John James pitches marijuana tax repeal, courts industry donors

John James has pledged to slash a new 24% tax on wholesale marijuana
The Republican gubernatorial nominee first proposed scrapping the tax at an industry-hosted fundraiser in July
Democratic candidate Jocelyn Benson hasn’t taken a stance on the tax

LANSING — Republican John James is proposing to “repeal or sharply reduce” Michigan’s new 24% wholesale tax on marijuana and courting industry donors as he competes to be Michigan’s next governor.

The new tax was a key component of the bipartisan road funding deal Democratic Gov. Gretchen Whitmer signed last year, but James argues it “drives up prices, gives illegal operators a competitive edge and has already fallen far short of revenue projections.”

James publicly vowed to repeal or reduce the wholesale tax in mid-August, weeks after he had discussed doing the same at a campaign fundraiser organized by marijuana industry leaders.

The gathering, hosted by executives of the JARS Cannabis dispensary chain, netted his campaign nearly $90,000, according to state disclosures.

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That’s a small fraction of the nearly $1.2 million James raised from donors since late July, but it underscored the willingness of industry executives to back opponents of a tax they see as an existential threat.

“He was clear as a bell: He wants to get rid of that 24% tax,” said Tim Beck, a longtime marijuana advocate who attended the fundraiser and told Bridge Michigan that about 100 people attended.

Marijuana officials have said they were blindsided by the wholesale tax, which is separate from the state’s 10% retail excise tax and was part of a road funding deal negotiated behind closed doors by Whitmer, Senate Majority Leader Winnie Brinks and Republican House Speaker Matt Hall.

An industry group is suing to try to block it, arguing it violates the will of voters who legalized marijuana in 2018.

As part of his proposal to repeal the wholesale tax, James noted state revenue collections have so far fallen short of projections.

The House Fiscal Agency had projected the tax would generate $420 million annually to help fix Michigan roads as part of a promised $2 billion annual infusion, but state budget officials recently reported it had generated just $73.4 million in the first six months since implementation, below even revised estimates.

James has not said how or if he’d try to make up road funding revenue if the tax is fully eliminated. His campaign did not respond to requests for comment, nor did a spokesperson for Hall, the GOP House Speaker.

Benson takes wait-and-see approach

Jocelyn Benson, the Democratic gubernatorial nominee, has not taken a firm stance on the 24% wholesale marijuana tax, which her running mate, Brinks, supported in the Legislature.

It’s a “new and emerging issue,” Benson said Tuesday when Bridge asked her about the tax at a campaign stop.

“There’s a lot of data yet to be determined on that particular tax … we need to know where the money is going and also the impact that it’s had on the industry,” she said. “At the same time, I want to make sure that any changes we are making to our tax code do not come at the expense of driving up costs for Michiganders.”

Democratic gubernatorial nominee Jocelyn Benson has not taken a firm position on Michigan’s new wholesale marijuana tax. (Simon Schuster/Bridge Michigan)

Michigan’s marijuana industry was already struggling with growing pains before the new tax, and Robin Schneider, head of a top trade group, said many business owners have told her they simply aren’t paying it.

“They’re operating on a wish and a prayer right now,” said Schneider, the executive director of the Michigan Cannabis Industry Association. She attended the fundraiser and her association donated $1,000 to James.

Schneider told Bridge the James campaign approached her about the issue ahead of the fundraiser. “We didn’t do anything,” she told Bridge. “They made it clear that they support us.”

Beck, who is a member of the industry association but has no business of his own, said he feels marijuana business owners are “pretty united” around James.

Schneider said her association “repeatedly” reached out to Benson but has not heard back. The group previously supported Benson’s Democratic primary rival, Chris Swanson, who similarly pledged to repeal the tax.

An industry in turmoil

Michigan’s marijuana industry experienced meteoric growth after recreational sales began in 2020, but competition has been cutthroat, with rapid expansion and aggressive consolidation making it difficult for small businesses to survive, leaving all but the largest producers and dispensary chains standing.

With the market seemingly saturated, industry margins remain razor-tight.

In 2018, when 56% of Michigan voters voted to legalize marijuana for recreational purposes, James — then in his first of two campaigns for US Senate — said he would vote against the proposal but would respect the will of voters if they approved it.

Eight years later, James now says “state government has a responsibility to respect” the voter-approved law “while promoting workplace and community safety, keeping intoxicating products out of the hands of children, protecting consumers and enforcing the law against those who refuse to follow it.”

Diversion to the black market is something that nearly every state that has legalized marijuana has struggled with. In Oregon, where marijuana is legal and regulated, some experts have estimated only about two-thirds of sales are through the legal market, and it’s unclear whether expensive state efforts to tamp down on illicit sales are making a dent.

The industry has also sought other routes to reduce the financial pressure Michigan’s fiercely competitive market has brought on weed businesses.

Schneider’s industry association has backed a proposal introduced by state Senate Democrats that would effectively cap production and distribution statewide, cutting off new entry into the market, much like the state-sanctioned oligopoly currently in place for alcohol wholesalers.

That legislation, however, has remained stalled in committee.