ABOUT MIKE DILAURA:
After nearly 20 years as a financial services attorney and advisor, Mike entered the Cannabis industry in 2017, as a practicing lawyer doing what he always does best, solving problems with creative practical solutions. Most recently, he has successfully transitioned from lawyer to business leader in his role as Chief Corporate Officer of House of Dank. In that role, he has been a part of HOD’s leadership team as it has exponentially grown its footprint and sales over the last five years. Founded in the early days of Michigan’s care giver market, HOD has successfully navigated the transition from the Caregiver to MMFLA to MRTMA marketplaces. Today, it is proud to have over 19 licensed facilities with approximately 800 employees throughout the State and an ambitious future growth plan.
ABOUT ANDY LABARRE:
Andy LaBarre was first elected to the Washtenaw County Board of Commissioners in 2012, representing District 7, located in the eastern half of the City of Ann Arbor. Andy is a proud Democrat. For 2021 he serves as Vice Chair of the Board of Commissioners, and previously served as Chair of the Board (2017-18), Chair of the Ways and Means Committee (2015-16), and Chair of the Working Session Committee (2013-14). Andy lives in northern Ann Arbor with his wife Megan (a teacher at Dexter Community Schools), son Declan, daughter Delaney, and dogs, Monster and Frankie.
Andy now serves as Executive Vice President and Director of Government Relations for the Ann Arbor/Ypsilanti Regional Chamber and is David Fair's co-host for "Washtenaw Business Lens."
RESOURCES:
TRANSCRIPTION:
David Fair: This is 89.1 WEMU, and welcome to the November edition of Washtenaw Business Lens. I'm David Fair, and WEMU has partnered with the Ann Arbor/Ypsilanti Regional Chamber to explore issues impacting businesses in our community and, ultimately, for you. Today, we're going to look at the state of Michigan's new 24% tax on marijuana and its impact on local cannabis businesses and the industry. My A2Y Chamber partner is Andy LaBarre, and he's the Chamber's Executive Vice President and Director of Government Relations. And good to have you back, Andy!
Andy LaBarre: David, good to be with you! Thanks for having me!
David Fair: And our guest is Mike DiLaura. Mike is Chief Corporate Operations and General Counsel at House of Dank. It has stores across the state, including in Ann Arbor and Ypsilanti. And, Mike, very good to have you here! I appreciate your time!
Mike DiLaura: Thank you so much, gentlemen! Great to be with you this morning!
David Fair: Well, Mike, despite delays in getting the new state budget passed, were you surprised that it did include a big tax on marijuana?
Mike DiLaura: We were surprised, particularly in the manner in which the Legislature went about passing this bill, which, ultimately, is what led to the lawsuit. But as you gentlemen know, Governor Whitmer first floated this idea of taxing our citizens--
David Fair: For the roads.
Mike DiLaura: Through the cannabis industry, yeah. Through the hollow reason of the roads, if you want my honest opinion about it. This really started back in February, where she initially floated a 32% tax, and the response was swift and overwhelming from the industry and other market participants. In all of our discussions with the men and women in Lansing, who are serving us as legislators, nobody could point to a policy reason for bringing this additional tax on our industry and, ultimately, the consumers that come in and and buy these products. When you talk to the individual legislators that even voted for this, again, no one can look me in the eye and tell me that this was good policy.
David Fair: Andy, where did the chamber come down on that part of the budget?
Andy LaBarre: Well, David, a budget is an agreement. An agreement almost always includes compromise. So, it's understandable that, any time you pass a state budget, there are gonna be parts you don't like. The issue here is you are essentially singling out one industry, an industry that is now, for the state of Michigan, I believe, the second largest in in the country, and you could argue first largest per capita. And you could be doing something that's highly detrimental. This is a 24% wholesale tax on top of something that, obviously, already has a 6% sales tax and a 10% excise tax. So, if you look at states like California that have had a similar regulatory framework as Michigan, they're walking away from these sorts of things. In fact, California's undoing essentially what we just did in Michigan.
David Fair: Mike, what are the House of Dank store customers in Ann Arbor, Ypsilanti, and across the state telling you?
Mike DiLaura: Well, I think, right now, most of the feedback we're getting from our customers is through social media and our reviews. And I think that most of them are concerned. Look, the cannabis industry has been one of the few bright spots for consumers all across the United States, but particularly in Michigan, regarding pricing over the last few years. All of us are dealing with inflation that is running rampant over the last three or four years, except in the cannabis industry. Cannabis prices have consistently gone down in Michigan because of the incredible regulations that we have. We can't look past that. The existing Michigan regulations are the best in the world. They have the lowest barriers to entry for people that want to enter this business. They had some of the lowest taxation, so it was extremely consumer-friendly. We have thousands of licensees competing. They are innovating. They are competing on efficiency. They are competing on products. They are competing on price. This is why the system is working. This is why this citizen-initiated law is so good and why Michigan is the strongest cannabis marketplace in the entire world. And the fact that this is lost on our leaders in Lansing is extremely frustrating because if if this was a non-stigmatized business, what Lansing would be doing would be fanning the flame, right? We look at tax incentives that are given to businesses to have them move to Michigan. There is a competition between states to drive in business dollars, to drive in tourist dollars, to collect money.
David Fair: And the border stores tend to do very well in Michigan.
Mike DiLaura: Absolutely! And it's because we have the best prices, the best product, and the best industry, Lansing should be doing more to help us fan that flame, so that the Michigan industry, as federal legalization eventually comes down the line, becomes an export state, so that we are able to export our finished goods, export our brands, and export our culture. Why can't Michigan become a dominant export player in cannabis when we look at our five to ten year lens by putting a 24% wholesale tax? You're immediately constricting the marketplace. You're immediately sending people back to the black market.
