Cultivation Archives - Page 2 of 18 - Green Market Report

Dustin WalshAugust 25, 2023


This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.

Cannabis cultivators take great care. Transferring a seedling from its mother plant to new pots. It joins its siblings in a highly-controlled room. Twelve hours of light, 12 hours of darkness. Its vegetative state is critical to its maturation. Temperature, humidity, and airflow are tightly monitored.

The weeks-long result is pounds and pounds of marijuana buds, set to be flash-frozen, dried, or distilled for consumption. There’s no doubt the process mimics vertical indoor vegetable farming.

But is cannabis agriculture?

In June, a Circuit Court in Cass County ruled that it was, potentially creating a legal frenzy of Michigan growers seeking to overturn a common property classification in hopes of saving thousands of dollars in their annual tax bills in 2024 and beyond.

Local municipalities have always classified cannabis properties across the state as industrial or commercial properties. The reason is simple: Most indoor grow operations set up shop inside former industrial buildings — and by maintaining the industrial use classification, those occupying the property pay the common taxes, including school millages. Properties categorized as agriculture, however, are exempt from paying school mils and other local taxes.

“It’s a nuanced area of property law,” said Ben Sobczak, partner at Detroit law firm Dickinson Wright PLLC and former chief legal officer for vertical marijuana company Pleasantrees. “But it’s big money for operators. And, until now, no one has really fought it because the local municipality has the leverage on your permits. Challenge them and they may not renew your permit to operate next year.”

Due to the result of the case in Cass County, experts believe a horde of new lawsuits will crop up as cannabis operators look to shrink their tax bills as profits remain fickle due to low prices across the state’s industry.

Technicality for THC?

Sunset Coast Provisions, which operates a grow operation and dispensary on E. State Street in the village of Cassopolis, received its tax assessment in February 2022 where the local assessors categorized the grow side of its operation as industrial.

The owners of HRP Cassopolis LLC, doing business as Sunset Coast, quickly contacted property tax attorneys at Detroit-based law firm Dykema Gossett LP to challenge the assertion. They declined a request for comment Thursday.

The local review board quickly denied the appeal. Carl Rashid Jr. and Mark Magyar, partners at Dykema, then appealed the ruling to the State Tax Commission.

“It’s the growing of a plant,” Rashid Jr. said. “But the State Tax Commission said it didn’t have any evidence that cannabis is agriculture. We filed a motion to reconsider and showed a bulletin from the Michigan Department of Agriculture that spelled out what is considered agriculture. Even with that evidence, we were still denied.”

Under the General Property Tax Act in Michigan, any property involving the “growing and harvesting of any agricultural, horticultural, or floricultural commodity” is considered an agricultural property, among dairying, raising livestock, and tree farming.

The Dykema attorney appealed the tax commission’s ruling to the Cass County Circuit Court, which in June ruled in favor of Sunset Coast. Cultivating marijuana was agriculture according to Judge Carol Bealor.

“Giving the words in the statute their plain and ordinary meaning, as case law dictates this court must do, cannabis cultivation falls squarely within (the property tax act)’s definition of an agricultural operation,” the judge wrote in her June 29 ruling. “The statute’s language is unambiguous, using words that have a clear meaning. No further judicial construction is required or permitted, and the statute must be enforced as written. Considering the record before this court, and the absence of the use of any standards or objective criteria by the assessor that demonstrated cannabis cultivations did not fall within the plain meaning of the definition of an agricultural operation, the assessor’s conclusion that cannabis cultivation is not an agricultural operation is not authorized by law.”

By being classified as an agricultural property, Sunset Coast saves about 30 percent on its annual property tax bill, Rashid Jr. said. That works out to about $20,000 annually.

Given that the state’s marijuana industry has been plagued with collapsing prices for the last 18 months — product oversupply has dropped recreational marijuana prices from $494.77 per ounce of flower in February 2020 to just $98.65 per ounce in July — margins are thin, and any way to save costs is celebrated.

“It’s just not true that the industry is making a ton of money right now,” Sobczak said. “This is just another incredible expense on top of the other specialized expenses licensed cannabis companies carry. The only reason cannabis isn’t considered agriculture is because it puts more money in (the municipalities’) coffers.”

Cultivation or depredation?

The state’s funding sources for education come from a variety of places, including sales tax, use tax, tobacco taxes and the lottery. But agricultural properties in the state are given exemptions from certain local school operating taxes, which can tax up to 18 mills — or $18 for every $1,000 in taxable value.

The state has more than 10 million acres of farmland, with one out of six acres in the state designated as farmland. It’s unclear how much in total taxes are exempt due to agricultural land.

