Michigan’s marijuana industry is about to get hit with a brand-new tax – one that industry leaders say will raise prices, shutter businesses, and compromise tax revenues for local communities. The Leelanau Ticker checked in with Daniel Caudill of Olean’s Northport, Leelanau County’s only dispensary, to find out just how existential a threat the new legislation could prove to be.

After months of back-and-forth, Michigan’s Senate and House of Representatives finally reached a budget compromise. Key to the deal was a new 24 percent wholesale tax on marijuana, which is projected to generate $420 million for the state’s $1.8 billion road improvement plan. While the new tax reportedly helped legislators avoid some of the sweeping budget cuts that had been proposed, it’s also drawn criticism from marijuana sector players who say it could destroy their industry.

Caudill thinks the state has made a habit of treating the cannabis industry like a piggybank. The new wholesale tax, to be levied on the marijuana product growers and suppliers sell to stores like Olean’s, will exist on top of a 10 percent excise tax and a 6 percent sales tax, both of which became law when recreational cannabis was legalized in 2018. Other comparable products, he argues – such as cigarettes and alcohol – don’t have the same level of tax burden. Michigan’s cigarette tax is 10 cents per cigarette, on top of the standard 6 percent sales tax. Alcohol tax rates, meanwhile, vary depending on the potable – from 10.8 percent for distilled spirits to a $6.30 on every barrel (31 gallons) of beer.

“I think it's unfortunate for the state to be targeting one specific category like cannabis, especially seeing as it's already so heavily taxed,” Caudill says. “It was hard to make margins as it was. There are a lot of cannabis companies in Michigan that are struggling right now, especially the growers, so this puts an extra burden on top of everybody.”

The way the new tax works, Caudill explains, he’ll have to pay an extra 24 cents for every dollar of product he purchases to stock his store’s shelves. All or most of that increase, he says, will have to be passed on to the customer. In other words, cannabis users should expect to see prices rise once the new tax goes into effect on January 1.

It won’t be the first price fluctuation to hit the Michigan market.

“When Michigan first [legalized marijuana], there weren't a lot of players, so the prices were high,” Caudill tells The Ticker. “Then, as more and more people got into the industry, prices came down. Things have been right-sizing. This tax will increase prices again, and I think it will have the biggest impact on a lot of smaller companies that aren't going to be able to absorb the extra cost.”

Therein lies the biggest issue, Caudill says: Michigan’s marijuana market is a mix of small, independent, single-store businesses like Olean’s and big, multi-location brands like Lume and House of Dank. Smaller operators rely on outside growers and suppliers to stock their stores, while larger ones are “vertically integrated” with their own supply chains. The latter, Caudill says, are better positioned to absorb at least some of the new tax without passing it on.

“The initial feeling is that, with all these additional taxes, a lot of the smaller players will have a much more difficult time, our store included,” Caudill says. “For now, it’s just a waiting game to see how things play out.”

As part of that waiting game, there are efforts underway to overturn the wholesale tax. The Michigan Cannabis Industry Association has sued the state, alleging the new tax is unconstitutional. The suit argues that, since marijuana legalization was enacted via ballot proposal, the state would need a supermajority approval from its two legislative chambers to amend what the voters approved. 

In the meantime, Michigan’s marijuana industry is also seeking other legislative changes that could provide some relief, including a cap on the number of dispensaries.

If the new wholesale tax does go into effect, will it mean the end of the road for shops like Olean’s Northport?

“We’re not there yet,” Caudill assures, praising his shop’s “really strong customer base” and pledging to keep customers up to date on the latest happenings. That said, Caudill notes, “the situation is basically that our cost of goods is now way higher than it was before, and we have to set our prices at a certain level because of all of our taxes that we have to pay. We have a certain price point we need to hit just to break even, and that point just got higher.”

As the Leelanau Ticker reported in February, Olean’s has generated $338,000 in tax revenues for Leelanau County and the Village of Northport since opening in August 2021.