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Pew warns Michigan: Legal pot an uncertain revenue source

DETROIT (AP) — While recreational marijuana sales in Michigan are expected to initially rocket, a public policy organization is warning that the experiences of other states indicate legal pot is an unpredictable revenue source.

Michigan’s House Fiscal Agency estimates annual sales will approach $949 million when the recreational pot market is fully established after 2020. Those sales are expected to bring in $94.9 million from a special 10% tax and $57 million from the 6% sales tax, the Detroit Free Press reported. But investors at this month’s Capital Cannabis Conference in Detroit predicted sales far in excess of that.

“This is a market that in the next few years could easily eclipse $2 billion,” said Sat Joshi, chief information officer for Rose Capital, a Connecticut-based investment firm that focuses on the cannabis industry.

Yet a Pew Charitable Trusts study released Aug. 19 says taxes — and the black market — could upset revenue goals.

“This is a highly unpredictable revenue source,” said Alexandria Zhang, a member of the Pew research team. “Revenues have varied greatly from state to state.”

Nevada tax revenues were 40% higher than predicted in the first six months of legal marijuana sales, but California’s sales revenues were 45% lower than forecast.

The high taxes in California have allowed the black market in marijuana to thrive, meaning the legal pot market has not met revenue expectations, the Pew study says.

Josh Hovey, a spokesman for the Michigan Cannabis Business Association, said the ballot proposal to legalize marijuana in Michigan deliberately set tax rates low in an effort to avoid that problem.

Growing medical marijuana sales in Michigan indicate the state’s recreational market could be robust. The Marijuana Regulatory Agency reports there has been no decline in sales since legal sales began in October and that sales in July totaled $30.1 million.

Tax revenue from recreational sales has already been assigned in the fiscal 2020 budget, according to Jenni Riehle of the state Budget Office.

The first $20 million in the first two years goes to research on the medical benefits of marijuana. The remainder will be split between cities and counties that host marijuana businesses; the school aid fund; the transportation fund to improve roads; further revenue-sharing payments to cities, townships, villages and counties; and the state’s general fund.

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