There are several steps to follow if you want a medical marijuana card in the Great Lakes State. Eric Lacy, Lansing State Journal
LANSING — Despite the influx of hundreds of thousands of dollars in licensing fees, Lansing officials say medical marijuana will not be a moneymaker for the city.
The costs of running a medical marijuana program are likely to cancel out gains from any fees collected, Lansing officials have insisted.
Additionally, the state’s medical marijuana excise tax — initially billed as a benefit that could reap millions for pot-friendly communities — is slated to bring Lansing much less than anticipated after the legalization of recreational cannabis cut short the tax’s lifespan.
Recreational marijuana became legal statewide in December 2018. Michigan voters first legalized medical marijuana in 2008, but it took the state nearly a decade to begin licensing and taxing the businesses that sell the drug to patients.
Legally, Lansing can’t turn a profit from fees
Ultimately, businesses need both local and state licenses to legally grow, test, transport or sell medical cannabis.
Lansing officials are under pressure to prove that the city isn’t turning a profit from its medical marijuana fees.
If a city assesses a charge as a way to generate revenue, that charge is considered a tax rather than a fee. Taxes, unlike fees, generally need voter approval.
Lansing charges $5,000 to apply for a license, the maximum amount allowed under the state’s Medical Marihuana Facilities Licensing Act, plus $5,000 to renew every year after that.
Lansing expects to collect $200,000 from marijuana business fees by the time the current fiscal year ends on July 1, according to the city’s most-recent budget projections. That’s less than the $735,000 that Lansing took in during the previous fiscal year, when the start of Lansing’s dispensary licensing program brought a flurry of interest.
Lansing anticipates a drop-off this fiscal year, in part, because the city is planning for rejected applicants, Finance Director Angela Bennett said. Rejected businesses get a $2,500 refund.
Are Lansing’s fees too high?
During the upcoming budget however, Lansing officials are predicting that marijuana fee revenue will go up again to about $500,000.
Lansing’s latest budget proposal, however, only lists $288,899 in costs that are specifically labeled as relating to medical marijuana.
Despite the $211,101 difference, it is safe to assume that expenses will far outweigh revenue collected, Bennett said. Those calculations did not include costs for medical marijuana-related law enforcement and code compliance work, she said.
The latest numbers come from an executive budget proposal, which is slated for City Council’s approval later this month.
Projections are only rough estimates, officials emphasized, and figures could change based on a variety of factors, including the volume of future applicants.
It’s difficult to compare to Lansing’s expected implementation costs to previous years, because Lansing officials have created a program budget for the first time this year. A program budget spells out costs for specific projects and programs, even if those costs span several funds.
Although exact costs may be fuzzy, Lansing administrators have been quick to point out that medical marijuana has been expensive.
Legal costs alone will reach $74,659 for medical marijuana next fiscal year, Lansing officials anticipate. The city has fielded at least a dozen lawsuits over medical marijuana licensing.
Additionally, the city clerk’s office paid an outside consultant more than $82,000 to help score dispensary applications.
The clerk’s office also budgeted $55,063 for a new city employee, who handles elections and medical marijuana licensing. In all, City Clerk Chris Swope estimates his staff members have dedicated over 7,500 hours to marijuana oversight.
Earlier study indicated fees are too high
In 2016, before Lansing rolled out its medical marijuana program, the city attorney’s office did a study to determine whether anticipated costs would justify a $5,000 fee.
That study, however, pegged the average cost to the city per license at $3,439 — less than what Lansing officials have been charging.
City Attorney Jim Smiertka dismissed that discrepancy, adding that those early estimates were “very conservative.”
Smiertka recently commissioned another citywide study into actual medical marijuana costs since the program’s implementation. The city attorney said he anticipates that study will show that expenses dwarf the $5,000 fee.
Cities saw measly returns from excise tax
Fees are not Lansing’s only source of medical marijuana revenue.
For an abbreviated period, Lansing got a portion of the state’s 3 percent excise tax on medical marijuana dispensaries. Those returns ended up being paltry, in part, because the tax ended March 6.
