Some Michigan municipalities are getting creative with how they spend tax revenue coming back from their licensed cannabis businesses, while others are using the annual funding for core services and resolving budget deficits.
The city of Kalamazoo, for example, plans to issue a request for proposals this summer in search of an organization to run a cannabis chamber of commerce, which would be funded by the city’s share of cannabis excise tax revenue.
About 25 miles east, Emmett Charter Township in Calhoun County is using more than $600,000 in cannabis tax revenue this year to cover “ever-rising” public safety and water and sewer costs that have dented the township’s general fund.
In previous years, local officials have reported spending cannabis tax revenue on road projects and public safety personnel, while others have experienced rising property tax revenues that fund downtown development projects, as MiBiz previously reported.
In the case of Kalamazoo, cannabis tax revenue may help to address long standing equity needs for the industry by giving voice to and making connections for microbusinesses and minority-owned ancillary businesses.
Antonio Mitchell, Kalamazoo’s community planning and economic development director, said the city hopes to establish a cannabis chamber of commerce for local cannabis businesses by 2024.
The business group would be funded with 25 percent of the cannabis excise tax funds the city has been collecting for the past three years, with the goal of keeping the chamber funded with future excise tax revenue if it proves to be a success, Mitchell said.
“If we can prove this works, we could get (Kalamazoo) County to donate their (cannabis tax) money as well,” Mitchell said. “We hope this will be a model that will be utilized throughout the state.”
Another goal of forming a cannabis chamber of commerce is to highlight the needs and priorities of microbusinesses as well as women- and minority-owned ancillary cannabis businesses in the process, Mitchell added. The chamber would help these businesses by connecting them to cannabis operators that need their services, Mitchell said.
Language in the state’s 2018 voter-initiated law encourages participation in the industry by people who have been “disproportionately impacted by marijuana prohibition and enforcement.” However, Michigan cannabis businesses remain overwhelmingly white-owned and operated, and many municipalities that opted to license cannabis businesses have attempted to incentivize equity in ownership and employment, without much success.
Forming a cannabis chamber of commerce is Kalamazoo’s attempt at following the directive to make the industry more equitable, Mitchell said.
“We also know (the cannabis industry) is still not a thoroughly accepted industry, so it needs additional assistance from the community and a constructive way to educate individuals that there is more than smoking cannabis, it also has medical and other benefits,” Mitchell said. “The industry needs a more unified communication that this would help with.”
The remaining 75 percent of Kalamazoo’s cannabis tax revenue goes into its general fund, Mitchell said. The city of Kalamazoo had 17 adult-use dispensaries operating in 2022, earning the city $881,300 in excise tax revenue.
Most municipalities are still determining how to allocate their 2022 cannabis excise tax revenue, which state officials announced late last month for cities, townships, villages and counties that allow cannabis retail or microbusinesses. A municipality’s share of revenue is based on how many cannabis licenses it has approved.
For this past year, 224 local governments shared $59.5 million in tax revenue collected by the state. Each municipality received a little more than $51,800 for each licensed cannabis retail store and microbusiness in its jurisdiction. (See here for a Crain’s Detroit Business database of this year’s cannabis tax disbursements.)
In the 2021 fiscal year, the state distributed $42.2 million across 163 municipalities. More than $1.1 billion in adult-use cannabis sales were reported for 2021, which grew to $1.8 billion in 2022.
The state’s 2018 voter-initiated law that legalized recreational cannabis includes a 10-percent excise tax on retail recreational sales. The Marihuana Regulation Fund distributes 15 percent of revenues to municipalities, 15 percent to counties, 35 percent to the statewide School Aid Fund, and 35 percent to the Michigan Transportation Fund. The School Aid Fund and the Michigan Transportation Fund each received $69.4 million from the 2022 cannabis excise tax funds.
In West Michigan, Kent and Kalamazoo counties received the most tax revenue from 2022. Both counties had 30 active retail licenses in 2022, totaling nearly $1.6 million in tax revenue for both counties. As well, Calhoun County received more than $1.3 million and Muskegon County received more than $1.1 million.
Cannabis funds ‘cover rising expenses’
For many larger counties and cities, cannabis tax revenue is a drop in the bucket of their much larger budgets. But for smaller townships and villages, the funds have become an important revenue source.
One township supervisor in Bay County previously told MiBiz that “this marijuana excise tax pretty much gave us a second job, a second income coming in for things we couldn’t do before.”
Deb Belles, supervisor of Emmett Township outside of Battle Creek, said cannabis tax revenue has helped to offset recent budget deficits.
“Ever-rising public safety costs and water and sewer costs have required transfers out of our general fund, leaving us with an expected deficit this current fiscal year,” Belles said. “However, currently we choose to fill these voids with the marihuana excise monies instead of raising rates or incurring debt for water or sewer.”
Emmett Township has an estimated population of 11,646, based on the latest U.S. Census Bureau data. The township received $196,000 in cannabis tax revenue last year for having seven adult-use dispensaries in 2021. This year the township received more than $622,000 for 12 dispensaries operating in 2022.
The township has not increased its operating millage rate since 1973, even though costs have increased, Belles said.
“In short, (cannabis tax revenue) helps cover rising expenses outside of the general fund, and we appreciate it,” Belles said.