Michigan social equity regulations help cannabis applicants get started but lack continued support

Be at the forefront of cannabis and psychedelics science and innovation. Register by March 14 & Save $100 on tickets to The Emerald Conference by MJBiz Science, April 1-3 in San Diego.

(This is the second in a series of stories from Marijuana Business Daily examining social equity regulations and business opportunities in key U.S. markets. Part 1 covered Illinois, Part 3 California, Part 4 Oregon, Part 5 Washington state, Part 6 Nevada, Part 7 Colorado and Part 8 Massachusetts.)

Michigan’s marijuana social equity provisions lower the barrier to entry for recreational cannabis business applicants, but some industry insiders say the state needs to do more to help keep such companies running.

Regulators also appear to be relying on municipalities to develop their own rules for social equity in the absence of detailed guidance at the state level.

Discounts for licensing based on social equity criteria can total 75% off of application and license fees, with criteria including:

  • Residency in a disproportionately impacted community for at least five cumulative years within the past 10 years: 25% fee reduction.
  • Conviction of a marijuana-related offense. Misdemeanor convictions: 25% fee reduction. Felony convictions: 40% fee reduction.
  • Registration as a primary caregiver under the Michigan Medical Marihuana Act for at least two years between 2008 and 2017: 10% fee reduction.

Under the state’s definition, a “disproportionately impacted community” is one where marijuana-related convictions are greater than the state median and 20% or more of the population is living below the federal poverty level. That totals roughly 184 communities statewide.

Eligible social equity participants who plan to operate a marijuana business within a disproportionately impacted community will receive a fee reduction on all adult-use licensing fees.

Also, eligible social equity participants who plan to operate a cannabis company outside a disproportionately impacted community will receive an extended fee reduction for only two years after receiving an adult-use license.

‘Unfulfilled promise’

Despite the assistance those discounts could provide, one commonly cited major hurdle for social equity applicants is access to capital to help such businesses succeed.

“Someone can get a break on the fees, but that’s not really the most expensive part of the whole endeavor,” said Matt Abel, executive director of Michigan NORML and an attorney based in Detroit.

“Even if someone qualifies for a reduction, that doesn’t help them with real estate, an architect, legal fees, accounting fees or any of the material and equipment that are required.”

Rick Thompson, owner of the Flint-based Michigan Cannabis Business Development Group, said the lack of social equity support is his “single greatest disappointment with the Michigan cannabis industry.”

“Social equity is the great unfulfilled promise of America’s cannabis revolution,” he added.

Local lagging

Kayla Siam, an attorney in Chicago-based Seyfarth Shaw’s cannabis law group, has been studying social equity across the U.S. cannabis industry.

She said one of the main sticking points in the development of Michigan’s social equity program has been the slow progress of awarding adult-use licenses. That’s partly the result of the coronavirus pandemic, which is also the case in Illinois.

But the Illinois program is “much more robust,” said Barton Morris, a Royal Oak-based attorney with the Cannabis Legal Group.

So far, Barton is “underwhelmed” with the social equity program in Michigan.

That’s largely because of the foot-dragging at the municipal level to not only license adult-use cannabis businesses but to also expand local social equity programs.

Detroit is a good case in point.

The city has yet to award adult-use licenses, and medical marijuana businesses aren’t eligible for social equity help.

City leaders are still discussing ways to ensure the city, which is 85% Black, is appropriately represented demographically by its cannabis business ownership.

Barton said the city has said publicly it will have a social equity component, but the industry is still waiting and it seems the city leaders are having some difficulty finding out how it will work.

Detroit is home to 75 medical marijuana dispensaries, and the state law states that an adult-use business owner must have an MMJ license before opening a recreational cannabis store.

Abel pointed out that DeAndree Watson, a top aide for Detroit City Councilman James Tate and a point person on this project, was murdered in June, which has been a major setback.

Siam added that she’d like to see more cohesion among Michigan’s regulations at the state level instead of relying on the cities to take up the slack.

What can be improved

The potential for improvements to the state’s rules is vast, according to industry analysts.

Thompson would like to see social equity applicants receive assistance in several ways, including:

  • A break on real estate via a land bank.
  • Payroll or accounting services provided to the applicants.
  • Human resources and employment services.
  • Free executive leadership training through a partnership with an established business to guide these new owners.

“What we’re talking about with social equity is leveling the playing field,” Thompson added.

He’d also like to see a state-based program that offers loans for these applicants to provide access to capital.

Barton agrees on the training point. He’d like the applicants to be offered help on operational planning, odor mitigation and management planning, to name a few.

A lot of the caregiver applicants, for example, have not had to submit a plan on how they manage pesticide remediation, Barton said.

Siam emphasized that the training be provided for upper-level positions – management or testing lab technicians, for instance – and not just for lower-rung employees.

The better state-level programs in the cannabis industry are those that allocate a certain amount of revenue to create a fund to provide loans to social equity licensees, Siam said.

It’s about more than just getting a license, she said “it costs money to operate a business.” 

“The social equity applicants are going to be the ones who need the most help,” Siam added, “who need the most resources.”

Bart Schaneman can be reached at barts@mjbizdaily.com

For a sampling of organizations and efforts that support, foster and enhance social equity in the cannabis industry as well as opportunities for minorities, overall diversity and racial justice, click here