Economic Development, Government, and Health Care

Marijuana legalization could generate $738M in four years

Report by nonpartisan Michigan Senate Fiscal Agency shows year-over-year increased growth.

October 26, 2018
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(As seen on WZZM TV 13) A recent study from the nonpartisan Michigan Senate Fiscal Agency shows marijuana legalization could have an estimated state economic impact of nearly $738 million over the next several years.

If Proposal 18-1, the Michigan Regulation and Taxation of Marihuana Act, is approved during the Nov. 6 election, the estimates show $77.1 million in the first year, growing each year thereafter to $157.4 million, $241.4 million and $262 million.

The estimate assumes a one-year timeframe for initial implementation activities, beginning the impact with the 2019 fiscal year beginning Oct. 1, 2019.

Estimates of potential taxes and fees collected are based on per capita sales data from states that have adopted similar laws.

Among other provisions, the proposal would:

  • Allow users ages 21 and older to purchase, possess and use marijuana and marijuana-infused edibles, and grow up to 12 marijuana plants for personal consumption

  • Impose a 10-ounce limit for marijuana kept at residences and require amounts over 2.5 ounces be secured in locked containers

  • Create a state licensing system for marijuana businesses and allow municipalities to ban or restrict them

  • Change several current violations from crimes to civil infractions

The report says differences in the degree of establishment of the medical marijuana industry, as well as cultural, social and economic factors between states, likely would result in significant revenue differences.

Under the law, marijuana would be subject to regular sales tax, the majority of which is distributed to schools. This would bring in $35.5 million in the first year, followed by $66.5 million, $98.9 million and $105.6 million.

There also would be a 10 percent excise tax on sales, which, along with license fee application revenues, would create the total regulation revenues of $64 million, $114.4 million, $167.2 million and $182.3 million, respectively.

These funds would first have to be spent on implementation, administration and enforcement. Next, for at least two years, $20 million each year would have to go to one or more clinical trials researching the efficacy of marijuana in treating veterans and preventing veteran suicide.

After these expenditures, this leaves estimated unspent balances of $41.5 million, $91.8 million, $144.5 million and $179.5 million.

This unspent balance would have to be allocated in the following proportions:

  • 15 percent to municipalities containing marijuana retail stores or microbusinesses, allocated in proportion to the number of those establishments within the municipality

  • 15 percent to counties containing marijuana retail stores or microbusinesses, allocated in proportion to the number of those establishments within the county

  • 35 percent to the School Aid Fund for K-12 education

  • 35 percent to the Michigan Transportation Fund for repair and maintenance of roads and bridges

David Zin, the agency’s chief economist, noted Kent County and the city of Grand Rapids would not benefit from this unspent balance distribution without having those marijuana retail stores or businesses, meaning each could gain or miss out on $68.6 million over the next five years.

This does not include municipalities’ ability to charge an annual fee of up to $5,000 per establishment to defray the application, administrative and enforcement costs associated with operations.

Kristin Turkelson, Grand Rapids assistant planning director, and Landon Bartley, Grand Rapids senior planner, said they have not yet received guidance from the city commission regarding plans following possible approval of recreational marijuana.

The city commission in July voted to allow up to 53 provisioning centers and up to 83 medical marijuana facilities, though Bartley said that was put on hold for six months starting in September while commissioners consider several amendments to the ordinance, including removing the pre-qualification requirement.

He said planners have not yet been given direction on how the city will move forward with this issue, either.

The report estimates also reflect a provision of the proposal that would eliminate the current 3 percent tax on provisioning centers. This equates to between $22 million and $26 million lost each year, including between $5 million and $8 million per year each for counties and municipalities.

The report also noted the proposal could decrease fiscal resource demands on state and local court systems, community supervision, jails and correctional facilities.

In 2016, 199 people were sentenced to prison for a marijuana-related felony conviction, and 3,620 were sentenced to jail, probation or a combination of both, the report said.

According to the Kent County prosecutor’s office, the general policy locally is to write a ticket for marijuana use, resulting in a 93-day misdemeanor and/or a $500 fine, though being placed on probation also is possible.

Possession of marijuana is a misdemeanor punishable by a maximum of one year jail and/or a $2,000 fine, though Kent County Prosecutor Chris Becker said the fine and court costs typically are between $500 and $700.

The office reported 723 marijuana offenses in 2013, followed by 592 in 2014, 519 in 2015, 480 in 2016, and 467 in 2017. Typically, about 10 percent of those were for possession alone.

This does not account for small fines issued within the city of Grand Rapids.

The FBI reports about 50 percent of drug arrests in the Midwest are marijuana related.

The state report said for any decrease in prison intakes, in the short term, the marginal cost to state government is approximately $5,315 per prisoner, per year. The average cost to state government for felony probation supervision is approximately $3,024 per probationer, per year.

Any associated decrease in fine revenue would decrease funding to public libraries.

Bruce Block, a Grand Rapids attorney specializing in marijuana law, believes passing the law would save money on enforcement efforts and allow police to “focus on more important public safety issues,” such as violent crimes.

“There is a large segment of the population that would benefit from this and not be charged with a misdemeanor and have to go to court to pay fines and costs,” Block said.

Opponents of prohibition say efforts have been expensive and have failed to reduce the possession, sale and use of marijuana.

According to The War on Marijuana in Black and White, a 2013 report by the American Civil Liberties Union, Michigan spent roughly $91.4 million on these efforts.

While Kent County has not taken a stance on the issues, the sheriff, health and prosecuting departments, as well as individual commissioners, have come out against marijuana legalization, most commonly from a public health standpoint, with concerns such as much greater marijuana allotment, increased traffic deaths, other crime and decreased productivity.

Adam London, Kent County administrative health officer, called marijuana “highly addictive” and shared concerns about increased emergency room visits due to marijuana “overdose.”

Chuck Dewitt, Kent County chief deputy of corrections, said the noted concerns are not worth the comparatively low impact the tax revenue would have on the overall $56-billion state budget.

The city of Grand Rapids also has not taken a stance on the proposal, though commissioner Jon O’Connor has voiced support, as he did for decriminalization.

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