David Fair: This is Washtenaw Business Lens on 89.1 WEMU. We're talking with Andy LaBarre from the A2Y Chamber and Mike DiLaura. He's Chief Operations and General Counsel for House of Dank. And, Andy, has the Chamber begun exploring the potential impacts on the industry in Washtenaw County and what that means for the municipalities that house them?
Andy LaBarre: Well, we're looking into exactly what that means, and I think for all that we got right in implementation and that Mike spoke about in terms of incentivizing individuals and individual businesses to really put innovation at the forefront, it doesn't mean the industry isn't without peril and without its challenges. This is only going to make it harder. And, David, the fear here is that all the good work, all the legwork, the groundwork we've done here with the cannabis industry in Michigan may be hampered now by this by this 24% wholesale tax.
David Fair: Well, Mike, some see this tax as just another step toward further and even more restrictive regulation. There are a number of new cannabis and hemp amendments that have been introduced in Lansing. Among them is Senate Bill 597. It would place a hard cap on retail cannabis licenses to one store per 5,000 residents per municipality. Seems to me, if passed, it would force closure of some stores, limit industry growth, and drive up consumer prices. How are you and other members of the industry looking to keep those kinds of measures off the books?
Mike DiLaura: You know, that's a really interesting bill. I mean, there were a number of bills that the Senate has just introduced from the moratorium you're talking about to banning the intoxicating hemp products throughout the state and then also allowing our Michigan-based hemp industry to produce CBD, non-intoxicating consumables for sale in the Michigan market. You can buy CBD pet treats here in Michigan, but you can't make them for sale. That's the sort of thing that we're trying to change. As it relates to the moratorium, this is a bit more controversial as the industry takes a look at it. I mean, there have been other states, Oregon being the most notable, that, like Michigan, had extraordinarily low barriers to entry when their marketplaces open. And then, once they got to a point where there was such an oversupply that these businesses were no longer self-sustaining, they put a temporary moratorium on issuing new licenses into the marketplace, so as to allow the existing market participants to try to stabilize. That moratorium ultimately expired and then was repassed as Oregon continues to try to find some equilibrium in their market. So, there are many people in the market that very much support this that think that we have approximately 1,400 grow-and-cultivation facilities here in the state of Michigan and approximately 850 stores. When you compare that to states like Ohio that has more of a limited license jurisdiction, they, by law, are limiting their entire state to roughly 250 stores. So, access to these products is very widespread throughout Michigan. And I do believe that there are those in the industry that very much support this measure and believe that this is a good faith way to keep the status quo as is, and that it actually very much benefits small business. Because let's not forget. You have to read this with the tax as well. The tax is going to decimate a lot of these small businesses that are already running on small margins, right? What that is going to do is it's going to open up opportunities for corporations and large-scale cannabis operators from other states to come in and try to buy distressed assets at a discount and try to swallow market share. And we believe that a moratorium, or at least many in the industry do, that a moratorium will strengthen the men and women that are in this industry already.
David Fair: There are concerns this excessive tax on product will drive more buyers back to the illicit and illegal market. I'll put this question to you, Andy. What discussions are you having with state lawmakers about the legal industry when considering how to keep it from going back to a black market business?
Andy LaBarre: Well, if you talk to a thoughtful legislator, somebody like State Senator Jeff Irwin, right, one of his primary reasons for voting against it was exactly that. Above all, you don't want to increase the illicit market because then there's the perversion of the existing legal market, but there's also a whole myriad of issues that relate to public safety, crime, other issues that candidly we sort of got right again on the implementation of the industry. I do find it ironic that when talk about a stigmatized industry and so forth, I don't know if it was intentional that there's $420 million for road funding, but that's not also gone missed by the public.
Mike DiLaura: But what a slap in the face, right? I mean, here we are, we are an industry that pays an effective tax rate of well over 50% on any so-called profits between the adverse federal taxation that we have. So, this idea that additional taxes will do anything but hurt us is just crazy to me at the end of the day. And it will bring back the black market.
David Fair: Mike, to the best of your ability, paint me a picture of the cannabis industry in Washtenaw County and the state of Michigan a year from now.
Mike DiLaura: You know, I think that this industry is still going to be here. I think that that is something that we have to recognize. This is a $3.2 billion a year industry in the state of Michigan. I believe that this 24% tax over the next 12 months will probably cost us about 50% of our sales. And that will be likely due to the black market. It will be because we lost our arbitrage on pricing for some of the out of state markets in the Midwest. And that's going to trickle everywhere. How it relates specifically to Ypsilanti and Ann Arbor, guys, you're already seeing the the effects of that. Ypsilanti and Ann Arbor were two of the early municipalities that came in for both medical and adult use. And you're seeing a lot of those stores closing, and they're not reopening.
David Fair: Well, Mike, thank you for coming in today and sharing your perspective! It's going to warrant a lot of more conversation over the course of the next year.
Mike DiLaura: Well, I appreciate it so much! And anytime you guys want to talk some more, come on by and feel free to visit any one of our 15 locations across the state!
David Fair: That is Mike DiLaura. He is Chief Corporate Operations and General Counsel at House of Dank, which does have stores in Ann Arbor and Ypsilanti. He's been our guest on Washtenaw Business Lens. And Washtenaw Business Lens is produced in partnership with the Ann Arbor/Ypsilanti Regional Chamber. And Andy LaBarre is its Executive Vice President and Director of Government Relations. And, Andy, we'll see you on the second Friday in December!
Andy LaBarre: I'm looking forward to it, David! Thank you!
David Fair: I'm David Fair, and this is your community NPR station, 89.1 WEMU-FM Ypsilanti.
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