A Michigan Court of Claims judge in Detroit will hear arguments Tuesday on whether a controversial new tax on marijuana was adopted in violation of the state Constitution.
The 24% wholesale tax on cannabis was the linchpin of a budget deal that was adopted last month by the Legislature and signed by Governor Gretchen Whitmer. The recreational marijuana industry sued because a voter-approved ballot initiative already imposed a retail tax on cannabis.
“This was an unconstitutional move. End of sentence. Full stop,” said Rose Tantraphol, spokesperson for the Michigan Cannabis Industry Association. She said the Legislature could not add a new wholesale marijuana tax on top of the existing tax on retail cannabis sales without supermajority votes.
“When the state Legislature passed this law imposing a 24% wholesale tax on cannabis, it did so in violation of provisions in the state’s constitution,” she told Michigan Public Radio. “Lawmakers used a Trojan Horse process during chaotic middle-of-the-night actions to ram this legislation through.”
The cannabis industry lawsuit says the initiative is supposed to help develop a legal recreational marijuana industry, while the new wholesale tax will force cannabis retailers to shutter.
"Margins for cannabis businesses are already very thin and there's no room to absorb a 24% tax,” she said. “Many cannabis businesses have already said they will go out of business if this 24% tax goes into effect."
A State Budget Office spokesperson said it would not comment on pending litigation. The state has argued in its written briefs that the wholesale tax is written into a new and different law and its purpose is to generate $420 million for roads and not to regulate marijuana.
The case will likely turn on that technicality, said Senior Research Associate Robert Schneider with the nonpartisan Citizens Research Council of Michigan.
“It’s in a different statute,” he said. “It’s charged on the wholesale price, not the retail price, so it’s different, and the court will need to decide, is it different enough? Is it a distinct tax in a sufficient way that this isn’t just sort of a workaround to the constitutional requirement?”
Both parties have asked for an immediate ruling in their favor.
The tax is set to take effect on January 1, so Court of Claims Judge Sima Patel is expected to rule quickly to fast-track the case through the appeals process up to the Michigan Supreme Court if it comes to that. The cannabis industry has also asked for the tax to be put on pause while the case moves through the legal system.
