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February 24 2021

The Marijuana Business in Michigan: Answering Questions About Economic Impacts and Voter Initiatives

By: Ronald M. Redick

As a result of the voters’ approval of the Michigan Regulation and Taxation of Marihuana Act (“MRTMA”) in 2018 (commonly known as the recreational marijuana law), the marijuana business is booming in Michigan. It is estimated that the level of retail sales, once it becomes more widely available, will be approximately $3 billion, with a total economic impact in excess of $7.8 billion. Total tax revenue is expected to rise to $495.7 million, of which $298.6 million is excise taxes and $197.1 million are in the form of sales taxes.

Given this significant state-wide economic impact, you might be wondering whether there is any direct financial benefit to a municipality, if it decides to allow commercial marijuana businesses to operate within its jurisdiction. And if so, how much? There is recent news on this subject.

The Director of the Michigan Marijuana Regulatory Agency (“MMRA”) recently reported that municipalities having a recreational marijuana retailer in their jurisdiction (i.e., either a retail store or a microbusiness) can expect to receive a 2021 payment of about $28,000 per retail store, based on 2020 sales. So, for example, if your municipality had allowed three marijuana retailers to operate in its jurisdiction in 2020, it would receive a 2021 payment in the amount of about $84,000.

These payments are derived from a 10% excise tax that is imposed on the retail sale of recreational marijuana in the state. The total amount of the excise tax generated in any given year is to be used first to fund the operations of the MMRA. The remaining funds are then to be distributed as follows:

  • Until 2022, $20 million per year is to be used to conduct clinical trials researching the efficacy of marijuana in the treatment of medical conditions of armed services veterans.
  • The remaining balance is to be distributed as follows:
    • 35% to the school aid fund, for K-12 education;
    • 35% to the Michigan transportation fund, for use to repair and maintain roads and bridges;
    • 15% to municipalities in which a marijuana retailer is located, allocated in proportion to the number of retailers in the municipality, as compared to the statewide number of retailers; and,
    • 15% to counties in which a retailer is located, allocated in proportion to the number of retailers in the county, as compared to the statewide number of retailers.

Excise tax payments to municipalities are expected to significantly increase after 2022, based on the $20 million allocation for medical research expiring at that same time, and also based on expected growth of retail sales over time.

Notably, a municipality receives no benefit from the excise tax unless it has a retail marijuana business in its jurisdiction. Therefore, if a municipality allows only marijuana growers, processors, transporters and/or safety compliance facilities, it will not receive any of the excise tax monies. It is necessary to have at least one retail location to have this financial benefit.

Another notable distinction is that a municipality derives no excise tax benefit from allowing any type of medical marijuana business in its jurisdiction. Upon the enactment of the MRTMA in 2018, the excise tax previously authorized under the Medical Marihuana Facilities Licensing Act (“MMFLA”) automatically expired and is no longer collected or distributed to anyone.

The only direct financial benefit to a municipality under the MMFLA is the licensing fee of up to $5,000.00 per medical license. The same type of licensing fee can be charged under the MRTMA, for recreational licenses. However, under both laws, the licensing fee can only be used to defray the application, administrative and enforcement costs associated with the operation of marijuana businesses. It cannot be used for general fund purposes or for any other purposes.

If your municipality is questioning whether the financial benefits of allowing recreational marijuana businesses would justify allowing them in your jurisdiction, these are the most up-to-date facts on that subject to consider.

Voter Initiatives

The MRTMA contains a unique provision allowing citizens to initiate, by petition, an ordinance that would either allow a number of recreational marijuana establishments in a municipality, or completely prohibit such establishments in a municipality. If such an ordinance is approved by the voters in the community at an election, the voter-approved ordinance will supersede any other ordinance that the municipality’s legislative body might have adopted on that same subject. In other words, the voter-approved ordinance will prevail over any conflicting ordinance.

In 2020, a large number of lawsuits were generated from these voter-initiative provisions, stemming in large part from the fact that they are very poorly drafted, and contain almost no detail on how the initiative process is to occur. None of these lawsuits have yet resulted in published appellate authority that would establish statewide precedent. But the outcome of the various circuit court lawsuits suggests the following rules and considerations:

  • An ordinance proposed by petition to allow recreational marijuana businesses must specify the number of the various types of marijuana businesses that would be allowed. If the proposed ordinance does not state a specific number, then the petition is likely invalid.
  • An ordinance proposed by petition to allow recreational marijuana businesses cannot also include other regulations for marijuana businesses. It is the responsibility of the legislative body of the municipality (not the voters) to adopt the other necessary regulatory provisions, if the voters otherwise approve an ordinance to allow a certain number of marijuana businesses. It is unclear, however, whether the inclusion of impermissible regulatory provisions in a proposed ordinance invalidates the petition, or whether a court could sever the impermissible regulations from the balance of the proposed ordinance.
  • The initiative process cannot be used to force a municipality to allow or to prohibit medical marijuana businesses.
  • There is a significant legal question about whether MRTMA’s voter-initiative provisions are even valid as to townships because there are no state laws governing this type of initiative process for townships, and townships do not have charters to fill-in the gaps. It is questionable whether courts have the authority to judicially create such a process, where none exist in statutory law.
  • There is a complex allocation of authority between a township and a village when an MRTMA petition is filed in a village because townships conduct village elections, but cannot approve a village’s ballot language. Difficult disputes can develop if a township and a village disagree about the validity of a petition.
  • The MRTMA requires that valid petitions for a proposed ordinance be submitted to the voters at the next regular election. This can create very short timelines for reviewing and determining the validity of petitions. It would appear that certain political groups that are in favor of the recreational marijuana business have taken advantage of this, by purposely submitting petitions very close to the relevant election deadlines, to make it difficult for municipalities to timely raise questions about the validity of signatures, the petition or the proposed ordinance.

Based on the above considerations, the receipt of a petition under the MRTMA can raise many difficult legal questions for a municipality. Accordingly, we recommend that you promptly consult with your legal counsel at Mika Meyers if your municipality receives such a petition.