Pot Of Money? Medical Cannabis Revenue Difficult For Southwest Michigan Communities To Predict

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Photo Credit: Santiago Flores

If he had a crystal ball at Buchanan City Hall, City Manager Bill Marx would do what any municipal administrator might do: He’d peer into it to see the city’s future financial condition.

Specifically, he’d like to look ahead three years to see the amount of revenue medical marijuana brings.

But as it stands now, Marx’s predictions are ambiguous.

He knows what the potential revenue streams for medical marijuana are. They include business permit fees, and excise and property taxes. But it’s unclear how much they all might add up to as the new state commercial industry for medical marijuana gets off the ground this year. Businesses are still taking shape, and the state has yet to approve any operator permits.

One thing Marx has said all along, though, is that he doesn’t think medical marijuana will be a “cash cow” for the city.

Sanya Vitale, community development director for the city of Niles, agrees.

“We’ve talked to other communities in the state of Michigan and we’re all kind of on the same page,” Vitale said. “Everybody kind of laughs and scoffs when they say this is a moneymaker. No, it’s not.”

In Galien Township, medical marijuana businesses may not be enough to reverse the fortunes of a small community that in recent years has seen its schools, its grocery and its bank all shuttered. But officials have said they hope to at least increase the tax base and the number of good-paying jobs.

Despite the ‘wait-and-see’ approach being taken by local officials, recent studies show there is a lot of green to be made from those green plants.

One state analysis projected up to $711 million annually in sales throughout the state. A 2016 report from Hillsdale College in Hillsdale, Mich., forecast up to $63.5 million in annual state revenue. Other information suggests a grower’s potential to earn more than $4 million from one Class C license. A worker tending cannabis plants at a grow facility could earn around $30,000 a year.

And looking even farther ahead, if voters approve a referendum in November to allow recreational marijuana in Michigan, there could be a lot more money for businesses and for the state. Colorado saw marijuana sales climb to nearly $1 billion in 2015, after the state legalized recreational cannabis in 2014.

While Niles and Buchanan officials said they aren’t expecting a windfall from opting into the state’s new commercial medical marijuana system, what they do hope to see is job creation in the cannabis businesses, and the birth of other related businesses.

Fees, taxes

Communities allowing medical marijuana businesses can charge up to $5,000 per business license application and for annual renewal, but they have to justify the cost.

In Niles, for example, the city council last year OK’d seven provisional licenses, which would translate to $35,000 in fees to the city at the $5,000 rate.

Vitale said it was easy the first year to justify charging $5,000 per license because of all the work involved in setting up a new program, but a renewal fee might not cost more than $2,500.

Buchanan has racked up about $78,000 in costs to get its medical marijuana program going, but has collected only $75,000 in license fees, Marx said.

For the 2018-2019 city budget, Marx said he included a conservative estimate of medical cannabis revenue of $43,000, which would be mostly from permit renewal fees.

Communities that have opted into the new system will also receive a portion of a 3 percent state excise tax on provisioning center sales of medical cannabis.

“We have no idea what that’s going to look like,” Vitale said. “There are zero projections on that.”

But based on information once provided by the state, she said the city isn’t expecting its revenue from the excise tax to exceed $75,000 a year.

Marx said data he got at a recent state conference showed one cannabis plant would have a wholesale value of $2,700, so in theory one Class C grower permit for 1,500 plants — the largest permit — could generate more than $4 million per year for a grower.

Communities also could stand to gain property taxes from new medical marijuana businesses.

Vitale said the city would gain property taxes mostly from new construction, but all of the provisionally licensed cannabis businesses will be occupying existing structures on which the city already collects property taxes.

One cannabis business plan that’s been proposed in Niles calls for a newly constructed building that would cost about $1 million. Should that materialize, the city could get about $7,000 in new property tax revenue.

Jobs

Stephen Ratcliff, project coordinator for MedFarm of Michigan, said his group plans to build a $6.5 million to $7 million growing facility on which Galien Township could collect new property taxes.

MedFarm was one of three companies that were approved by the township board in May for medical marijuana business licenses. It got two Class C grower licenses, as well as a processor license, and plans to build a 25,000-square-foot enclosed growing facility on 60 acres off U.S. 12, Ratcliff said. They hope to break ground by Oct. 1, pending state license approval.

Ratcliff said the facility would probably employ 25 people to start, and general pay would be around $15 per hour. A few salaried individuals would earn in excess of $100,000, he said.

The township is banking on MedFarm’s plans and others’ to boost the tax base, Township Supervisor Bruce Williams said earlier this year as the township was drafting ordinances to allow medical marijuana businesses.

Whether allowing the businesses would reverse the community’s dwindling fortunes, he said he didn’t know, but he liked the prospect of businesses that were promising to employ two to three dozen people apiece with hourly pay rates exceeding area factory pay by several dollars an hour.

Vitale said one of the cannabis companies planning to locate in Niles has projected hiring 100 people with starting hourly pay of $10 to $12. The other businesses are planning to hire probably fewer than 10 people apiece at a similar pay rate.

Buchanan could see eight to 15 jobs created for each growing permit, paying $15 an hour and upward, Marx said. The city currently has approved four Class C permits and another one is pending.

More jobs and tax revenue could also be seen from secondary businesses that could pop up because of the cannabis businesses.

Vitale said she’s heard about ideas for shops that would sell pipes, papers and paraphernalia, and one would-be entrepreneur has an idea for a “marijuana friendly” hotel.

And, she said she’s taken about a dozen calls from Indiana physicians interested in opening offices in Niles to serve their Michigan patients who want to obtain medical marijuana cards.

In 2017, there were more than 4,000 medical marijuana patients in Berrien County and just under 800 caregiver growers, according to state data. Statewide in 2017, there were nearly 270,000 card-carrying patients and around 43,000 caregiver growers.

“Clearly there is a need for it,” Vitale said about the city allowing marijuana businesses. “The demand from the community was pretty staggering.”

People call her office frequently, wondering when the first provisioning center could open.

An optimistic outlook, she said, is three to five months.

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