The state’s 2016 medical marijuana licensing law spelled out a sunset provision for the tax in the event that Michigan voters chose to legalize recreational marijuana.
The excise tax was initially projected to bring the state as much as $24 million annually, including $13.2 million for local governments.
The tax was billed as one perk for pot-friendly communities, since cities and villages stood to gain 25 percent of the state’s revenue if local officials chose to allow medical marijuana dispensaries. An additional 30 percent of the windfall was slated for the counties where dispensaries were operating. The more dispensaries in a given community, the greater the slice of the excise tax pie.
But state licensing delays, as well as limited buy-in from municipal governments, meant there were few licensed dispensaries operating over the tax’s five-month lifespan.
In theory, communities like Lansing and Detroit will share close to $700,000 from the $1.27 million that Michigan could collect from its medical marijuana excise tax this fiscal year.
That projection is derived as a percentage of the $42 million in sales tracked by the Michigan Department of Licensing and Regulatory Affairs between October 15, 2018 and March 5, 2019.
So far this fiscal year, the Michigan Department of Treasury has collected only $471,645 from the excise tax, although officials say it is normal for past-due payments to roll in later.
Council member: It wasn’t about raising money
At-Large City Council Member Patricia Spitzley said she never believed local governments would actually see millions of dollars from the state’s medical marijuana excise tax.
“Those were the projections and that was the hype,” Spitzley said, although she described the end of the excise tax as a “disappointment to local governments as a whole.”
Lansing didn’t budget for any medical marijuana excise tax revenue this fiscal year due to uncertainty surrounding the state’s licensing process, Bennett said.
Spitzley said raising money was not the aim when the majority of City Council voted in 2017 to allow recreational marijuana businesses within Lansing.
The intent, Spitzley said, was providing safe access for patients.
“People are looking to (dispensaries) for relief for some pretty serious medical issues so we need to make sure the product is the safest product,” Spitzley said.
There’s also the potential that medical cannabis will bring indirect economic benefits to Lansing, Spitzley noted.
Proponents say the industry will attract jobs and boost property values. The city’s budget calculations don’t include property or income tax numbers that are specific to medical marijuana businesses.
Critics cheer end of ‘patient tax’
Despite grumblings from some municipal leaders, the end of the medical marijuana excise tax was sensible, said Josh Hovey, a spokesman for the Michigan Cannabis Industry Association. Critics have described the 3 percent add-on as a “patient tax.”
“It doesn’t really make sense to tax a medicine,” Hovey said of the medical marijuana.
East Lansing recently approved rules to allow medical marijuana dispensaries, but no dispensaries have opened there. Meridian Township is still working to approve dispensary regulations.
That means those communities will never see excise tax revenue from medical marijuana, although East Lansing expects to take in $20,000 from medical marijuana fees next fiscal year.
Products sold by medical marijuana businesses are still subject to a 6 percent sales tax, which is projected to bring Michigan as much as $18.2 million by the end of this fiscal year. The state does distribute a small portion of its sales tax revenue to local governments, but Lansing doesn’t track how much of its allocation comes from cannabis businesses.
Recreational pot money is still a ‘big unknown’
Any money generated by the state from medical marijuana is likely to be chump change by the time Michigan starts taxing recreational weed.
Recreational marijuana could bring the state $35.5 million from sales tax and $53.8 million from a 10 percent excise tax during the 2019-20 fiscal year, according to an analysis from the Senate Fiscal Agency.
The state will have to dedicate $20 million from fee and excise tax revenue to research on using cannabis to prevent suicides among veterans.
After that, and after the cost of enforcement, pot-friendly cities and counties will get a collective 30 percent of the remaining money.
If Lansing City Council does decide to allow stores that sell pot for recreational use, it’s unclear exactly how much tax revenue will come the city’s way.
“It’s all still a big unknown,” Bennett said.
Contact Sarah Lehr at (517) 377-1056 or slehr@lsj.com. Follow her on Twitter @SarahGLehr.
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