Allowing regulated cannabis businesses is paying off for local governments across Michigan, where excise tax revenue is returning to fund projects such as road improvements and public parks.
The $87.1 million in excise tax revenue generated across the state in 2023 is up about $30 million from 2022, according to information released late last month from the state Department of Treasury.
Funds are allocated to local governments based on the number of licenses issued in each city, village, township and county. Each community received $59,086 per license operating in their jurisdiction, up from $51,841 per license in 2022.
Local government leaders across West Michigan say they plan to allocate the money toward a range of projects such as street and park improvements or bolstering their general fund.
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The city of Lowell had eight licensed businesses during the 2023 fiscal year, which ended Sept. 30. The nearly $475,000 in tax revenue coming back will support local street improvements.
“The last several years since we’ve started receiving this (excise tax revenue) is the most aggressive the city has been on improving streets in 50 years,” said Lowell City Manager Mike Burns. “Right now we’re planning over $1 million dollars in improvements to address (street) concerns, in large part due to the cannabis excise tax.”
Officials in Cedar Springs, which has six licenses in the northern Kent County town of about 3,600 people, considered using its $354,518 in cannabis tax revenue on road improvements. The city had a general fund budget of about $1.8 million in fiscal year 2021.
This year’s cannabis tax revenue instead will be used for local match requirements on grants for several park projects. Those grant-funded projects include a playground and creating a pocket park in the city’s downtown.
“We could pave one block with a couple hundred thousand dollars, but the grants we’ve applied for and have secured will definitely improve Cedar Springs,” said City Manager Darla Falcon.
One-time expenses
The $3.06 billion in cannabis sales last year made Michigan the top market in the nation on a per-capita basis, Crain’s Detroit Business has reported.
Thirty percent of the excise taxes collected on those sales ends up flowing back to counties and municipalities that allow those businesses. Additionally, $101.6 million of the total $290.3 million in cannabis taxes collected last year will go to the School Aid Fund and to the Michigan Transportation Fund.
Given the variability of cannabis tax revenue year to year, officials in Crockery Township in Ottawa County say they are especially wary of spending the funds on anything outside of one-time capital purchases that would require ongoing investments, said township Supervisor Erik Erhorn.
“The stated goal of our township board has been that we want to use these funds for something that could be of benefit to everybody in the township,” Erhorn said. “We’ve specifically earmarked and bought equipment at the fire station and are planning to use some funding for upgrades at the park.”
Crockery Township has set a cap on cannabis business licenses at two, with no plans to increase that limit, Erhorn said.
The city of Portage, which had 10 cannabis licenses in 2023, just south of Kalamazoo treats its cannabis tax revenue similarly because of the variability based on the total number of licenses and total sales. The city will divert the $590,863 it is receiving from 2023 cannabis taxes into its $32 million general fund, said City Manager Patrick McGinnis.
“We added eight new public safety officers last year,” McGinnis said. “It wasn’t specifically from the cannabis excise tax funds, but knowing that money was there did make it easier to approve that.”
Beyond the tax revenue, local government leaders spoke broadly about the industry positively affecting their communities by adding to the tax base and, in many cases, redeveloping older buildings.
“Anecdotally, I don’t think we’ve experienced the extreme negative impacts that some might have thought,” McGinnis said. “Generally, there have been some nice investments in buildings, and creating a nice tax base.”
In Lowell, cannabis operators have redeveloped two of the city’s biggest eyesores, Burns said.
“They look a lot better now, and my take is: Even if one of these businesses doesn’t make it, some other operation will come into a very good, updated building,” Burns said.
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