Michigan voters approved recreational marijuana in the recent mid-term elections and the state is now one of those with the lowest tax rates for cannabis. Didn’t Michigan need the revenue marijuana can bring? Was it playing for higher stakes? Several arguments can explain why Michigan chose the path it took.
First could have been concerns about the black market. The tax policy implemented by any state that legalizes marijuana influences whether consumers keep buying from the black market or switch to the legal product.
Michigan seems to have learnt from the pioneer states that legalized cannabis first. California has some of the highest taxes on marijuana, and it continues to struggle with the black market since illicit marijuana still costs much less than the marijuana from regulated suppliers.
Not many consumers would be willing to pay higher prices just because what they are buying is putting money in state coffers.
The low taxes set by Michigan may be geared at driving out the black market since the legal product would be priced competitively.
Secondly, Michigan may have designed their marijuana tax policy with cannabis companies in mind. Industry players are struggling to stay competitive and profitable in the states where taxes are very high.
The prospect of setting up shop in a state with low taxes may be attractive enough to lure many players into the Michigan cannabis space.
The third possible reasons why Michigan may have decided to levy lower taxes on recreational cannabis is the need to make the product affordable to as many willing consumers as possible.
The projections of the potential volume of retail sales often factor in how many people will consume the product on a regular basis. Those calculations can come to nothing if the target buyers see it as too expensive for them to afford.
Imposing lower taxes may therefore be a smart move to bring more consumers into the industry so that the sector can have a sustainable client base.
Generally speaking, taxes on marijuana have been falling as more states legalize adult-use cannabis. California and Washington which impose taxes in the range of more than 40 percent are increasingly becoming isolated as other jurisdictions levy lower taxes.
Fortunately, voters seem to have understood the logic behind the tax policy in Michigan. They voted the ballot measure through, unlike the voters in North Dakota who voted against the proposal.
It remains to be seen whether the reasoning behind the low cannabis taxes in Michigan bears fruit or not. Generation Alpha, Inc. (OTCQB: GNAL), Global Payout, Inc. (OTC: GOHE) and other industry players wish Michigan all the best on the journey it has started as one of the latest states to permit recreational cannabis use.
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