Michigan’s cannabis industry begins the new year with a new 24% wholesale tax, and some companies already are responding with layoffs and facility closures.
The multistate, Ann Arbor-based cannabis company C3 Industries said in a Worker Adjustment and Retraining Notification sent to the state on Dec. 15 that it would close its cultivation facility in Webberville, near Lansing, in mid-February. More than 60 employees will lose their jobs.
That same day, the Upper Peninsula-based cannabis company Higher Love said it laid off about 60 employees because of the tax. WARN Act notices are required to be sent by employers of a certain size and 60 days ahead of layoffs.
The moves come as Michigan’s cannabis market grapples with oversupply, falling prices and uncertainty over potential federal changes, including the possible rescheduling of marijuana.
But in the near term, marijuana companies say the tax burdens an industry already dealing with slim margins, which will lead to higher prices for consumers who may then turn to the illicit market for cheaper marijuana. Sales at legal dispensaries will slow as a result, and companies will go out of business.
C3 Industries cited the “decline of Michigan market conditions, exacerbated by oversupply and the looming wholesale tax,” as reasons why its facility is economically unviable.
Joni Moore, president of Higher Love, said in an interview with the Detroit Free Press that when she calculated the costs of running a business and absorbing a 24% wholesale tax on top of the other taxes cannabis businesses pay, she realized the company wouldn’t be profitable.
“The math tells you that it makes cannabis not a very profitable business, and it really wasn’t before they enacted the 24% wholesale tax,” she said. “There was a very narrow margin there. So when we saw that this was imminent, we got together in our company and put our heads together. What can we do? The only thing that we could do was try to streamline our processes and lay people off,” she said.
“It was heartbreaking, honestly,” Moore said about the layoffs. “We’ve always been a company that really cares about our communities, and it’s always been a big source of pride to us that we pay a higher wage than anybody else.”
Moore said the average wage for a Higher Love employee is $30 an hour and includes benefits.
Moore laid off 61 employees of the company’s 213 employees on Dec. 15, Higher Love’s first layoffs since it opened its cultivation facility in 2019. Layoffs were across the board but the majority were sales associates at dispensaries, along with employees who work at its distribution and processing facility and corporate headquarters.
“These are small, rural communities up here in the Upper Peninsula,” she said. “So jobs are not that easy to come by, and these were good-paying jobs that supported families. We’ve always taken that very seriously, and so that was very difficult.”
A Michigan senator representing the U.P., State Sen. Ed McBroom, R-Vulcan, supported the wholesale tax because he thought it could lead to some “some right-sizing.”
“I have communities in the U.P. that are overrun with stores, overrun with dispensaries,” McBroom said ahead of the budget being passed in October. “We have an industry that is out of control (and) too large.”
Moore disputed that characterization and said marijuana dispensaries bring in visitors from other towns and states such as Wisconsin and Minnesota who shop at marijuana retail stores, but also eat at restaurants and buy gas while they’re in town.
Moore said McBroom’s comments were part of the reason she wanted to keep Higher Love’s dispensaries open. She said Higher Love isn’t planning to pass the tax along to the consumer but is anticipating the tax will still lead to fewer sales because cannabis consumers living in Wisconsin and Minnesota will assume prices are higher at Michigan dispensaries, and won’t go out of their way to drive to Michigan for marijuana, she said.
Moore said she’s now considering expanding Higher Love to other states.
“We’ll stay in the U.P. for sure, but we’re not going to invest a lot of money into the state any longer,” she said.
Contact Adrienne Roberts: amroberts@freepress.com