ROYAL OAK, MI – State and local governments in Michigan were facing money problems before the coronavirus. Now, many of them may be staring at disaster. Catastrophic job losses mean Michigan’s state budget is facing cuts of more than $3 billion.
But could the newly legal marijuana business help bail them out? Recreational marijuana was legalized by the voters in November 2018, and approved shops could begin selling it last December.
Barton Morris, an attorney who runs the Cannabis Legal Group in suburban Royal Oak, said “this is definitely going to be a billion-dollar business, and more.” Noting that marijuana is still illegal under federal law, he added, “and think about what will happen when that changes – and at some point, it will change.”
There’s no doubt recreational marijuana will help Michigan’s bottom line. Legalization carried a 10 percent excise tax on top of Michigan’s six percent sales tax.
But how much money will that mean?
That isn’t clear. For while the pot business is definitely growing, one of the biggest obstacles is precisely this: Recreational marijuana is still illegal under federal law.
For that reason, all transactions have to be done in cash. Banks are very leery of loaning money to businesses who operate via cash alone, and whose business is technically illegal.
On top of that, individual communities in Michigan are allowed to opt out and not allow marijuana to be sold in their jurisdictions – and many have done just that. Kathy Gray covered the marijuana business for a Detroit newspaper before joining the New York Times earlier this year. Asked if she would advise an entrepreneur to start a business selling marijuana or one making rear-view mirrors, she said “go with the rear-view mirrors,” at least for now.
But not everyone agrees. Jason Eelbode is a 42-year-old millwright who earned an MBA and then started a medical marijuana business, the Detroit Bud Company, in Warren five years ago.
He’s making a go of it, though he admits it has been a struggle. “You need a combination of hard work, old-school techniques, modern technology and a Detroit manufacturing strategy,” he said.
Michigan first legalized medical marijuana in 2008, and the early years of that business were horrendous. There was no agreed-upon standard or strategy for growing the product.
Many of those bugs were eventually worked out of the system. Believing that existing medical marijuana businesses were best equipped to begin recreational sales, Michigan decided that they would be the only ones allowed to sell recreational pot until December 2021, meaning Eelbode could get a license.
But he says he is not interested. “We are too small an operation, and there are too many hurdles to jump through,” he said.
Attorney Morris, who has marijuana clients ranging from small operators to huge, well-capitalized firms, believes there are potential bonanzas out there for the right investors. But that would have to be “someone who is an entrepreneur (in spirit) but they have to be knowledgeable, capitalized, and well-funded.”
Unfortunately, because of the attitude of most banks, the funding issue presents a major Catch-22 for many would-be marijuana businessmen. There’s no question that there is a market out there.
It is an open secret that many medical marijuana sales have been diverted to recreational use. Those shops that have managed to open are doing a brisk business, and Michigan highways are dotted with billboards advertising recreational marijuana stores.
So far, the business is still clearly in its infancy. As of last week, the state had licensed 112 shops statewide to sell recreational marijuana. But many of them haven’t opened yet.
There is not a single recreational shop open for business in Detroit, or in sprawling suburban Macomb County, home to 850,000 largely white and blue-collar workers.
The process of getting into business is time-consuming. Barton Morris said the average wait time for a license is six months – and months more after that before they get into business.
Meanwhile, there is still a thriving illegal underground marijuana business, as there has been for decades. The attorney expects this to gradually lessen, however, in part for quality control reasons. “This is one of the most regulated businesses there is in the state, and consumers can go into a state-licensed store and get a product they know is safe,” Morris said.
But will they be buying a product that can help get Michigan out of an economic hole? Probably … not much. The state realized a mere $25 million from recreational marijuana sales in the first few months of 2020 – a far cry from the billions lost.
Even if sales do eventually hit $1 billion, that would mean – at most — $160 million for the state of Michigan. Last year, before the coronavirus hit, Gov. Gretchen Whitmer joked that “every man, woman and child would have to smoke about $2,500 worth of marijuana a year to fix our roads.”
Later, it turned out that her calculations were wrong, and since only people over 21 can buy marijuana, every adult would have to buy more than $10,000 worth of grass a year.
Marijuana sales, however you feel about the drug, should provide some needed new revenue for the state. But not nearly enough to fix the roads, or overcome what the pandemic has done.
(Editor’s Note: A version of this column also appeared in the Toledo Blade.)
