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In what appears to be a backstop legal play, Michigan’s recreational cannabis industry has filed a second lawsuit against the state making a new argument that the Legislature and Governor Gretchen Whitmer violated the state constitution when they enacted a wholesale tax on recreational marijuana.
In this new lawsuit filed with the Michigan Court of Claims, the industry group argues the 24% wholesale tax creates a spiral that effectively sets a higher rate on marijuana sales than the 6% sales tax rate set in the Michigan Constitution.
“So, what’s happening here is a tax levied on a tax which results in an unconstitutional over-taxation of Michiganders,” Rose Tantraphol with the Michigan Cannabis Industry Association told Rick this week. “It effectively functions as a sales tax, creating a situation where cannabis is taxed multiple times, resulting in something called tax pyramiding that imposes a sales tax on consumers that’s higher than the legal rate of 6%.”
That is also on top of the 10% excise tax that was already in place under the initiative to legalize recreational marijuana approved by voters in 2018.
The purpose of this new lawsuit could be to serve as a secondary defense in case courts don’t go along with the industry’s initial argument that the Legislature violated the substance of the Michigan Constitution’s initiative clause when it adopted the wholesale tax. That is the central argument in a separate lawsuit already filed in the Michigan Court of Claims.
To wit, the wholesale tax was adopted last year by the Legislature and signed by Governor Gretchen Whitmer as part of a roads-funding plan. In that earlier lawsuit, the cannabis industry argues the tax is unconstitutional because it was adopted by simple majorities of the Legislature and not the supermajorities required to amend voter-initiated laws.
It takes three-fourths supermajorities in the House and the Senate to alter a voter-approved initiative. But the state argues the wholesale cannabis tax is part of a road-funding law that does not touch the language of the initiative. To sum up the argument: the new wholesale tax on cannabis is not a marijuana tax but part of a road funding plan that happens to tax marijuana.
That may carry more than a whiff of hypocrisy or some expansive lawyering on the state’s part, but the fact that the Court of Claims is allowing the state to collect the tax while the case is argued could be a signal to the industry that it needs a backup plan.
This is something of a legacy issue for Whitmer since it is a key portion of her last best chance to fully fund her signature campaign promise to “fix the damn roads.”
“If the tax were to be eliminated by the courts, that would put a big dent in the long-term outlook for road funding,” Robert Schneider, a senior research associate with the nonpartisan, not-for-profit Citizens Research Council of Michigan, told Rick.
The official estimated revenue of about $420 million a year (which may also be a joke playing on the number’s significance in stoner culture), is a significant portion of a $2 billion-a-year roads plan, said Schneider.
One or both of these cases will likely land eventually with the Michigan Supreme Court. If the tax is overturned, that money would not be easily replaced – and fixing that would be a heavy lift in the months remaining of this session of the Legislature.
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What we’re talking about at the dinner table
Nine bills: Speaking of the high court, the Michigan Supreme Court agreed this week to hear arguments over whether it should take up the long-simmering lawsuit between the state House and Senate. “The Democratic-led Senate is suing the Republican-led House over nine bills that passed both chambers last legislative session but were never delivered to the governor. The bills deal with public employee health care premiums, retirement plans for corrections officers, and wage garnishment. The House is contesting a Court of Appeals decision that would require it to forward the bills to the governor. House leadership says the Supreme Court being open to hearing the matter is a ‘big win.’ Senate leadership says it’s looking forward to ‘having an audience’ with the justices,” Michigan Public Radio Network’s Colin Jackson reports.
Benson v. Trump: Michigan Secretary of State Jocelyn Benson is promising to challenge a new executive order signed by President Donald Trump that directs the Department of Homeland Security to create eligible voter lists for each state. “It would also forbid the U.S. Postal Service from sending mail-in ballots to anyone not on the lists. The Trump administration says the order will make elections more secure. Election officials from multiple states, including Michigan, have been quick to push back against the order. Benson called it illegal and said she plans to take swift action to challenge it in court,” Michigan Public’s Mary Corey reports.
Senate debates: State Senator Mallory McMorrow is calling for five debates “ahead of the Aug. 4 primary to decide the Democratic Party's nominee for a soon-to-be-open U.S. Senate seat and one of the most-closely watched congressional races in the nation this year,” the Detroit Free Press’ Todd Spangler reports. “McMorrow, of Royal Oak, is in what appears to be a tightly contested race for the nomination with U.S. Rep. Haley Stevens of Birmingham and former Wayne County and Detroit health director Abdul El-Sayed of Ann Arbor. So far, there has been little independent polling in the race and what polling has been done shows no clear frontrunner… Whoever wins the Democratic primary is widely expected to face former U.S. Rep. Mike Rogers of White Lake, the perceived frontrunner for the Republican nomination. Rogers has been endorsed by President Donald Trump and lost a narrow race to U.S. Sen. Elissa Slotkin, D-Mich., in 2024.”
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Yours in political nerdiness,
Rick Pluta & Zoe Clark
Co-hosts, It’s Just Politics
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