By Elena Durnbaugh
Gongwer News Service
The new marijuana wholesale tax is going to hurt the industry and is likely illegal, cannabis attorney Lance Boldrey said on last week’s episode of MichMash, the podcast partnership between Gongwer News Service and WDET Detroit Public Radio.
“The Legislature did everything they could here to evade the protections of the Constitution and to hide the ball on this until the very last second,” Boldrey said. “We’re dealing with a cannabis industry that’s under a lot of financial stress and challenges right now, and there’s no question we’re going to watch more of our clients go out of business as a result.”
The Department of Treasury has not reached out to anyone in the cannabis industry or the accounting industry to discuss implementation of the tax, Boldrey said, so exactly how it will work remains unclear.
What is clear from a plain reading of the bill language, though, Boldrey said, is that the 24% tax rate is applied to the invoice price on sales between a grower or processor to a retailer.
“That invoice price includes taxes, fees, other charges, without accounting for any discounts due to business relationships or volume purchases,” he said. “With it being a tax on everything on the invoice, including tax if you line item that, it actually becomes a tax on a tax.”
When everything is accounted for, that means the 24% wholesale tax is closer to a 32% tax in practice, Boldrey said.
He said that microbusinesses, which don’t have any wholesale activity at all, will be hurt the most when the tax takes effect.
“They literally are statutorily prohibited from making a wholesale purchase or making a wholesale sale, yet they’re going to have the average wholesale tax applied to effectively their production,” Boldrey said.
It remains to be seen how the tax will affect consumer prices, Boldrey said.
“It’s going to be a difficult thing for the system to adjust to in terms of who ends up paying that burden within the chain,” he said. “I don’t see there’s any way not to pass on the vast majority of that tax burden to the customers.”
Boldrey said arguments that the Michigan cannabis industry can afford to raise its prices because they’re low compared to other states are “cavalier.”
“I think sort of the dirty little secret of the industry, but the dirty little secret of the state, too, is out of that $300 plus million dollars in tax revenue, $100 million of that is coming from sales at border communities,” he said. “If you’re in Ohio, and you’re coming up to Monroe because it’s cheaper in Michigan, you’re not going to make that trip anymore when there isn’t a price distinction between Ohio and Michigan.”
Boldrey said he wasn’t confident that the state has figured out how the tax is going to work yet.
“They’re trying to run too quickly here,” he said. “Treasury is probably not even going to have guidance out in the field until after this tax goes into effect.”
The estimated $420 million in revenue is also cause for skepticism, Boldrey said.
“I don’t have an economic study to back that up, but the state’s economic study is bunk as well,” he said. “The fact that they pick a $420 million number out of the air is really adding a lot of insult to injury, as they’re passing a tax that is going to cost Michigan citizens their jobs.”
Further, the tax is likely illegal, Boldrey said, as it didn’t pass the Legislature with a supermajority vote.
“Anything that amends an initiated law has to be done by a three-quarter supermajority vote. And in this case, the Legislature didn’t do that,” he said. “They side-stepped that requirement by creating this new standalone act.”
The Legislature side-stepped several constitutional protections with this law, Boldrey argued, saying they changed the purpose of the bill as it moved through the legislative process. He also argued that the House violated the five-day rule by substituting the language in the bill and then immediately passing it.
Attorneys have already filed a motion for a preliminary injunction asking the Court of Claims to prevent the tax from going into effect until the courts decide whether it’s constitutional.
Boldrey said that legislation addressing the illicit market and providing teeth for enforcement would help the industry.
Gongwer News Service
The new marijuana wholesale tax is going to hurt the industry and is likely illegal, cannabis attorney Lance Boldrey said on last week’s episode of MichMash, the podcast partnership between Gongwer News Service and WDET Detroit Public Radio.
“The Legislature did everything they could here to evade the protections of the Constitution and to hide the ball on this until the very last second,” Boldrey said. “We’re dealing with a cannabis industry that’s under a lot of financial stress and challenges right now, and there’s no question we’re going to watch more of our clients go out of business as a result.”
The Department of Treasury has not reached out to anyone in the cannabis industry or the accounting industry to discuss implementation of the tax, Boldrey said, so exactly how it will work remains unclear.
What is clear from a plain reading of the bill language, though, Boldrey said, is that the 24% tax rate is applied to the invoice price on sales between a grower or processor to a retailer.
“That invoice price includes taxes, fees, other charges, without accounting for any discounts due to business relationships or volume purchases,” he said. “With it being a tax on everything on the invoice, including tax if you line item that, it actually becomes a tax on a tax.”
When everything is accounted for, that means the 24% wholesale tax is closer to a 32% tax in practice, Boldrey said.
He said that microbusinesses, which don’t have any wholesale activity at all, will be hurt the most when the tax takes effect.
“They literally are statutorily prohibited from making a wholesale purchase or making a wholesale sale, yet they’re going to have the average wholesale tax applied to effectively their production,” Boldrey said.
It remains to be seen how the tax will affect consumer prices, Boldrey said.
“It’s going to be a difficult thing for the system to adjust to in terms of who ends up paying that burden within the chain,” he said. “I don’t see there’s any way not to pass on the vast majority of that tax burden to the customers.”
Boldrey said arguments that the Michigan cannabis industry can afford to raise its prices because they’re low compared to other states are “cavalier.”
“I think sort of the dirty little secret of the industry, but the dirty little secret of the state, too, is out of that $300 plus million dollars in tax revenue, $100 million of that is coming from sales at border communities,” he said. “If you’re in Ohio, and you’re coming up to Monroe because it’s cheaper in Michigan, you’re not going to make that trip anymore when there isn’t a price distinction between Ohio and Michigan.”
Boldrey said he wasn’t confident that the state has figured out how the tax is going to work yet.
“They’re trying to run too quickly here,” he said. “Treasury is probably not even going to have guidance out in the field until after this tax goes into effect.”
The estimated $420 million in revenue is also cause for skepticism, Boldrey said.
“I don’t have an economic study to back that up, but the state’s economic study is bunk as well,” he said. “The fact that they pick a $420 million number out of the air is really adding a lot of insult to injury, as they’re passing a tax that is going to cost Michigan citizens their jobs.”
Further, the tax is likely illegal, Boldrey said, as it didn’t pass the Legislature with a supermajority vote.
“Anything that amends an initiated law has to be done by a three-quarter supermajority vote. And in this case, the Legislature didn’t do that,” he said. “They side-stepped that requirement by creating this new standalone act.”
The Legislature side-stepped several constitutional protections with this law, Boldrey argued, saying they changed the purpose of the bill as it moved through the legislative process. He also argued that the House violated the five-day rule by substituting the language in the bill and then immediately passing it.
Attorneys have already filed a motion for a preliminary injunction asking the Court of Claims to prevent the tax from going into effect until the courts decide whether it’s constitutional.
Boldrey said that legislation addressing the illicit market and providing teeth for enforcement would help the industry.
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