Marijuana tax payouts dip in Michigan amid sales slump

Michigan is once again distributing millions in marijuana tax revenue to local communities, though this year’s allocation has decreased slightly amid a cooling cannabis market.

Nearly $94 million will be distributed to 313 municipalities across Michigan under the formula established in the recreational marijuana ballot initiative voters approved in 2018, according to the state Treasury. This year’s payout will reach 114 cities, 39 villages, 81 townships, 75 counties, and four federally recognized tribes.

Each eligible recipient will receive approximately $54,000 for every licensed retail store and microbusiness operating within its jurisdiction. This distribution stems from the 10% excise tax implemented by the 2018 initiative and reflects revenue collected during the 2023 fiscal year.

The state law mandates that 15% of marijuana revenue goes to municipalities and tribes hosting cannabis retailers or microbusinesses, with another 15% allocated to counties and tribes where these businesses operate. The remaining 70% is divided equally between the Michigan School Aid Fund and the Michigan Transportation Fund for education and infrastructure improvements, with each fund receiving over $109 million this year.

This year’s $93.7 million distribution represents a decrease from the $99.5 million distributed last year, reflecting a recent slowdown in the state’s cannabis market. This revenue is separate from a new 24% marijuana wholesale tax that took effect January 1, part of legislation designed to generate funding for statewide road repairs.

Local governments permitting marijuana sales can use these excise tax payments for various purposes, including public safety, infrastructure, and community projects. Ann Arbor, for instance, will receive approximately $1.2 million—about $200,000 less than last year—which it plans to use for affordable housing initiatives and a criminal charge diversion program aimed at college students.

“We’re a little disappointed that we’re getting less money but we’re not shocked by that,” Ann Arbor City Administrator Milton Dohoney Jr. told Bridge Michigan. “We still want to use the money that we’re getting to the maximum extent possible for programs that this community has determined is important. That is not changing.”

Wayne County and Detroit will receive the largest allocations, totaling more than $88 million combined. Interestingly, Berrien County, Michigan’s 16th largest by population, will receive the fourth-largest payment due to its 48 licensed businesses, many of which serve customers from neighboring Indiana, where marijuana sales remain illegal.

The cooling of Michigan’s cannabis market follows several years of rapid expansion. In January, adult-use customers purchased $226 million in recreational marijuana products, a $20 million decrease from the $246 million spent during the same month last year, according to the Cannabis Regulatory Agency. The decline has been even more pronounced in the medical marijuana sector, which is exempt from the state’s excise and wholesale taxes, with sales dropping from $710 million to $403 million year-over-year.

Despite the market downturn, local officials remain optimistic about the industry’s long-term stability. “There’s every indication that marijuana sales will continue to be a regulated industry within the state,” Dohoney noted. “There will be an expectation that some level of funding will be coming through every year. It might not always be the same but we certainly want to get our fair share if that’s how the policy is going to be implemented.”

The new 24% wholesale marijuana tax, however, faces opposition from industry stakeholders and lawmakers. An ongoing lawsuit from a cannabis industry association challenges the tax, while a bipartisan group of state senators has introduced legislation to repeal it.

Adam Stettner, CEO of FundCanna, which provides capital to underserved business owners in the cannabis industry, argues the combined tax burden is excessive. “Michigan has a 10% excise tax and minimally a 6% sales tax. So when you put this on top, you in effect, are taxing cannabis at 40%,” Stettner said, suggesting the heavy taxation could drive consumers back to illicit markets.

State Senator Jonathan Lindsey, a Republican co-sponsor of the repeal legislation, expressed similar concerns: “Lansing’s budget does not need to grow larger; we simply need better discipline. This tax will also damage Michigan businesses and lead to widespread job losses across the state, which are already being reported.”

Despite these efforts, the repeal faces significant hurdles. Both legislative chambers approved the tax last year, and the bill has been referred to the Senate Government Operations Committee, where legislation often stalls. For cannabis industry stakeholders, the priority remains regulatory stability. As Stettner noted, “What we really need is stability in policy because capital funding and business operators can’t stand uncertainty.”