Michigan Recreational Cannabis Snuffs Out Medical Sales

The Michigan Regulation and Taxation of Marihuana Act was passed by Michigan voters in November 2018, allowing anyone age 21 or older to possess up to 2.5 ounces of marijuana and to grow as many as 12 plants at home. The law made Michigan the first midwestern state to allow both medical and recreational cannabis use.

Over five years later, Michigan’s recreational cannabis sales industry is thriving. According to the Department of Treasury, the state collected more than $290.3 million in taxes on adult-use sales in the 2023 fiscal year. However, the medical-use market has decreased significantly with the recreational market’s expansion.

Medical vs. Adult-Use Licensing and Distribution

Michigan voters legalized cannabis for medical use in 2008 by passing the Michigan Medical Marihuana Act. It allowed patients with certain medical conditions to apply for certification with the Michigan Cannabis Regulatory Agency (CRA); if approved, they could purchase medical marijuana and possess up to 12 plants or 2.5 ounces of marijuana flower. The card costs $40 and must be renewed annually.

Over the next few years, the CRA developed rules for establishing and operating medical marijuana dispensaries in Michigan. The CRA oversaw the medical cannabis producers and dispensaries, and certified caregivers (individuals allowed to grow and manufacture cannabis products for up to five patients and themselves). Subsequent laws allowed additional forms of cannabis for medical use, including edibles and liquid forms.

Medical marijuana is now available everywhere in Michigan. Certified medical marijuana patients can purchase more potent cannabis products and avoid the 10% excise tax the state levies on recreational marijuana purchases.

However, dispensaries wishing to provide medical-use cannabis must follow stricter packaging, testing, reporting, and distribution rules. Distributors who choose to offer both medical and recreational cannabis must maintain two separate distribution licenses and follow two sets of regulations, increasing both the cost and complexity of doing business.

Advantages and Disadvantages of Medical Use Licensing

Some cities, towns, and counties have opted out of allowing recreational marijuana sales and use altogether. Others allow adult-use marijuana sales but impose additional restrictions, rules, and costs on recreational producers and distributors. The advantage of maintaining a medical distribution license in these counties is clear: it’s the cost of doing business.

For the first two years after the law legalizing recreational sales took effect, the CRA required retailers who wanted to participate in adult-use sales to also obtain medical marijuana licenses. That condition expired at the end of 2020. In areas that allow both recreational and medical sales, cannabis distributors have increasingly let their medical-use distribution licenses expire.

The reasons for abandoning medical-use sales are clear. Prices in the recreational market have dropped significantly, eliminating customers’ advantage to obtain or renew medical-use and caregiver licenses. Recreational licensing and sales regulations are more straightforward and less restrictive for distributors (posing less risk for accidental non-compliance).

Lapsed Licenses = Lost Revenue, Lost Business

Some townships have expressed irritation about the revenue, taxes, and fees they lose when distributors choose not to renew their medical-use licenses. This is especially detrimental for the 90% of Michigan municipalities that prohibit recreational sales as cannabis businesses close up shop and move to recreational-sales-friendly territory.

However, allowing recreational sales could easily offset those losses – and more.

At the end of 2023, there were 2,170 cannabis businesses licensed for recreational (adult-use) sales. The total includes 1,114 growers, 751 licensed retailers, 250 processors, 46 marijuana event organizers, seven microbusinesses, and two designated consumption establishments. There were 1,464 businesses with active medical-use licenses, including only 245 retailers.

In 2023, total Michigan cannabis sales exceeded $3 billion – the vast majority of which were adult-use (recreational) sales.

Adult-Use Taxes Return to Communities

Sales from cultivating and distributing recreational marijuana are subject to a 10% state excise tax in addition to the 6% sales tax. According to the Department of Treasury, Michigan collected more than $290.3 million in cannabis-related tax revenue in the 2023 fiscal year.

The state uses some of the revenue from recreational marijuana sales to fund schools and roads. In 2023, the Marihuana Regulation Fund distributed $101.6 million to the School Aid Fund for K-12 education and $101.6 million to the Michigan Transportation Fund.

A significant amount of cannabis tax revenue is returned directly to the communities that help these businesses grow and thrive. Michigan municipalities with recreational marijuana businesses received more than $87 million – 46% more than the $59 million distributed last year. A total of 71 counties and 198 cities, townships, and villages received payments of more than $51,800 from 2023 revenues for every licensed retail store and microbusiness located within its jurisdiction.

Detroit began allowing recreational marijuana sales in early 2023; the city will get nearly $2 million in distributions for its 33 active distributors. Ann Arbor, Lansing, Grand Rapids, and Kalamazoo will each receive more than $1 million.

Rather than being earmarked for specific programs or subject to complicated restrictions, these funds are unrestricted. Municipalities can use them for parks, housing, social programs, or anything else.

Cannabis Industry Questions? Call a Michigan Cannabusiness Attorney

The laws related to opening, operating, and maintaining a Michigan cannabis business are constantly changing. As the industry grows and adapts, it’s crucial to have an attorney who understands and stays current as laws and regulations evolve.

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