Grass Into Cash
June 3, 2016
The news that Michigan faces substantial budget deficits again has prompted the pro-marijuana crowd to call for quick approval of a tax-and-regulation bill for prescribed pot that would help plug the projected $460 million hole in the state’s finances.
Yet, the medical marijuana distribution bills that have been stalled in Lansing could pave the way for generating hundreds of millions of dollars per year — but not to significantly enhance state revenues. Instead, the plan could the pockets of out-of-state tobacco companies. Or some of Michigan’s beer and wine wholesalers.
Yes, the same companies that deliver suds and sauvignon blanc to your local party store might want to gain a piece of the action as legislators struggle to create an organized system for supplying medical marijuana across the state. Eight years after Michigan voters approved pot smoking for the sick or those in chronic pain, there are still virtually no rules to follow.
As early as next Tuesday, revised legislation — a compromise reached earlier this week by various players involved — will be presented to keep the tobacco and beer distribution companies at bay. Because Senate Republicans are so divided on this issue, an attempt will be made at a discharge motion, which would bypass the Senate Judiciary Committee and bring the new bill to the Senate floor.
Lawmakers seek to regulate a fledgling industry that many local officials believe is out of control, with hundreds of rogue or illegal pot “dispensaries” surfacing. Because so much money is at stake in this business, especially if recreational use of weed is soon legalized, powerful interests have jockeyed in the state Capitol for an inside track to profit from the transport of medical marijuana to retailers or clinics.
“Rather than have 10 billionaires come out of this, I’d like to have a thousand millionaires, and many more ‘$100,000-aires,’” said Rep. Mike Callton, R-Nashville, who has been working on the marijuana distribution issue for nearly six years. “We … just need to make sure that a lot of people benefit from a homegrown industry.”
‘Heavy hitters” move in
Those familiar with the legislative process say that “heavy hitters” want to cash in, and they’re willing to spend a lot of money wooing lawmakers as a down payment. Meanwhile, the Senate Judiciary Committee has made little progress over several months as members cautiously approach an issue that involves, taxes, regulation, drugs and big business opportunities.
“This is no longer about medical marijuana patients. This is all about who’s going to make the money,” one senator said privately. “This legislation is probably the best thing that’s happened to lobbying firms in this town (Lansing) in a long time.”
More than a half dozen lobbying groups hoped to grab the lion’s share for their clients, especially those in the tobacco distribution business, but critics say that in recent months the politically powerful Beer and Wine Wholesalers Association swooped in. Michigan is one of a handful of states that legalized medical marijuana but has not established a licensed, regulated system of selling pot to qualified buyers.
Some of the tobacco companies want to control distribution, and the pot growing process too. The beer and wine folks who are interested just want to be the middle man.
The Michigan Cannabis Development Association, which represents current medical marijuana businesses, was the group that tied the legislation to a quick budget fix for the state. But the fees and 3 percent excise tax on retail sales in the pending multi-bill package would only generate $40 million to $60 million annually.
Much of that will be eaten up by a new layer of state bureaucracy for enforcement, including up to 113 new Licensing and Regulatory Affairs (LARA) employees and 34 additional people at the Michigan State Police. Under the new bill language, staff additions at LARA will grow further as the revised legislation calls for the creation of a medical marijuana licensing board, similar to the Liquor Control Commission. Regarding revenues, the legislation would still earmark 45 percent of revenues to counties and county sheriff’s departments and 30 percent to municipalities.
What’s left for the state General Fund is about 1 percent of the projected budget deficit for fiscal years 2016 and 2017.
Tobacco companies interested
As for the private sector beneficiaries, in the House, bill amendments favoring tobacco companies that distribute cigars and cigarettes failed repeatedly. Legislation without any perceived special favors for interest groups passed by a wide margin in the lower chamber last fall.
In the Senate, the beer and wine folks, with support from local officials and law enforcement, demonstrated in recent months that they were determined to win support for a heavily regulated “three-tier system” – comprised of producers, distributors and retailers – that mimics the process for delivering bottled alcoholic beverages. Marijuana processing and testing, with government oversight, would also be a part of the pot process.
“They came very late to the game and they asserted themselves in a big way, demanding a system like their three-tier system,” Callton said.
According to a draft of the new bill, the three-tier-system would be cast aside. Distribution of medical marijuana would be limited to “secure transporters” chosen by retailers. And the licensed participants in the business could grow, process and sell prescribed pot all at the same location, eliminating distributors altogether in some circumstances.
If the three-tier system is dead and small operators would be given more freedom to participate in several stages of the process, the tobacco and beer companies might be written out of the equation.
“Hopefully they will stay in their own lane and stick to doing their own thing,” said Sandra McCormick, chief of staff for Sen. Rick Jones, chair of the Senate Judiciary Committee.
If a statewide petition drive aimed at legalizing marijuana produces a successful ballot proposal later this year, cannabis sales generated in Michigan could eventually reach into the billions of dollars. In Colorado, which has little more than half the population of Michigan, legal weed sales are now running at a $1.2 billion annual pace.
“A lot of people are making a lot of assumptions,” said the Judiciary Committee chairman, Sen. Jones, R-Grand Ledge, in an interview prior to the agreement for new language. “There may be a few guys who distribute beer who also want to distribute marijuana, but not many. The cigarette distributors want in on the action more than the beer guys.”
The primary lobbyist for the cigarette companies is Ron Boji, a power player in the capital who was responsible for the controversial $147 million lease of his downtown Lansing high-rise for new Senate offices.
Jones, a former county sheriff, is among a select group of legislators who have received large campaign contributions during this long process. The senator stressed that the bills, while they appear stalled in his committee, are not dead. Still, as the Legislature inches toward summer break, the legislation’s window of opportunity is shrinking.
The difficulty with solving this issue, according to Jones, is that so many diverse stakeholders are involved: the medical community, organizations that advocate for the nearly 200,000 medical marijuana patients, state and local police, city and township officials, the Attorney General’s office, and numerous business interests.
GOP Senate Majority Leader Arlan Meekhof, who previously balked at a discharge petition sending the issue to the Senate floor, remains undecided on how to handle this emerging industry.
When the three-tier system was carved into the bills, that move cost support among conservative Republican senators who balked at “overregulation” of the industry. In addition, jittery senators who oppose the legalization of grass view a “yes” vote on the pending pot legislation as risky, and they want to see part of the subsequent state revenue fund one of their pet projects.
“Everybody wants to get something,” Jones said.
In this case, something may not be better than nothing. Instead of turning grass into cash, intransigent lawmakers could send the legislation up in smoke.
A freelance writer from Macomb County, was the political reporter at The Macomb Daily for nearly 30 years. At the Daily he earned 50 journalism awards and in 2014 he was named by Politico as one of the “Media Stars” in seven political battleground states. He can be reached at email@example.com.