Background

On Nov. 6, 2018, Michigan voters approved a ballot proposal to decriminalize recreational marijuana. The Michigan Regulation and Taxation of Marihuana Act (MRTMA) took effect Dec. 6, 2018, and permits adults over 21 to possess and consume legally acquired cannabis. It also allows licensed entities to cultivate, process and sell cannabis commercially.

Marijuana remains illegal under federal law. The U.S. Drug Enforcement Administration (DEA) classifies cannabis as a Schedule I drug, which means that it has no accepted medical use and a high potential for abuse. Certain derivative products are classified as Schedule V, which means they have the lowest potential for abuse.

The A2Y Regional Chamber takes no position on state and federal cannabis law, but it recognizes the business community’s exposure to legal changes and seeks to inform members on the issue.

Implications of the Law

The conflicting federal standards, coupled with the vague language of the MRTMA, have produced legal ambiguities for consumers, cannabis industry members and businesses that engage with them. Here are some answers and questions about how the A2Y business community is affected by cannabis law:

Human Resource Policy

According to the MRTMA, employers are not required to tolerate employee consumption perceived to affect work performance. Businesses can:

• Institute and enforce workplace drug policies that prohibit employees from working under the influence or using marijuana on company property;
• Conduct pre-employment drug tests, random employee drug tests, or reasonable suspicion drug tests according to company policies; and
• Discipline, terminate or refuse to hire employees for testing positive in violation of workplace drug policies.

The Michigan Court of Appeals ruled that employers cannot withhold unemployment benefits from employees who hold medical marijuana cards and test positive. Non-medical consumers may be disqualified from benefit reception, though.

Neither the MRTMA nor legal precedent clarifies whether non-at-will employees, such as union workers, deserve special consideration. The terms of the employment contract may require distinct procedures or permit employees to claim disability protection under the Americans With Disabilities Act.

While the State empowers companies to set internal drug policies, federal contractors and grant recipients remain bound to stricter standards. The Drug-Free Workplace Act (DFWA) requires some contractors and all grantees of federal agencies to operate drug-free work facilities or risk indefinite termination of funds and contracts.

Public Education Operations

The MRTMA prohibits marijuana consumption on the grounds of primary and secondary schools, but it does not rule on institutions of higher education. Federal law is more definitive. As a DEA Schedule I drug, cannabis falls under the purview of the Drug-Free Schools and Communities Act (DFSCA). The DFSCA obligates federally-funded institutions of higher education to develop programs preventing possession, use or distribution of marijuana on school grounds. Violations jeopardize financial aid.

Lending and Investment

The federal government has not explicitly prohibited marijuana-related banking activity. However, according to the American Bankers Association, financial institutions that lend to, bank the money of, or process transactions for cannabis-related operations could risk charges of money laundering. Servicing non-cannabis clients in the supply chain — including utilities companies — could create similar risk. State Attorneys General have requested legal clarity on the issue.

Michigan legislators passed a resolution urging Congress to approve the Secure and Fair Enforcement Banking Act (H.R. 1595) to protect banks from sanctions. The bill remains in the U.S. House Subcommittee on Crime, Terrorism and Homeland Security but is expected to be taken to a chamber vote in the coming weeks. A Senate bill (S. 1120) that seeks protections for both banks and insurance companies remains in the Senate Committee on Banking, Housing and Urban Affairs. The Congressional efforts have the support of U.S. Treasury Secretary Steven Mnuchin.

Real Estate Management

Landlords can restrict or ban tenants from smoking, growing, processing, distributing or displaying cannabis on their property. However, they cannot prevent tenants from possessing cannabis or consuming it through smoke-free methods, such as through edibles or topical applications. Whether landlords can prohibit vaping is unclear. The right will depend on whether the State defines vaping as “smoking” or a distinct form of consumption.

Operations of Public Places

The MRTMA prohibits consumption in public places but permits use in areas that are inaccessible to people under 21 and that municipalities formally designate as consumption areas. Marijuana use is not restricted by Michigan’s Smoke-Free Air Law, which prohibits tobacco smoking in businesses and licensed food establishments. It is similarly unaddressed by the Washtenaw County Clean Indoor Air Regulation, which bans nicotine vaping in public spaces or places of employment. Municipalities will determine whether social establishments can allow consumption.

Policy Analysis

Industry Impacts  —  The Michigan Petroleum Association and Michigan Association of Convenience Stores say the average gas station will pay an extra $1,125 per day in taxes. This figure represents the statutory tax incidence, not the economic incidence. Gas is a relatively inelastic good, which means consumers would bear more of the tax burden than gas stations would. The associations also expect consumers to offset higher gas expenses by cutting spending in station convenience stores. Station owners record higher margins from commodities than fuel, so lost store sales could hurt operations. Consumers near state borders are predicted to escape the tax altogether by buying gas in Ohio and Indiana. Washtenaw County commuters may similarly pursue substitutes; they can avoid the fuel tax by biking or electric scootering. These changes in consumer behavior would hurt local gas stations.

Economic Impacts  —  Road improvements are expected to increase travel efficiency and reduce vehicle-repair expenditures across Michigan. These factors free up consumer time and resources for discretionary spending. The economic benefits could be offset by the fuel tax increasing business transportation and distribution costs. Rising input costs would yield higher prices for consumer goods and services, which could hamper the broader consumer spending and decrease Michigan’s national price competitiveness.

Environmental Impacts  —  The tax could help reduce Michigan’s carbon emissions by inspiring drivers to cut consumption or purchase more fuel-efficient vehicles. However, the University of Michigan Energy Institute expects rising registration fees to disincentivize purchases of cleaner vehicles. This would undermine carbon-reduction efforts. Policy proponents argue the $225 fee increase is minimal.

Equity Impacts  —  The policy mitigates negative effects on low-income motorists by doubling the Earned Income Tax Credit from 6% to 12%. In the near term, though, high-income earners may escape fair contributions to the road-repair fund and shift the cost burden onto low-income earners. As EV prices remain prohibitively high, EV ownership may be the exclusive privilege of high-income drivers. After about 13,500 miles, ICE drivers would pay higher annual taxes per mile than their EV counterparts would. Low-income motorists would effectively subsidize the road use of high-income drivers. Some experts propose an electricity use tax as an equitable alternative to charging static EV registration fees.

Industry Development Timeline

Legal experts await clarity on insurance and banking obligations; vaping restrictions; and consumption in age-restricted social establishments. They expect some answers as soon as June, when the Michigan Department of Licensing and Regulatory Affairs (LARA) plans to issue draft regulations. Formal state regulation will appear no later than Dec. 6, 2019. Conflicts between state and federal law may clear with the passage of the bipartisan Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. The federal law would exempt state-authorized activity from the Controlled Substances Act. It has been endorsed by U.S. Attorney General William Barr and remains in the Senate Judiciary Committee and the House Subcommittee on Crime, Terrorism and Homeland Security.

The A2Y Regional Chamber, with business networks across the state, is closely watching cannabis policy developments and will provide updates as information becomes available.