Truth Squad | Michigan pro-pot group misleads on tax money generated by legalization

Nov. 6: Michigan approves recreational marijuana. What you need to know.

Proponents of Proposal 1, a ballot initiative to legalize recreational marijuana in Michigan, claim in a new ad that voting yes Tuesday will bring “a half-billion in new tax revenue” for the state.

Truth Squad finds the claim MISLEADING.

THE CLAIM

“I’m voting yes on 1,” Bridjet Morris, of Detroit, says in a new ad, “Landscape,” authorized by the Coalition to Regulate Marijuana Like Alcohol, the committee supporting Proposal 1. “Legalization means regulated marijuana for adults only. It will protect our families. Strict product labeling and childproof packaging. Bans edibles meant to appeal to kids. Today, drug dealers don’t ask for IDs. Yes on 1 means fewer drug dealers on the streets. Legalization is working in other places. In Colorado and Washington, no increase in marijuana use by teenagers. Yes on 1 means a half-billion in new tax revenue. For my kids and yours, vote yes on 1.”

The ad’s disclaimer says it was paid for by New Approach PAC of Washington, D.C., a nonprofit that advocates for marijuana legalization across the country, and authorized by the Coalition to Regulate Marijuana Like Alcohol.

THE FACTS

There are several claims to unpack in this ad; Truth Squad addresses childproofing and children’s access to marijuana in a separate fact-check.

We focus on the claim that passage would generate $500 million in new tax revenue. The Coalition to Regulate Marijuana Like Alcohol said it based the claim on a new economic modeling report it commissioned from Denver-based VS Strategies LLC, a cannabis-focused government relations firm, and a recent report from the nonpartisan Michigan Senate Fiscal Agency.

Michigan’s 10 percent excise tax on legal weed in Prop 1 would be among the lowest of states that allow recreational marijuana. (Here’s what the language says about taxes.)

Washington state, for instance, charges a 37 percent excise tax, while Colorado set its tax rate at 15 percent. Washington took in $315 million last year before other state and local taxes were factored in, while Colorado took in more than $247 million.

The forecasts cited by the pro-marijuana coalition do, indeed, indicate that Michigan could bring in more than $500 million in new tax revenue from legal pot. But what the ad does not say is that these projections cover at least four years, not just one as the ad might lead some to believe.

VS Strategies puts the estimate at $520 million in sales and excise taxes over five years, or about $104 million a year. The Senate Fiscal Agency estimate is higher, with estimated total revenue of $770 million over four fiscal years, or an average of $193 million a year, with revenues rising each year ($266 million in fiscal year four).

Nothing to sneeze at, but far less than the ad suggests.

The fiscal agency said its estimates are based on per-capita sales from other states that have passed legalization laws, and also account for a provision of Michigan’s medical marijuana regulatory law that would eliminate an existing 3 percent tax on medical marijuana dispensaries if recreational marijuana were to become legal in the state.

Other analysts have noted the likelihood, based on what has happened in other states, that marijuana prices will fall once the recreational market has been around for awhile, as demand slows down and competition increases. That, of course, would lower tax revenues in the future.

The multi-year perspective is intentional, said Josh Hovey, spokesman for the Coalition to Regulate Marijuana Like Alcohol.

For one, Hovey said, it’s hard to project much beyond five years, particularly because comparable recreational marijuana markets are still young in other states that have adopted them. And proponents wanted to show how much the state stands to gain as the market grows from startup to maturity, he said.

“Giving just a one-time figure, I don’t know if that gives as full of a picture as what the multi-year projection would show,” he said. “Using the half-billion-dollar figure is about showing that this is a long-term decision, and in the long term, this is a significant amount of revenue for the state of Michigan.”

THE RATING

It’s true that projections show Michigan could bring in more than $500 million in new tax revenue. But that’s an aggregated figure over time, not an expectation Michigan could earn that much in a single year. Nor is it guaranteed that those estimates will come to pass.

An average voter who hasn’t followed the proposal closely could be forgiven for assuming Michigan has a $500 million annual windfall on the horizon, which isn’t the case. The ad doesn’t make clear just how long it would take Michigan to see that $500 million.

That’s the main reason Truth Squad finds the pro-marijuana coalition’s ad MISLEADING — it lacks necessary context.