Medical Marijuana in Michigan: Three bills cut through the smoke
In September, Gov. Rick Snyder signed into law three bills that will clarify the status of medical marijuana in Michigan. From the outset, it is important to note that the licensing regime created by this law applies only to shield people from state or local prosecution for marijuana-related offenses. It does not shield them from any federal laws.
This caveat has two important implications. First, while the Obama administration has indicated it will not prosecute criminally those that are in compliance with their state laws, the decision is subject to review by the next administration. Second, the Internal Revenue Code disallows all deductions incurred in a sale of illegal substances (although the courts have allowed a deduction for cost of goods sold). Perhaps recognizing the still-controversial nature of medical marijuana, the law also leaves it to each municipality (a city, township or village) the decision on whether to authorize one or more types of marijuana facilities through an ordinance.
With these caveats out of the way, the bills require the creation of the Medical Marijuana Licensing Board. The board will consist of five members appointed by the governor. No more than three members may be from the same political party. The board may deny, suspend, revoke, or restrict a license and impose civil fines up to the amount equal to the greater of $10,000 or daily gross receipts for each violation.
The board will be able to issue licenses in the following categories: Class A, B, or C grower (500, 1,000, and 1,500 plants, respectively), processor (entity that purchases marijuana from growers and either extracts resin from the marijuana or creates a marijuana-infused product for sale), provisioning center (entity that purchases from growers and processors and sells to registered qualifying patients, directly or through registered caregivers), secure transporter (entity that stores marijuana and transports it), and safety compliance facility (entity that tests marijuana for contaminants and for tetrahydrocannabinol (THC) and other cannabinoids). To avoid conflicts of interest, a grower may not be a registered primary caregiver or employ anyone who is a registered primary caregiver.
A grower must enter all transactions, current inventory, and other information into a statewide monitoring system. This system will track all marijuana plants, products, packages, patient and primary caregiver purchase totals, waste, transfers, conversions, sales, and returns that are linked to unique identification numbers. In addition, the licensee must have its financial statements reviewed by a CPA on an annual basis. As a side note, at least anecdotally it appears that many local CPAs are unwilling to work with clients who sell medical marijuana. Whether this will change is to be seen.
A tax will be imposed on each provisioning center at the rate of three percent of its gross retail receipts. All taxes, fines, charges, and most fees will be deposited in the Medical Marijuana Excise Fund. The money in the fund will be allocated as follows:
- 25 percent to municipalities in which a marijuana facility is located, allocated in proportion to the number of facilities within the municipality;
- 35 percent to counties in which a marijuana facility is located, allocated in proportion to the number of facilities within the county (of which 5 percent must be used exclusively to support the county sheriff);
- 30 percent to the state for deposit in the State General Fund until Sept. 30, 2017, and for deposit in the First Responder Presumed Coverage Fund beginning on Oct. 1, 2017;
- 5 percent to the Michigan Commission on Law Enforcement Standards for training local law enforcement officers;
- 5 percent to the Department of State Police.
The law appears to be revenue-neutral with both expected costs and revenues being approximately $21 million. The legislative analysis contemplates that medical marijuana may also be subject to sales tax because “a recommendation that a patient would benefit from use of marijuana will not necessarily be interpreted as ‘dispensed by prescription,’ a necessary condition for exemption from the sales tax.” If it is subject to the sales tax, medical marijuana will raise an additional $43 million. Of that, about $31.3 million will go to the School Aid Fund, $4.3 million will be dedicated to constitutional revenue sharing, and $7.1 million will go to the State General Fund.
Finally, for the brownie fans out there, the changes legalize “marijuana-infused products” that are intended for consumption in a manner other than smoke inhalation. The law does place a limit on the amount of marijuana that can be possessed by a patient or a primary caregiver to 2.5 ounces of usable marijuana, 40 ounces of marijuana-infused product in solid form, 17.5 ounces of marijuana-infused product in gaseous form, and 90 ounces of marijuana-infused product in liquid form.
Jan M. Geht, JD, CPA, MST, assists taxpayers in resolving their civil and criminal tax disputes. He is a shareholder with Bowerman, Bowden, Ford, Clulo & Luyt, P.C. in Traverse City. Prior to moving to TC, Geht worked for the Tax Division of the U.S. Department of Justice.