MIchigan recreational marijuana, Michigan plant-count rules raise concerns about marijuana microbusiness viability

(This story has been updated to clarify that a number of potential microbusiness applicants have been prequalified to apply for licenses and one such application has been received to date. This is the second installment of a two-part series looking at Michigan’s new recreational marijuana market. Part 1 is available here.)

Questions are being raised about the feasibility of marijuana microbusiness licenses in Michigan in the wake of changes to a draft regulatory definition that ultimately reduced production of flowering plants.

Michigan offers a variety of license types for its adult-use market, appropriate for businesses of different sizes.

To date, however, no permits have been granted for a marijuana microbusiness, a license type that lets a business grow its own supply of up to 150 plants, process that harvest and sell it to consumers – all under one roof.

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“Here’s this license type that was put out for small-business owners, minority (applicants), social equity (applicants), and you’ve had zero applications,” said Dan Russell, a consultant working on behalf of Tranquility Fields, an Ann Arbor company that is creating a franchise model for Michigan marijuana microbusinesses.

A number of would-be microbusiness operators have successfully applied for prequalification status with the state’s marijuana regulator.

But, as of early August, the agency said it had received only one complete application for a microbusiness license.

The microbusiness model would let Michigan small-business owners, including social equity applicants, free themselves from reliance on third-party supply and attendant wholesale-price fluctuations, Russell said.

However, without a change to Michigan’s existing marijuana licensee rules, Russell is worried that eventual microbusiness licensees might not get an opportunity to operate truly viable businesses.

Concern over plant-count rules

Michigan’s established rules for marijuana licensees applied a permit’s plant limit to those that are “mature” – defined as rooted plants 8 inches or larger, regardless of whether the plant is flowering.

“If it’s defined as 150 ‘mature’ plants … it now means (a microbusiness could have) 75 in flower and 75 in a vegetative state, which really doesn’t create a viable business for any small-business owner,” Russell explained.

Michigan Cannabis Industry Association Executive Director Robin Schneider said any circumstance that restricts the production of more regulated cannabis stymies development of the legal market by increasing the time it will take to meet demand.

“I’m hearing from a lot of social equity applicants right now that they are extremely, extremely upset about this,” she said.

Although some industry players might want to lobby to restrict new licensed production and keep wholesale prices higher for longer, Schneider added, “that’s just shooting ourselves in the foot.”

The microbusiness outlook would have been different had the state adopted Michigan’s previous draft rules for production licensees, according to Russell.

Those draft rules would have applied a license’s plant limit specifically to “female marihuana plants that flower” instead of the “mature” plant definition that’s currently in place.

“With 150 flowering plants, that would mean that 150 could be flowering (under a microbusiness license) while the next batch of 150 were in a vegetative state while they’re being prepared,” Russell said.

Regulator’s response

Andrew Brisbo, executive director of Michigan’s Marijuana Regulatory Agency, said the regulations had to address the issue of what qualifies as a “viable plant” as it relates to plant counts because that wasn’t defined in Michigan’s adult-use cannabis legislation.

“Some of the comments that were raised during the public comment period still felt as though (the draft regulations’) definition of ‘flowering’ was still not quite articulate enough to capture the intention there, and so we continued to look at that,” he told Marijuana Business Daily.

“In the end, the Legislature that ultimately plays a role in the adoption process had indicated and asked us that we revise it to use these definitions of ‘immature’ and ‘mature’,” Brisbo continued.

“And I thought that still provided clarity and allowed us to get the entire ruleset through without risking not having it in place by that July 3 deadline when our emergency rules for the adult-use market would expire.”

Regarding the lack of microbusiness licenses issued in Michigan to date, Brisbo pointed out that “we also have none of the small-grow licenses issued yet, either, or any designated consumption establishment (licenses) or temporary event (licenses).”

“And I think there’s a correlation there, that most of the licenses we’ve issued were those that were restricted in terms of eligibility to operators who were already licensed on the medical side,” he said.

Brisbo also said microbusiness permits aren’t the only license type that appeals to social equity applicants in Michigan.

“In our conversations with social equity applicants, when we interacted with them, there are a lot of them that want to be vertically integrated,” he said.

“They want to hold a grower, processor and retailer license, or they want to operate a retail space.”

Many of those prospective social equity applicants are waiting until an application-eligibility restriction for some of those license types expires, he added.

Other factors also could account for the lack of microbusiness licenses issued to date, Brisbo said, including the novelty of the regulated adult-use market and the limited number of municipal opt-ins for adult-use marijuana businesses.

Regulatory change possible

Brisbo acknowledges that Michigan’s adult-use marijuana regulations can still be fine-tuned.

“Everything in this industry changes at a remarkable pace,” he said. “It’s very dynamic.

“As we learn more, I think it’s appropriate to continue to adjust the rules to make sure that we fulfill those two ends of our mission as an agency: to create an environment where businesses can succeed and ensure consumers are protected.”

Ultimately, Russell said he hopes the regulator will “create a fair definition of what the plant count means.”

“Because 150 flowering plants makes the microbusiness viable, and it also benefits all the other grow licenses,” he said.

The Michigan Cannabis Industry Association supports that change, Schneider said.

“Right now, (consumers) can get plenty of product on the illicit market, at a third to half the price,” she said.

“And so our focus should be increasing production in the licensed market, which is why we were so supportive of the ‘flowering plant’ definition.

“It would have allowed the licensed growers to produce more cannabis in the regulated market, instead of this unnecessary lack of production.”

Solomon Israel can be reached at solomon.israel@mjbizdaily.com