The Michigan Association of School Boards did not respond to inquiries on the matter.

But it’s clear the Cass County ruling is going to lead to more property classification challenges for local communities come March 2024, when companies are able to appeal their property tax assessment again.

Mike Elias, CEO of Common Citizen, which operates a 40,000-square-foot grow operation in Marshall, located in Calhoun County, called the Cass County ruling “a cornerstone” for the industry in an emailed statement to Crain’s.

“As a leading cannabis cultivator, we believe this ruling is not only appropriate but also a critical step forward for the normalization of the industry,” Elias wrote in a statement. “Given the significant economic challenges our sector has faced, punctuated by artificial and steep price declines due to various factors, the industry is in dire need of such supportive legal precedents. The Cass County Circuit Court’s decision to rule in favor of HRP Cassopolis, clarifying the legal classification of cannabis cultivation and confirming its eligibility for agricultural tax-related benefits, is a watershed moment that couldn’t come at a more needed time.”

Crain’s reached out to several other cannabis cultivators, but all declined to comment on the record.

However, whether the ruling in Cass County is indeed a watershed moment or just an anomaly remains to be seen.

Gerald Fisher, distinguished professor emeritus at Western Michigan University Cooley Law School and local government law consultant, said while the circuit court ruling is favorable for the industry, it does not set a precedent for the entire state.

“Owners are certainly going to cite this case, but what one circuit court does in one county is not a precedent-setting ruling,” Fisher said. “This sounds like a hometown ruling to me. Cannabis is not considered food and fiber like most agribusinesses. While I can certainly see the rationale for why they would want to be considered agriculture, there’s a completely different marketing pattern and network than food and other vegetation the state considers agricultural. The better interpretation, from my view, is that cannabis would be industrial because it’s part of a network between grow operations and ultimately to a dispensary, not for traditional consumption of calories.”

Washington state and Massachusetts legislators carved cannabis out of being included in agricultural tax exemptions to protect school funding in recent years. There’s currently no legislation in the state of Michigan to remove marijuana from exemption considerations.

“Policy decisions are for the legislature,” Rashid Jr. said. “We provided those two examples in court … but in Michigan no such law exists.”

But the village of Cassopolis and LaGrange Township, where the village is located, are now seeking to intercede in the case brought against the State Tax Commission. They are seeking to become parties of the case so they can file an appeal. A ruling on whether they can intercede has not yet been made.

Lawyers for both municipalities declined to comment.

So while Sunset Coast may save on their tax bill this year, it’s unclear whether that will continue. Though it may not make a difference statewide, as others are prepping their own cases in 2024.

Sobczak said he’s referred clients to the Dykema team, and Rashid Jr. said several clients have begun to reach out to begin preparing their own challenges to property classification.

John SchroyerJuly 19, 2023


The U.S. marijuana wholesale market has apparently reached a bit of stabilization this year, after a precipitous drop in 2022, and has even rebounded somewhat since last year, according to a recent report from Cannabis Benchmarks.

For the week that ended July 14, wholesale prices decreased by 3.1% to $1,020, according to the report, but that’s still an increase from December, when wholesale prices had dropped to $955, Benchmarks reported at the time.

The spot index report found that wholesale prices have gone down “in four of the last five weeks after staging a successful rally from March until the first week in June.”

“The rally fizzled as legacy states – specifically California, Oregon, and Colorado – started selling off in early to mid-June. Of the legacy states, only Washington State’s spot price is trading sideways as opposed to lower,” Benchmarks reported.

For indoor-grown flower, wholesale prices averaged $1,327 per pound; for greenhouse-grown cannabis, it was $718, and for outdoor-grown marijuana it was $479.

Looking forward, Benchmarks expects a wholesale price surge in August, with average pounds of flower shooting up to $1,075, a 5.4% increase, before slowly decreasing the rest of the year back to about $1,010 at the start of 2024.

The most expensive wholesale cannabis as of July can be found in Washington, D.C., where “there are only a handful of licensed producers, and where commercial adult use cannabis activity is still illegal,” according to the report. The least expensive is in Oregon, where the oversupplied market is reportedly a “wreck” and “in crisis.”

Falling wholesale prices are likely to only continue as a trend for the industry, Jonathan Rubin, the CEO of New Leaf Data Services, told Green Market Report in December. That’s because federal U.S. marijuana legalization – which could happen within the year, depending on how fast the Biden administration finishes its rescheduling review – will create a truly national marketplace which will depress prices even further. Then, prices will plummet again once a truly global cannabis trade comes online, said Rubin, who oversees the Cannabis Benchmarks report.

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