Cash Cow: Medical marijuana’s potential revenue lures municipalities
Since the passage of Michigan’s new law providing for the lawful operation and licensing of commercial medical marijuana facilities, communities across the state have been debating if they want the cannabis industry in their town. Although there is wide support among Michigan residents for the lawful use of medical marijuana, municipalities have been slow to reflect the prevailing zeitgeist. Meanwhile, retailers, growers, processors and transporters are eagerly waiting to meet the demand of more than 200,000 medical marijuana patients throughout the state.
Should Medical Marijuana Businesses Be Allowed in your Town?
Under the new law, a medical marijuana facility may only be operated in a municipality (village, city, or township) that has expressly authorized operation of that facility. In fact, before a person can even be considered for a license by the state, the local government of the proposed facility location must “opt in” by adopting an ordinance that permits operation of the marijuana facility.
Although many local governments in the Grand Traverse region have taken a wait-and-see approach, there is some momentum building among communities to allow cannabis businesses to operate within their borders. Acme Township and the Village of Kalkaska have both already opted in, and Traverse City commissioners have unanimously approved a resolution to permit licensed facilities. Although this decision will not be official until the city passes an ordinance, all signs suggest that the commission is committed to allowing medical marijuana businesses in the community.
A number of other municipalities in the region appear poised to follow suit, as most local officials are in general agreement that the benefits of opting in outweigh the costs. Licensed facilities fill a need in the community and improve access for people with debilitating medical conditions and chronic pain. Perhaps more fundamentally, local governments are loath to forego the significant new revenue opportunities that the marijuana industry presents for a community. By way of summary:
- State revenues: The state will be collecting a three percent excise tax to be shared by the local governments in which facilities are located. A state Senate fiscal agency analysis estimates this will amount to annual revenues of $6.5 million for counties and $5.3 million for municipalities, allocated in proportion to the number of facilities located in each municipality and county.
- Annual fees: Municipalities will be able to assess annual fees of up to $5,000 per license to help cover administrative and enforcement costs.
- Tax revenues: Local governments will also receive additional revenue from property taxes paid by businesses and an expanded tax base. Property values are already increasing in places that have passed ordinances and some municipalities are hoping to take advantage of the opportunity to have marijuana facilities fill vacant or abandoned properties.
Communities that allow marijuana businesses will also benefit from the number of jobs created with the new industry – not to mention the ancillary work in areas like accounting, law, insurance, heating and ventilation, and other support services.
Given these potential benefits, the recent trend of local officials coming out in favor of allowing medical marijuana businesses in their communities is not surprising. Municipalities that embrace the new industry will have access to additional sources of funding, an improved local economy and be in a far better position if the state ultimately legalizes recreational marijuana, as many anticipate.
Getting Into the Medical Marijuana Business
Michigan’s medical marijuana market is projected to be somewhere around $837 million in annual sales. Needless to say, there is no shortage of individuals who want to take advantage of the potentially lucrative opportunity. But anyone interested in getting into the marijuana business should consider a few things before applying for a license.
For starters, the state will not issue a license until the municipality of the proposed facility location has enacted an ordinance to opt in to the state law. Without question, the largest obstacle to obtaining a license is finding someplace to be. Identifying a facility location in a municipality that has adopted the required ordinance is a major hurdle, and developing a dialogue with local officials should be the first priority for anyone serious about obtaining a license.
That said, prospective license holders are able to begin the application process while still searching for a location. The license application with the state is a two-part process, involving “prequalification” and “license application.” License applicants are able to begin the prequalification portion of the process before a municipality adopts the required ordinance. The prequalification step is a major undertaking that will take a significant amount of time to complete.
Prospective license holders could face some serious sticker shock when they submit applications. In addition to the fees assessed by local governments, the state will collect a license application fee of $6,000 per license and a regulatory assessment fee, ranging from $5,000 for the smallest grower up to $57,000 for larger growers, transporters and dispensaries. Applicants will be required to demonstrate the ability to operate and maintain the proposed marijuana facility by satisfying capitalization requirements of $150,000 to $500,000 per license. The state will require proof that the applicant has obtained insurance coverage of at least $100,000.
For many individuals and small businesses, these steep financial requirements make it cost-prohibitive to get into the medical marijuana business. But for those with sufficient resources, the new industry will almost certainly present lucrative opportunities as more local governments decide to allow licensed facilities in their communities.
W. Dane Carey is part of the Dingeman & Dancer firm’s established transaction and litigation practice groups focusing on commercial disputes, corporate and business law, real estate and development, environmental and municipal law. Dane has significant experience in matters involving business entities, contract actions, and general civil litigation.