Michigan Made 49% More Money from Cannabis Taxes This Year Than Last, Beating Alcohol Revenue

A recent report from the nonpartisan House Fiscal Agency of the Michigan legislature, it has come to light that the sales of legally regulated cannabis in the state have notably bolstered the government’s coffers. During the most recent fiscal year, this burgeoning industry contributed a substantial sum of $266.2 million in tax revenue. Of particular note and worthy of astonishment is the fact that this numerical value exceeds the aggregate revenue derived from the sales of beer, wine, and liquor within the corresponding timeframe.

The fiscal year of 2022–23, which concluded in October, witnessed a remarkable surge in tax collections from adult-use cannabis sales, registering an impressive 49.1 percent increase over the previous year’s $178.6 million. This translates to an additional $87.6 million injected into the state’s treasury compared to the preceding 12-month period.

Perusing the comprehensive House Fiscal Agency report released just last week, one cannot help but notice that no other major tax revenue category experienced a growth rate as rapid as that observed in the cannabis sector. Adult-use cannabis products are subjected to a 10 percent state excise tax, constituting the lion’s share of the $266.2 million in revenue. Moreover, these products also incur the state’s standard 6 percent sales tax, contributing an additional $159.7 million to the overall revenue derived from legal cannabis transactions.

When scrutinizing the cannabis excise tax in isolation, it becomes apparent that cannabis accounted for nearly 0.8 percent of the total state revenue as documented in the annual report. This percentage rises to approximately 1.3 percent when factoring in the sales tax component.

Interestingly, the cannabis excise tax, in the most recent fiscal year, outperformed alcohol-related taxes. Alcohol taxes, which encompassed both beer and wine at $46.6 million and liquor at $146 million, contributed a combined total of approximately $192.6 million to the state’s finances. This represents a notable shift from the preceding fiscal year, 2021–22 when the combined revenue from alcohol taxes exceeded that of cannabis by approximately $12.9 million.

Michigan Cannabis Revenue: Contrasting Contributions and Growing Significance

In stark contrast, the revenue derived from cannabis in Michigan pales in comparison to the substantial sum of $722.2 million amassed through tobacco taxes during the most recent fiscal year, underscoring a marked disparity in contribution to the state’s financial resources.

A noteworthy observation emerges when dissecting the month of October 2023, where the cannabis excise tax alone yielded an impressive $52.4 million in tax revenue. This sum surpassed the revenue generated by any other singular revenue source, excluding sales and use taxes, income taxes, insurance taxes, and tobacco taxes. Such an occurrence signifies the growing significance of this revenue stream in the state’s fiscal landscape.

It is worth noting that the legalization of adult-use cannabis in Michigan was endorsed by the state’s electorate in 2018, marking the commencement of legal sales the subsequent year. Despite the steady decline in the average cost of cannabis over time, reaching record-low levels, the state has consistently set sales records. For instance, just a few months ago, the price of an ounce of adult-use cannabis hovered around a mere $98, a striking contrast to the approximately $180 per ounce observed in December 2021.

In a recent development, Governor Gretchen Whitmer, a Democrat, affixed her signature to a pair of bills, effectively allowing state-licensed cannabis businesses to engage in commerce with tribal cannabis entities. These legislative measures took immediate effect and were crafted to facilitate product sales between these two types of businesses, all the while ensuring equity by mandating that tribal businesses are subject to the same tax rate as their non-tribal counterparts. This legislative move underscores the state’s commitment to promoting a level playing field in the cannabis industry.

Michigan is not alone in experiencing the phenomenon where cannabis tax revenue surpasses that generated by alcohol taxes. This trend is indicative of more encompassing transformations occurring within the tax structure, wherein cannabis is progressively establishing itself as a formidable reservoir of financial sustenance for state administrations throughout the United States.

Changing Tides: Cannabis’s Impact on State Revenue and Regulatory Shifts

During the most recent fiscal year, a notable divergence was evident in the state of Illinois, where the legal cannabis industry contributed a substantial $451.9 million to the state’s coffers. This figure exceeded the revenue derived from alcohol by approximately $135.6 million, serving as a testament to the burgeoning economic significance of the cannabis sector. Such a disparity underscores the evolving dynamics of taxation and consumer preferences within the realm of regulated substances.

Notably, the state of Colorado, in the previous year, experienced a significant fiscal milestone whereby revenue generated from cannabis outpaced that of both alcohol and cigarettes, approaching levels nearly equivalent to the combined income garnered from alcohol and tobacco sales. This trend is emblematic of the transformative impact that the cannabis industry has had on state revenue streams.

Similar commendable achievements have been observed in other states such as Arizona and Washington State, where the cannabis industry has emerged as a substantial contributor to the state’s financial resources. This is indicative of a broader shift in the regulatory landscape, with cannabis increasingly gaining acceptance and becoming a dependable source of fiscal support.

In a concurrent development within Michigan’s legal cannabis framework, a significant change, approved in July by the state Civil Service Commission, recently took effect. This change marked the cessation of pre-employment cannabis testing for a majority of government employees. Additionally, it extended an opportunity to individuals previously penalized due to positive THC tests to seek retroactive rescission of sanctions, signaling a progressive approach toward cannabis-related policies and employment practices.

Furthermore, it is noteworthy that a recent legislative proposal has been introduced, aiming to legalize the cultivation and distribution of psychedelic plants and fungi, provided that such activities are conducted “without receiving money or other valuable consideration.” This proposal reflects the growing interest in exploring the therapeutic potential of these substances, while also considering the regulatory parameters for their responsible use.

In September, the legislators of Michigan assumed a proactive posture, demonstrating their earnest appeal to the U.S. Congress, the Department of Defense, and the Department of Veterans Affairs (VA), imploring them to accord precedence to the exploration and financial allocation for “non-technological treatment modalities.”This encompassed the inclusion of psychedelics as potential tools for addressing psychological trauma stemming from military service. Such advocacy underscores the evolving discourse surrounding mental health treatments and the exploration of alternative modalities to support veterans and individuals grappling with psychological challenges.