Yesterday, Governor Whitmer announced her most recent plan to secure long-term funding to "fix the damn roads" in Michigan. As part of that proposal, the Governor is recommending the implementation of a cannabis wholesale tax, presumably in addition to the current excise tax, which the Governor claims will generate approximately $470 million per year, and will close a "loophole" by requiring that cannabis be taxed similarly to tobacco products. According to the Governor, the new tax is also justified because Michigan has low, "industry-friendly taxes" and cannabis companies use "Michigan roads to transport marijuana multiple times throughout the process, including to grow operations, testing labs, distribution hubs and finally retail stores."
At this early stage, little has been explained about Whitmer's proposal, and it remains unclear what "loophole" the industry might currently be exploiting. Setting that aside, however, there are several ways that this new wholesale tax could be imposed, all of which would require cooperation between the Governor's office and the Legislature. The Governor could attempt to convince the Legislature to specifically amend the MMFLA and MRTMA to impose a wholesale tax, although any amendment to MRTMA would require the vote of three-quarters of the members in both chambers of the Legislature. With the House of Representatives controlled by Republicans who have generally been dubious of plans to raise taxes for the purpose of road funding, that may be a daunting task. Moreover, with the negative impact that such a tax would inevitably have on Michigan's cannabis industry and consumers, support of such a proposal from legislative Democrats might also not be guaranteed.
To avoid a supermajority vote requirement to amend MRTMA, the Governor could also look to push legislation that either creates a standalone act or amends a separate statute to impose the new tax. MCL 333.27963(1) establishes the current 10% excise tax but makes clear that such tax is "in addition to all other taxes." The Treasury Department has used this language to find that the industry is also subject to the State's General Sales Tax Act and the Use Tax Act. Thus, the Governor could attempt to avoid having to find a supermajority to amend MRTMA by enacting her proposed wholesale tax in another statute. One possible statute the Governor could be eyeing is the Tobacco Products Tax Act, which already imposes a 32% wholesale tax on certain tobacco products. As part of her recent budget presentation, the Governor recommended extending this wholesale tax to non-tobacco nicotine products, also arguing that doing so would "close a loophole." If the Governor is intending to encourage the Legislature to adopt amendments to that act already, she may also try to include cannabis as well.
The attorneys and lobbyists in Honigman's Cannabis Industry Group will continue to follow any legislative developments regarding this proposed wholesale tax.
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