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Jul 2019
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July 23, 2019

Michigan’s Marijuana Regulatory Agency Issues Emergency Rules for Adult-Use License Applicants and Establishments

What Do the Rules Mean for Michigan Businesses and Residents?

On July 3, 2019, the Michigan Marijuana Regulatory Agency (“MRA” or the “Agency”) Issued Emergency Rules (“Rules”) for adult-use license applicants and marijuana establishments under the Michigan Regulation and Taxation of Marihuana Act (“MRTMA” or the “Act”). The Rules will remain in effect for six months, and may be extended once for not more than an additional six months. Below are answers provided by the Rules to important questions about adult-use marijuana license applications and operations under MRTMA.
 
1.   Do the Rules establish a time frame for MRTMA license applications and the approval/denial process?
 
  1. While Section 9 of MRTMA requires the MRA to begin accepting applications for marijuana establishments by December 6, 2019, a press release from the MRA on July 3, 2019 indicated the Agency plans to begin accepting applications on November 1, 2019. MRTMA Section 9 also requires an application be allowed or denied within 90 days of filing. Although the MRTMA license application forms have yet to be released, we anticipate that the application forms will look similar to the license application forms under the MMFLA.
 
2.   Do applications for MRTMA licenses require licensure under the Medical Marihuana Facilities Licensing Act (“MMFLA”)?
 
  1. Yes, in some cases. For at least the first year after the Agency begins accepting applications, and likely until after two years, license applications for Class B and C grow, processor, retailer and secure transporter establishments will only be accepted if made by an applicant holding an MMFLA license. Class A grow and microbusiness applications do not require an MMFLA license to qualify, but may only be made by persons, if individuals, who reside in Michigan on the filing date.
  
3.   Under the MMFLA applicants for medical marijuana facilities licenses are required to demonstrate access to minimum capital. Are there minimum capital requirements for a MRTMA license?
 
  1. The MMFLA and its rules establish the amounts of capital required for an application for a facility. The amounts range between $150,000 and $500,000 and require the applicant to engage a CPA to attest to the applicant’s access to the capital. The MMFLA minimum capital requirements have sometimes created hurdles for applicants that slow down their application process.
     
    MRTMA contains no minimum capital requirement and the Rules reflect that difference by not requiring any set capitalization as a condition to approve a a license application. Although minimum capital is not a requirement for application approval, applicants for MRTMA licenses should carefully plan for the capital needs of any business enterprise under MRTMA. While undercapitalization can often be a problem for a start-up business in any field of endeavor, a marijuana business is even more susceptible to undercapitalization because of the likely unavailability of traditional financing to meet unforeseen financial needs and the prohibition of bankruptcy reorganization of marijuana businesses because of continued federal illegality of marijuana related activity. If a developing marijuana business falls short of financial resources, it probably will have very few options to recover.

4.   Must an applicant address social equity concerns in its application?
 
  1. Yes. As required by MRTMA, the Rules require that an applicant submit a social equity plan that details how the applicant will “promote and encourage participation in the marihuana industry by people from communities that have been disproportionately impacted by marihuana prohibition and enforcement and to positively impact those communities.” The Rules do provide any additional details on what MRA expects will be in such a plan. On July 17, 2019, the MRA announced its social equity program and identified 19 Michigan communities that it determined have been disproportionately impacted by marijuana prohibition and enforcement. The MRA’s program will offer application assistance and reduced fees to qualifying persons within those communities. The MRA has also arranged for other state agencies to provide assistance to disproportionately affected communities and qualifying individuals. https://www.michigan.gov/lara/0,4601,7-154-89334_79571_79784-502157--,00.html
 
5.   Have the Rules set the State fees for application filing and licensure?
 
  1. Yes. The fee for filing an application will be the same as under the MMFLA – $6,000. The annual license fees, however, are generally lower than the annual Regulatory Assessment under the MMFLA. MRTMA’s annual fees range from $4,000 to $40,000, with a cap of 10% per year for fee increases. The renewal fees will also generally be graded into three tiers, with lower fees for the bottom and higher fees for the top tiers of sales or production. For example, a Class B grower’s annual renewal will be either $6,000, $8,000, or $10,000 depending on their relative production ranking.        
 
6.   Will a business that has licenses under both the MMFLA and MRTMA be required to keep operations under each license separated from each other?
 
  1. With some limits, the Rules will allow a licensee to combine marijuana operations, whether medical or adult use. A licensee that has any combination of state licenses (called “Equivalent Licenses” under the Rules) may operate separate marijuana establishments at the same location. These Equivalent Licenses include grower licenses, processor licenses, retailer or provisioning center licenses, secured transporter licenses, and safety compliance (testing) licenses. The Rules list specific requirements for combined establishments. The MRA must authorize the proposed location and the operation cannot violate any local ordinances or zoning regulations. A licensee with Equivalent Licenses to operate an adult-use retail operation and a medical marijuana provisioning center must keep the medical marijuana products separated from the adult-use products if the retail operation and the provisioning center share a location.

7.   Are the license types under MRTMA the same as the license types under the MMFLA?  
  1. Yes, but MRTMA adds several additional license types. MRTMA authorizes the MRA to develop additional types of licenses in furtherance of the Act. The MRA has established five new license types under the Rules, including: marijuana microbusiness licenses; designated consumption establishment licenses; excess marijuana grower licenses; marijuana event organizer licenses; and temporary marijuana event licenses. The Department’s statutory authority under the Act also leaves the possibility for it to develop additional types of licenses in the future.
 
8.   The media and the MRA regularly report on the shortage of marijuana produced by MRA licensed operations. Do the new Rules address or attempt to remedy this current supply shortfall?
 
