Michigan and New Jersey are poised to have some of the lowest marijuana tax rates in the country, which has sparked a debate about the best taxation strategy.
Sales in Michigan will be subject to a 10 percent excise tax in addition to the standard 6 percent sales tax. The proposed bill in New Jersey imposes a 12 percent sales tax, and municipalities who host marijuana businesses can impose up to an additional 2 percent tax.
The first two states to legalize recreational marijuana, Washington and Colorado, imposed a 37 percent sales tax and a 30 percent combined excise and sales tax, respectively.
Tax revenue in Michigan “that may come from this initiative will be far less than one half of one percent of the state budget,” said Scott Greenlee, president of anti-legalization group Healthy and Productive Michigan, in a statement released after the election.
“The people may have voted on the concept of legalizing marijuana, but they probably wouldn’t mind more money going to the roads and schools than the pockets of the pot business,” wrote columnist and author Mitch Albom in an op-ed for the Detroit Free Press criticizing Michigan’s tax rate.
New Jersey Gov. Murphy is a proponent of a 25 percent tax on recreational marijuana. On the campaign trail, he touted potential tax revenues of $300 million from legalization, which is only attainable with a 25 percent tax.
On the other hand, Senate President Steve Sweeney pushed for the 12 percent tax that is included in the current bill. It is yet to be determined what the tax rate in the final legislation will be.
“I believe this is a reasonable and responsible rate that is fair to the consumers and will generate adequate revenue to support the regulatory system,” he said. “We want to be competitive with other states and it is important that we put the illegal drug dealers who want to continue to sell marijuana out of business.”
Supporters of lower tax rates argue that steep taxes will only drive consumers towards the black market.
“A high tax rate doesn’t do much to incentivize the consumer to use legal businesses,” said Josh Hovey, spokesperson for Michigan’s Coalition to Regulate Marijuana Like Alcohol, which advocated for legalization, in an interview with CNBC.
California, which legalized recreational marijuana at the beginning of this year, imposes a statewide 15 percent excise tax in addition to sales and municipality taxes that can reach 20 percent.
According to a survey conducted by cannabis delivery platform Eaze, one in five Californians still purchase cannabis from the black market. The survey also found that a 5 percent reduction in the tax rate could convert 23 percent of consumers from the black market to the legal market.
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