ordinance is designed to be lawful and enforceable.