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.”
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