Marijuana businesses are already filing lawsuits to try to stop a new wholesale cannabis tax from taking effect in January. The tax is part of a roads funding plan that’s part of the new state budget that was just signed by Governor Gretchen Whitmer.
The 24% tax on the wholesale cost of marijuana is a key element of a law signed by Whitmer to generate funding for roads. But at least two lawsuits filed in the Michigan Court of Claims argue that is illegal because there is no provision allowing it in the Michigan Regulation and Taxation of Marihuana Act. The 2018 voter-approved initiative did create a retail tax that is paid directly by consumers.
“It’s just unconstitutional because what they’re doing is going around what the public wanted, what the public mandated in the ballot initiative,” said Stephen Crane, the attorney for Holistic Research Group. “So, what we’re really asking the Court of Claims to do is find the law unconstitutional before it becomes effective.”
The Holistic Research Group complaint said the state’s action “fundamentally alters the marijuana law and called it “a punitive excise tax on marihuana licensees.”
The Michigan Cannabis Industry Association has also filed a challenge to the new tax in the Michigan Court of Claims.
The state has not said specifically said why it thinks the wholesale tax is legal, but will have to lay out the reasoning when it files reply briefs to the lawsuits.
Governor Gretchen Whitmer told The Detroit Free Press at a public appearance Wednesday that she expects the tax will be upheld.
“We are confident in the legality of the actions that were taken to write this year’s budget, as we are every single year,” she said. “I wouldn’t put my name on something if we weren’t confident it would be upheld.”
The stakes are high. The tax makes up an estimated $420 million of a $2 billion plan for state and local roads. Although critics of the tax say higher prices will tamp down legal sales, thus reducing revenue as marijuana buyers turn to the black market.
One of the state’s arguments could be the wholesale tax is primarily a revenue source for roads as opposed to a marijuana regulation. Another would be whether the tax fundamentally alters the purpose of the initiative.
“The question is, and I think this is something for the courts to determine, will this essentially encourage the sale of marijuana for recreational purposes on the black market,” said Robert LaBrant, a retired constitutional attorney. “And I think that’s probably perhaps one of the strongest arguments as to why this is a substantive change to recreational marijuana.”
Michigan State University law professor Daniel Rosenbaum said he expects the revenue issue will be central to the cases.
“Did we the voters create an exclusive tax scheme in 2018 when we passed the MRTMA?” said. “That’s going to require the court to try to ask whether it did indeed contemplate that exclusive scheme.”
It is very likely that whatever the Court of Claims decides in these (and perhaps other) cases will be appealed and the final arbiter will be the Michigan Supreme Court.