  1. Yes. The Rules allow the MRA to authorize an Equivalent Licensee to transfer inventory from a MMFLA facility to a MRTMA establishment (note that the reverse is not allowed –transfers from MRTMA to MMFLA licensees are not allowed).  As a practical matter, this means that a medical marijuana facility operating under the MMFLA may (if authorized by MRA) transfer products to a commonly owned adult-use establishment to meet the business needs of that establishment. The Rules list specific requirements for combined establishments. The MRA must authorize the proposed dual location and the operation cannot violate any local ordinances or zoning regulations.
 
9.   Will adult-use retail establishments be allowed to deliver marijuana products to their customers?
 
  1. Yes. Adult-use marijuana retailers can employ individuals to deliver marijuana to individuals 21 years of age or older. No additional or special license is required for these employees. Orders may be placed online, and the amount of marijuana that may be delivered to an individual can be no greater than the Rule’s single transaction purchase limits (2.5 ounces of marijuana or 15 grams of marijuana concentrate). Deliveries can only be made to residential addresses or addresses of designated consumption establishments. Such retailers must receive payment (including cash) before or upon delivery and establish delivery procedures that comply with the Rules.
 
10.   One of the MRTMA license types is a Microbusiness. What details about this license type do the Rules provide?
 
  1. A marijuana microbusiness license authorizes a licensee to cultivate not more than 150 plants, to process (if the microbusiness so desires and is licensed) and package marijuana (which includes marijuana derivatives and infused products) produced by the microbusiness, and to sell or transfer that marijuana only to individuals 21 years of age or older. A microbusiness licensee may not sell marijuana to other marijuana establishments.
     
    A microbusiness may not operate at more than one location, and the cultivation, processing (if the business processes), and retail sales shall be conducted in one location. 
     
    A microbusiness license applicant that was a registered caregiver under Michigan’s Medical Marihuana Act of 2008 (“MMMA”), may transfer its inventory of marijuana plants grown as registered primary caregiver to the microbusiness. This may be done only once upon licensure. If the microbusiness was formed by more than one MMMA caregiver, all of the caregivers who are “applicants” under MRTMA may each make a one-time transfer to the microbusiness of their plant inventory, so long as the total number of plants does not exceed 150 plants.
     
    A microbusiness may at any time accept the transfer of marijuana seeds, tissue cultures, and clones from another grower licensed under MMFLA or MRTMA, but may not sell or transfer such marijuana seeds, tissue cultures or clones.
     
    A microbusiness may transfer marijuana from the grower area to the processor and retailer areas of the microbusiness and from the processor area to the grower without using a marijuana secure transporter if all areas of the microbusiness enter each transfer into the statewide monitoring system.
     
    A microbusiness license is subject to all applicable provisions in MRTMA and the Rules related to a marijuana grower, marijuana retailer and marijuana processor
    license.
     
    Unlike several of the other license types under MRTMA, an applicant for a microbusiness license is not required to hold an MMFLA license. Application fees to the state of Michigan will be $6,000, and the annual operating fee will start at $8,000 and renew at between $6,000 and $10,000 annually depending by gross sales of the business.

11.   The Rules have created several marijuana consumption related establishment types. What are these and what are the basic elements?
 
  1. The Rules allow for several different consumption related licenses, including marijuana consumption establishments, marijuana event organizers, and temporary marijuana event licenses. Rule 58(3) provides a glimpse into the type of establishments these licenses contemplate. They are non-residential locations that allow marijuana consumption and charge an entrance or membership fee, or sell goods or services while patrons are consuming. The consumption establishment and event organizer licenses are valid for 1 year. The event license is valid for a minimum of 1 day and expires as specified in the license, but not longer than 7 days. The Rules contain detailed requirements for applicants which will need to be satisfied and applied on a case-by-case basis to assure compliance.
 
12.   Do the Rules or MRTMA limit the total number of licenses?
 
  1. Yes, in some cases. Rule 9(2)(j) makes explicit that an applicant that will hold more than 5 Class C grow licenses, or more than 1 microbusiness, is ineligible for additional Class C or microbusiness licenses. However, while there does not appear to be an avenue to own more than 1 microbusiness, the Rules have created a special license called an Excess Grow license. This license is only available to a person who holds five stacked Class C adult use licenses (which is the maximum permitted) and at least 2 MMFLA Class C medical grow licenses. 
     
    Under the rule, the MRA can issue an excess grow license to an applicant that will allow the licensee to increase their total grow capacity in 2,000 plant increments, but not to exceed their total Class C MMFLA maximum. For example, if the applicant for an excess grow license had 5 class C MMFLA licenses (which would allow them to grow up to 7,500 plants), that licensee could grow up to 6,000 additional plants under their excess grow license.

12. Do the Rules impose any restrictions on vertically integrated operations selling or transferring marijuana products to related operations?
 
  1. Yes. The Rules prohibit a vertically integrated marijuana grower or processor from only selling to related retailers. A licensed marijuana grower or marijuana processor must make reasonable efforts to sell or transfer marijuana products to marijuana retailers that are not under common ownership, or whose majority of ownership is not in common with, either the marijuana grower or processor. The MRA adopted this restrictive rule to meet the statewide demand for marijuana and to provide reasonable access to marijuana in rural areas.
 
This alert is not intended to cover all aspects of the new Emergency Rules, but instead highlights some of the more common questions and answers associated with the new law. If you have any questions, please contact your Warner attorney or Bob Hendricks at rhendricks@wnj.com, Rodney Martin at rmartin@wnj.com or Matt Johnson at mjohnson@wnj.com

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