Mar 3, 2023 - Business

Cannabis tax payment controversy could penalize smaller businesses

Illustration of a cannabis leaf made of money.

Illustration: Shoshana Gordon/Axios

Cannabis businesses on tax payment plans aren't able to get their licenses renewed — a policy that could hurt smaller, less-financed players in the industry.

Driving the news: A company up-to-date on a payment plan to pay back taxes they owed could previously still get the state treasury clearance vouching they're in good standing, something required to renew a cannabis business license, Michigan Cannabis Industry Association leaders tell Axios.

  • But licensed companies on payment plans, even without any other tax liabilities, can no longer get that clearance, association co-director and industry attorney Denise Pollicella says.

What they're saying: If they're on a payment plan, "that shows someone's working in good faith," co-director Narmin Jarrous says. And payment plans are used "regularly" and "freely offered" by the treasury, the association argued in a Feb. 23 letter to the state's Cannabis Regulatory Authority (CRA).

  • "To me (this change is) going to penalize the people who are short on liquid cash, and further penalizing them by not letting them renew their license seems absurd," Jarrous says. "Who is going to be hit the hardest by this? Black and brown communities and the social equity community."

Details: The payment plan policy has existed, but businesses noticed it's only recently being strictly enforced — and without a heads-up, Pollicella argues.

  • Without that renewal, businesses can't operate.

Zoom in: Pollicella's office discovered the change when trying to renew a client's license in November and estimates it could affect around two dozen other licenses held by her clients.

  • She expects retail shops, which "pay the lion's share of the tax," will be affected first.
  • Pollicella declined to disclose her clients' names.

The other side: The CRA wrote in a response to the association that "this does not appear to be a widespread issue" and that the cannabis agency will continue relying on the treasury department for these decisions.

  • A treasury spokesperson said "a taxpayer on a payment plan is considered as being delinquent" in a statement to Axios.
  • Asked whether this policy was enforced previously, the spokesperson said the department is "ensuring consistent application to outstanding tax obligations."

What's next: In its letter late last month, the association asked the CRA to allow waivers so those on payment plans can pass muster and continue paying back their taxes.

  • But from the state's responses, it doesn't look like it will take that action.

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