One thing most people agree on: Federal marijuana legalization is coming.
It’s just a matter of when -- and how it will impact existing state markets, such as the one currently growing in Michigan.
With the inconsistent patchwork of state laws across the nation regarding medical and recreational marijuana, the implications of federal legalization, accompanied by new taxes, is creating some anxiety.
“Opening up interstate commerce would destroy Michigan’s cannabis industry and leave us with nothing but multi-state operators to purchase from,” said Rick Thompson, a Michigan cannabis pioneer and director of the Michigan chapter of the National Organization for the Reform of Marijuana Laws (NORML).
Thompson said everyone he knows “stands in opposition to at least some of the” current version of the proposed federal legalization plan.
Some of the worry centers on marijuana surpluses in Canada and other states, like Oregon, where producers would benefit greatly from the ability to dump cheap product into the Michigan market, undercutting existing businesses along the way.
The topic of federal legalization was the focus of a panel discussion at the National Cannabis Industry Association Midwest conference at the TCF Center in Detroit on Wednesday. The National Cannabis Industry Association is a trade organization and lobbying group that is weighing in on efforts to end federal prohibition of marijuana.
In a draft of federal legalization legislation released in July by Democratic U.S. Senators Chuck Schumer of New York; Corey Booker of New Jersey; and Ron Wyden of Oregon, entitled the Cannabis Administration and Opportunity Act, there is a proposed 25% federal excise tax for marijuana in the fourth year after legalization. That’s on top of existing state taxes, currently at 16% for recreational marijuana in Michigan.
National Cannabis Industry Association Midwest deputy director of government relations Michelle Rutter Friberg, said that’s too much.
“This is on top of really onerous state and local taxes,” she said, adding that it’s unlikely those will be reduced in the wake of a new federal tax.
“The conversations that we’re having about that are: What are they trying to get out of this tax provision?,” Friberg said. “Are we just a cash cow? Are we to make up for a budget shortfall, or what are the goals that they have? Because we keep going back them and saying, ‘You cannot tax this high’; this is not going to have the intended outcome that you were trying to achieve.”
While Friberg said some businesses might view federal legalization as “the boogeyman that’s out there,” she’s never had an NCIA member company tell her they’re entirely against federal legalization.
One stated goal of federal legalization is to combat the black market, but new taxes could encourage the illicit market.
If significant new federal taxes are imposed, “the black market will have a party like you have never seen before,” Thompson said. “It was nearly impossible to eliminate illegal cannabis sales when there was no tax; it is impossible to eliminate unlicensed sales with a 10% tax rate; and if the tax climbs to 35% or higher, the regulated market will shrink rapidly as people return to their unlicensed cannabis sources forever.”
Schumer, the Senate majority leader, said another intent of the legislation he helped draft is to ensure big tobacco and liquor companies don’t “swoop in and take over,” but some feel that’s going to be difficult to avoid once federal legalization arrives.
“Definitely the bigger conglomerates do have the upper hand with legalization,” said Jack Owens, operations manager for Thumb Genetics, a 2,000-plant aquaponics grow facility in Lansing.
His family-owned company, which he runs with the help of his mother and father, is already competing with a growing number deep-pocketed, in-state corporate rivals able to harvest tens of thousands of plants at a time.
“You’ve got to hit a medium ground where the big conglomerates and the smaller companies work together; otherwise, it’s just going to be monopolized,” Owens said. “Once it happens, certain dispensaries and everybody can go over state lines -- and they still have a lot of gray areas to figure out -- but how quickly is that going to happen and what big companies are going to pretty much take over?
“Once that happens, you better be ready to partner up, or hopefully have enough quality product and enough clients that will support you to make it through.”
Michigan’s medical marijuana caregivers, who are allowed to grow up to 72 plants for five registered patients and themselves, are currently in the crosshairs of large businesses and lobbyists who want to see their ability to grow severely limited and increasingly regulated.
Michael Toles of Intentional Enterprises, a fledgling marijuana grow company that plans to open in Detroit where recreational marijuana licenses are currently on hold, supports nationwide legalization, but believes it will eventually lead to the end of loosely regulated, untested home recreational and caregiver grows.
“You think that’s going to last?” he asked? “It’s not tested and it’s not taxed.”
Thompson, of NORML, a supporter of Michigan’s current laws that allow caregiver and personal home grows, didn’t weigh in on whether he thinks they’ll go away, but anticipated what will happen if they do.
“Caregivers will fail to renew their registration, if federal laws are adopted, but they will not fail to continue to grow,” he said. “Eventually, government will have to realize that cannabis users will merely ignore laws that make no sense, disadvantage them or are created for the advantage of corporations, not citizens.”
The current draft of the federal legalization bill, which calls for an excise tax that increases to 25% after four years, not including state taxes, is unlikely to pass in it’s current form, according to Friberg.
“Do I think that this bill will come up this session? Honestly, yes, because it’s the leader’s bill,” she said. “Do I think this bill is going to pass this session? ... No, not right now -- but, you know, anything can change.”
A bright spot for marijuana at the federal level is related to cannabis banking reform, which is included with the likely-to-pass National Defense Authorization Act (NDAA) for fiscal year 2022. The addendum would protect banks from federal penalties if they work with cannabis companies. Currently, because marijuana is illegal federally, many large financial institutions are not offering services to the industry.
Toles believes the positive tradeoffs for businesses in a federally legalized environment outweighs any negative aspects.
“Because (of federal legalization), we’ll be able to expand to other markets,” Toles said. “We learn how to do it well so we can duplicate processes everywhere within the country.
“Obviously from a financial perspective, the larger, bigger Phillip Morris of the world ... is going to be part of it, but we’ll see.”