Michigan’s Marijuana Legalization Payoff: $2.8 Billion

By Rick Thompson

On November 6, 2012, citizens in two states legalized the use of marijuana for all adults 21 and over. Washington State’s fiscal report of costs and benefits of this new legalization legislation yields a startling projection of $1.9 billion generated or saved during the program’s first 5 years. Michigan’s larger population indicates the Great Lakes State could reap a $2.8 billion payoff for initiating similar legislation.

Washington’s estimate of financial yield came in the OFM Fiscal Impact Statement (I-502), compiled by the state Office of Financial Management. The estimates were created assuming a start date for the licensing and taxation portion of Prop. 502 of December 1, 2013. Per the Report: “Assuming a fully functioning marijuana market…estimated total revenue generated to the state could be as high as $1,943,936,000 over five fiscal years.” Michigan is the 8th largest state by population, with 9,883,640 residents per the 2010 US Census. Washington is 13th, with 6,724,540 citizens, making them 68% of Michigan’s size. Projecting these numbers reveals the potential for Michigan to capture $2.857 billion in revenue over five years.

The study cited consumption numbers generated by the US Department of Health and Human Service’s National Survey on Drug Use and Health, 2008-2009. The OFM recalculated the numbers to reflect 2013 population estimates. Their conclusion was an estimate of 363,000 marijuana users in Washington State consuming 85.1 million grams of cannabis annually. The pattern of consumption used was taken from the United Nations Office on Drug and Crime’s 2006 bulletin on use, with numbers ranging from 3% of those users consuming daily, up to 18% expected to be once-a-year consumers.

The official report also assumes that all the cannabis these consumers use will be purchased through a Washington State licensed distributor, will all be smoked and that all will be sold to in-state consumers. Washington’s medical marijuana patients are not included in this estimate, apparently assuming they will find their current method of acquisition preferable to this new, as-yet uncreated market. The projected financial benefits to local and state agencies should represent a very attractive revenue stream to many Michigan cities struggling with budgetary crises. “Michigan’s Provisioning Centers, grow supply stores, retailers and related businesses and organizations have occupied and improved vacant spaces, created jobs and contributed to the local economy- all through medical marijuana. When we legalize marijuana for personal use, the economic advantage will be staggering,” according to Jamie Lowell of Ypsilanti’s 3rd Coast Compassion Center.

TAXES AND REVENUE

The I-502 program requires a $250 application fee and a $1000 issuance or renewal fee for every business participating in the program. Their estimate is 100 marijuana producers and 55 marijuana processors will register. Distribution is projected to mirror that of liquor sales, indicating 328 outlets making marijuana sales. The initiative created a 25% marijuana excise tax on each wholesale and retail sale from a licensed producer, processor or retailer. Other revenues include the statewide average local sales tax rate of 2.412%, a 0.471% state business and occupation tax for retailers, a 0.484% tax for processors and wholesalers, and the inevitable city business taxes (estimated to be up to 8.9% of all business and occupation taxes).

Over five years, Washington’s local communities are expected to see income from taxes at up to $120 million- the Michigan equivalent would be $176 million. An estimated $348 million could be gained through state taxes for Washington- or $511 million to Michigan. “The prospect of billions in revenue from state sponsored recreational marijuana sales is promising to our anemic state budget, and savings come with significant and often ignored reductions in the misdemeanor criminal justice system that no longer deals with marijuana as contraband,” said attorney John Targowski of Kalamazoo.

Half of all marijuana entering this state-sanctioned program is projected to be grown and processed by the same person/company, with only half of the raw stock grown being handled by a professional processing company. They estimate a $3 per gram price to produce, a $6 per gram price after processing, and a $12 average retail price per gram, based on the state’s review of current medical marijuana dispensary prices.

The benefits- and costs- of marijuana legalization are broad-reaching. In Washington, the report took into consideration the effect on the Department of Licensing (equivalent to Michigan’s Secretary of State), background check requirements, development of rules and licensure, testing lab accreditation standards and even the loss of a $368,000 Federal marijuana eradication grant. Fees incurred by the state Attorney General and Department of Health, as well as many other agencies, were also factored in.

ESTIMATE IS TOO LOW?

Using the numbers estimated in the Washington fiscal analysis, Michigan is already farther advanced than our west coast cousin. Michigan has approx. 130,000 registered patients and 25,000 caregivers using the Medical Marihuana Program (MMP) and the number of unregistered users is many times that number.

The market for cannabis goes far beyond the smoked form. The Washington study acknowledges the new law allows for the possession of marijuana-infused products, too- up to 16 ounces of solid (think brownies) and 72 ounces of liquid (like raw cannabis juice). None of the revenue figures above reflect any sales of these two lucrative product lines. “The medical marihuana industry has been a boon to the entire state of Michigan. The potential economic growth opportunities of adding the industrial hemp industry and allowing for non-medical use for adults would be very significant,” said Lowell.

The survey simply accounts for income and expenditures to the state of Washington but ignores real estate transactions, employee payrolls and utility expenditures, all of which are taxed. The benefit to local economies is an unknown, but positive, factor in the overall picture of economic opportunity Washington’s voters have created for themselves. The state-generated portion of these funds could go towards a revitalization of Michigan’s Film Industry credits, which are expected to be a meager $50 million in 2013 and $25 million in 2014, or it could offset the Snyder administration’s 2011 cuts to Michigan schools.

Despite these attractive economic numbers, the Snyder administration is still pressing charges against cannabis businesses. The Attorney General’s office is in court in Port Huron, pursuing charges against a medical marijuana distribution facility that operated in compliance with, and under the approval of, local and county law enforcement agencies. The AG’s office has encouraged local prosecutors to file suit against the city of Grand Rapids to halt implementation of a marijuana decriminalization ordinance passed by the people on that November 6th election night.

Check out Rick’s website The Compassion Chronicles