Some cannabis retailers say price hikes from new 24% tax won’t hit customers for now – The Morning Sun
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While marijuana retailers are now paying more to stock their shelves, an southeastern Michigan shop owner is among those maintaining prices for products purchased before the state’s new 24% wholesale tax was enacted on New Year’s Day.
Jerry Millen, owner of The Greenhouse in Walled Lake, said if cannabis retailers are citing the new tax to justify upping their prices already — on inventory they purchased prior to New Year’s Day — it’s not a sound argument.
“Anyone doing that is price gouging,” Millen said.”I’m not going to raise prices until I absolutely have to,” he said.
Some retailers in Michigan placed large orders for marijuana products ahead of the new tax or said they are negotiating with suppliers to keep costs steady for now. This past December, Millen said, he “stocked up” on marijuana products for his store — $500,000 worth, just before the new tax took effect on Jan. 1.
“I guarantee a Greenhouse price freeze until the end of January, at least,” he said. And the locked-in prices will remain in effect until his pre-January 2026 inventory runs out — which could be weeks or even months, Millen said.
The new wholesale tax was approved last year by the Michigan legislature as part of a road funding package, and applies to recreational cannabis products but not medical marijuana. Built into the Comprehensive Road Funding Tax Act, the tax is levied when marijuana is first sold or transferred to a retailer. It also applies to vertically integrated, “seed-to-sale” marijuana companies that cultivate, process and sell their marijuana. For those companies, the tax is levied at the point the cannabis product is packaged for retail and based on the average wholesale price of marijuana.
Millen said cannabis retailers have no choice but to pass the increase to consumers due to the industry’s narrow profit margins. But for the next few weeks, customers won’t see it at The Greenhouse, he said.
Michigan consumers already pay 6% sales tax and 10% excise tax on recreational cannabis purchases — totaling 16.6% — which is listed on store receipts. Since the new 24% tax is at the wholesale level, customers will be covering the increase with the higher retail prices, but may not understand the reason for the hike, MIllen said. The state is “hiding it behind the register — a kind of firewall,” so some consumers don’t realize the higher prices are because of the legislation rather than retailers seeking to make more money, he said.
“(The legislature) put the tax in place — they should own it. Otherwise, they’re lying to their constituents,” Millen said.
Nick Hannawa, vice president and part-owner of Puff Cannabis, said his company also placed large orders prior to the new tax to maintain prices for the time being. Puff Cannabis has several dispensaries in Michigan.
Adam Saj, vice president of supply chain and support services for Lume Cannabis Co. — which also has multiple dispensaries in Michigan — said his company was working to keep costs manageable for customers. He said he is dealing with vendors who are willing to absorb some of the cost.
Lawmakers say the new tax is expected to generate $420 million each year for road and infrastructure repairs.
Cannabis businesses and industry groups have opposed the tax, saying it will drive up prices for consumers and strain an industry already dealing with falling prices and consolidation.
The Michigan Cannabis Industry Association has challenged the new tax in court, arguing that it should have required supermajority support from lawmakers when addressed last October because the policy amends a ballot proposal that voters approved in 2018 to legalize recreational marijuana and its excise tax on retail sales.
The industry group argues the new wholesale tax will cause price increases that will lead to more black market cannabis sales.
On Jan. 5, Court of Claims Judge Sima Patel denied the state of Michigan’s request to toss out the cannabis industry’s lawsuit, rather than allow it to move forward to trial.
The industry group has also asked the Michigan Court of Appeals to take the case.
While Millen said his business is “doing great” — and he recently purchased a marijuana grow operation to supply The Greenhouse — he predicts 30% of Michigan’s marijuana retailers will be forced to close in the next year due to price increases, lower profit margins and the glut of cannabis products. Many of them are already failing and will continue to do so, he said, calling it “a race to the bottom…a bloodbath.”
The Chicago Tribune and The Detroit News contributed to this report.
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