Michigan poised to approve statewide medical marijuana business regulations

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By John Schroyer

Michigan is one of the last “Wild West” medical marijuana markets, but it’s poised to approve a statewide regulatory scheme that some business owners feel would bring stability to the MMJ industry.

State lawmakers could sign off as soon as this week on legislation to establish a statewide oversight and licensing system for MMJ businesses.

That’s something Michigan has lacked since voters legalized medical cannabis in 2008. Michigan’s freewheeling MMJ industry has been technically illegal since a 2011 ruling from the state Supreme Court. Medical marijuana businesses exist regardless, but the industry operates under a patchwork of regulations that vary by municipality.

Some localities like Detroit have permitted dispensaries, while local law enforcement elsewhere has shuttered or ignored them. But that would come to an end if Republican Gov. Rick Snyder, as expected, signs a legislative package of five bills.

“I would say in the next few weeks that the bills should become law – possibly as early as this week,” Robin Schneider, the legislative policy director for the National Patients Rights Association, said. “I absolutely foresee the package of all the bills passing, and the governor’s administration has already indicated that he does plan to sign.”

The end result would be legal certainty for those in the trade and an end to raids by law enforcement. Although the high threshold for winning a business permit may end up shrinking the hundreds of cannabis companies now operating, in the long run it would deliver legal protection to the industry – something Michigan marijuana entrepreneurs haven’t enjoyed.

“It’s providing regulatory oversight – and at the same time legal protection – for the businesses who get involved (in the industry),” Stephen Goldner, a Michigan-based industry consultant who also runs a cannabis testing lab, said. “It’s a huge cultural shift, and the market in Michigan has been … all black market. It’s about to go completely legal.”

What Must Happen

The five bills that make up the package – House Bills 4209, 4210, and 4827, and Senate Bills 141 and 1014 – have yet to clear the full legislature. The House approved the first three last year, and that trio of bills recently passed the state Senate. But now at least one needs to again win approval from the House before heading to Snyder. The House must also pass the two Senate bills.

All of which means “anything can happen,” Schneider said. But she and others are confident all five will make it to Snyder’s desk and become law.

The only question is when.

Rick Thompson, a board member of the Michigan chapter of NORML and author of the Compassion Chronicles blog, said he’s heard lawmakers are trying to get the bills passed before the Nov. 8 election.

If that happens, the state could begin issuing business licenses for MMJ companies by September 2017 – though many, including Thompson, don’t expect that would happen until 2018.

That would provide legitimacy for an estimated 300 dispensaries in the state and an unknown number of growers and infused-product makers. According to the Marijuana Business Factbook 2016, Michigan had 275-325 dispensaries in early 2016, up from 150-250 a year earlier.

Key Provisions

HB 4209 is the centerpiece of the package, and lays out most of the regulations. Together, the five bills would:

  • Establish five license types – grower, processor, dispensary, transporter, and testing lab.
  • Create three subcategories for cultivation licenses – one with a 500-plant limit, one with a 1,000-plant limit, and one with a 1,500-plant limit.
  • Set no statewide cap on the number of licenses that could be issued.
  • Mandate an unspecified annual licensing fee for MMJ businesses.
  • Institute a requirement that local governments must adopt ordinances to specifically permit MMJ companies, and give their blessing to those that want to set up shop. Municipalities also could establish their own licensing fees of up to $5,000 a year, on top of the state fees.
  • Require businesses to secure “minimum levels of insurance.” It’s unclear what that would mean, but would be clarified during the rulemaking process.
  • Allow some vertical integration. While growers, processors and dispensaries would be allowed to overlap, they couldn’t hold transporter or testing lab licenses.
  • Mandate lab testing for MMJ product to ensure they aren’t contaminated. The testing also would determine potency levels.
  • Legalize edibles and extracts for the first time.
  • Establish a two-year residency requirement for MMJ business owners and investors that would expire June 30, 2018.
  • Require all MMJ businesses use a seed-to-sale tracking system.

What It Will Mean for Businesses

In the long term, according to industry officials, the new regulatory scheme would mean an end to years of raids by various law enforcement agencies, given that dispensaries have been technically illegal.

But it wouldn’t necessarily mean an end to raids right away, NORML’s Thompson warned. That would be especially true for cannabis businesses located in municipalities that oppose them.

“We’ve seen, even before the passage of these bills, that law enforcement is raiding many places,” Thompson said. “Now that they’ve gotten a sign from Lansing … you can expect that certain law enforcement agencies are going to take that as a sign to clean up shop.”

Many dispensaries – which are the most visible of all MMJ businesses – only operate with the blessing of local government officials, like in Ann Arbor, Detroit and Ypsilanti. But in areas where dispensaries aren’t welcome, they may still face raids before they can obtain a legal license, Thompson said.

The proposed state regulations also require local permission to obtain a state license, which would likely cull the number of companies in the MMJ trade.

And while there’s no statewide limit on the number of business permits that may be issued, local governments could enact caps of their own. Schneider of the National Patients Rights Association expects that would be the biggest factor in limiting the number of plant-touching companies in Michigan.

“It will be competitive, no doubt, but I see plenty of job opportunities in the future with this package of bills,” Schneider said.

It’s also not clear whether many of the existing businesses could make the transition to the licensed market. Goldner, the industry consultant, and Thompson are dubious while Schneider predicts most would survive if they’ve already secured real estate.

“Some of them will do fine. But for every one of those, there are 10 hidden on street corners and behind parking lots that are not operating so effectively or efficiently,” Goldner said.

John Schroyer can be reached at johns@mjbizdaily.com