Is Cannabis Cultivation an Agricultural Operation in Michigan?

Are Michigan cannabis growers “agricultural operations”? A recent decision by the Cass County 43^rd Circuit Court determined that a cannabis production operation met the Michigan General Property Tax Act (GPTA) definition of an agricultural operation. This new interpretation could significantly change how Michigan cannabis producers determine their tax liabilities.

Cannabis Production: Commercial Enterprise or Agricultural Operation?

The recent case was brought by HRP Cassopolis, LLC (HRP), the owner of two parcels of land in LaGrange Township. HRP leases both parcels to a cannabis grower and retailer, which maintains four Class C licenses to grow cannabis on the site. Each license allows up to 2,000 plants; the licenses can be stacked, allowing 8,000 plants overall.

LaGrange Township’s assessor classified both parcels as “commercial use” under the GPTA. HRP appealed this tax classification and filed a petition with the board of review, which was denied. HRP appealed the denial to the Michigan State Tax Commission, which ruled against the company and upheld the assessor’s decision.

HRP Cassopolis asked the Tax Commission to reconsider the classification, citing the Michigan Department of Agriculture and Rural Development worker protection standards. Under these guidelines, cannabis is considered an “agricultural commodity.” Nevertheless, the Commission denied the request, stating that HRP had “not established that marijuana is an agricultural, horticultural, or floricultural commodity.” HRP appealed this ruling to the Cass County Circuit Court.

In overturning the Tax Commission’s decision, the Circuit Court looked to the plain language of the GPTA. The GPTA defines an agricultural operation as one engaged in “growing and harvesting any agricultural, horticultural, or floricultural commodity.”

Cass County Circuit Court Judge Carol Montavon Bealor explained in the opinion that caselaw requires the court to give the words in a statute their plain and ordinary meaning. Therefore, cannabis cultivation “falls squarely within [GPTA’s] definition of an agricultural operation…. The statute’s language is unambiguous, using words that have a clear meaning – no further judicial construction is required or permitted, and the statute must be enforced as written,” the opinion said.

Based on the “plain language” of the GPTA, the Cass County Court declared the State Tax Commission’s classification was “not authorized by law” and ordered the reclassification of HRP’s property as “Agricultural Real.” The State Tax Commission did not appeal the ruling.

What Impact Does the Court Decision Have on Michigan Cannabis Growers?

But what does the HRP decision mean for other cannabis growers? Unfortunately, it is unlikely to make much difference in the short term. However, it could open the door for widespread change in how Michigan cannabis cultivation fits into the state’s agricultural portfolio. Attorneys for HRP called the decision “a resounding win for HRP and the wider cannabis industry.”

Currently, most Michigan cannabis growers are classified and taxed as industrial or commercial properties. If reclassified as agricultural properties, they can take advantage of multiple tax benefits. These include exemptions from sales and use tax under agricultural and industrial processing exemptions and agricultural exemptions from school taxes.

Cannabis growers won’t automatically benefit from this case’s resolution. Growers who believe they qualify to be reclassified as agricultural, which requires dedication of at least half of the property to agricultural use, must individually appeal their classification with their local assessor. If their petition is denied, they must follow the same process as HRP, appealing the decision to the State Tax Commission and then their County Circuit Court.

This ad hoc approach is necessary because the Cass County Circuit Court ruling is not binding on other Michigan jurisdictions. If other county courts return similar decisions, the State Tax Commission may escalate the question to the Court of Appeals or Michigan Supreme Court. A ruling from these courts would create a precedent for future Michigan cases and could establish the state as a model for national change.

Michigan cannabis producers may wish to consult with their attorneys to discuss the possibility of pursuing reclassification or other strategies to optimize their profitability and reduce their tax burden.