As Michigan, like every other state, has grappled with enormous budget pressures as a result of restrictions needed to battle the scourge of the COVID-19 pandemic, one rare bright spot has been increasing tax revenues from the sale of cannabis products. April sales data from Michigan’s Marijuana Regulatory Agency (MRA) shows roughly $34 million in medical marijuana sales, and a record $28 million in adult-use sales. Those sales have generated $2.8 million in marijuana excise tax revenue and $3.7 million in sales tax revenue.
While some of the sales growth in Michigan no doubt comes from a lack of other outlets for spending with the closure of many non-cannabis businesses, much of it also comes from new licensees coming on line, particularly in the adult-use market. (As we have previously reported, the MRA continues to process license applications, even doing inspections by FaceTime.) That ongoing licensing activity is a testament to the efficiency of the MRA, which replaced Michigan’s much maligned Medical Marijuana Licensing Board last year. In fact, our experience has been that MRA’s responsiveness has actually improved during the current remote work environment.
This week, however, Michigan announced that more than 31,000 state employees will be required to take two unpaid days off each pay period from now until the end of July. Under the federal CARES Act, those partially furloughed employees will be able to receive partial unemployment benefits. The State anticipates saving $80 million through this approach.
Unfortunately for those in the cannabis industry, the MRA is among the agencies required to mandate that employees work reduced hours. MRA will have half of its employees take every Monday off, and half take every Friday off. Although this results in a 20 percent reduction in aggregate work hours, the net effect on productivity will almost certainly be greater. The MRA staff reductions, however, will almost certainly cost the State money, rather than saving money.
Under the statutes that it administers, the MRA is funded solely through license fees, regulatory assessments, and fine revenue. It is thus a self-sufficient agency, drawing no funds from Michigan’s General Fund budget. Rather, it contributes money to the State budget through excise and sales taxes on cannabis products.
A review of all of Michigan’s cannabis industry metrics shows that tax revenue from the industry continues to grow—but the State will not realize its maximum benefit until many more establishments are licensed. The drop in MRA’s efficiency that will result from the furlough program will undoubtedly mean a slower path to licensure, costing the agency fees and assessments, and a loss of enforcement capacity, resulting in fewer fines. At least with respect to the MRA, Michigan’s attempts to create savings through furloughs can be expected to backfire, and cost the State money.
Stay tuned to Dykema’s Cannabis Law Blog for further developments.