The Michigan Cannabis Regulatory Agency (CRA) recently issued an advisory bulletin which may create a significant licensing cost savings for grower and/or processor licensees holding both medical and adult-use licenses.
Pursuant to Administrative Rule 420.214, the CRA may authorize licensees who hold “equivalent licenses” to transfer marijuana product between the inventory of their medical and adult-use operations. This rule requires the CRA to establish a start date, end date and other requirements for such transfers. Since at least 2019, the CRA has used advisory bulletins to regulate the equivalent license transfer process.
On February 8, 2023, the CRA issued its latest Advisory Bulletin on transfers of marijuana product between equivalent licenses (“Revised Equivalent Transfer Bulletin”). By its terms, the Revised Equivalent Transfer Bulletin superseded the prior bulletin on this topic issued on March 21, 2022 (the “Prior Bulletin”).
The Prior Bulletin contained detailed limits on product transfers, including CRA preapproval, testing criteria on marijuana product intended to be transferred, and limits on the quantity of marijuana product or plants which could be transferred during specific 30 or 60 day time periods. For growers and processors who held co-located medical and adult-use licenses, the equivalent transfer process under the Prior Bulletin provided a mechanism to somewhat manage inventories of marijuana produced by their medical and adult-use operations.
The Revised Equivalent Transfer Bulletin significantly expands the scope of allowed transfers between equivalent licenses by eliminating CRA preapproval for most transfers, reducing testing requirements, and removing the quantity limits imposed under the Prior Bulletin. Licensed growers and processors who hold both medical and adult-use licenses will want to carefully review the Revised Equivalent Transfer Bulletin before any upcoming license renewal to determine whether the balance between their existing medical and adult-use licenses should possibly be shifted.
We believe that one significant consequence of the Revised Equivalent Transfer Bulletin is to allow a cannabis grower or processor which holds equivalent licenses for both medical and adult-use production to reduce the number of adult-use licenses, increase the number of medical licenses and significantly reduce current license renewal fees. An example makes this option clear:
Assume a vertically integrated cannabis grower and processor which holds four medical class C grow licenses ($4,500 annual renewal fee per license), one medical processing license ($4,500 annual renewal fee per license), five adult-use class C grow licenses ($24,000 annual renewal fee per license) and one adult-use processing license ($24,000 annual renewal fee per license). The total plant count under this scenario for an equivalent licensed grower would be 16,000 plants with total annual renewal fees of $166,500.
Under the Revised Equivalent Transfer Bulletin, all of the adult-use product needed by an adult-use grower for transfer to customers or its own processor can be supplied by the medical grower. Thus, the grower would not need five adult-use class C licenses, but only one adult-use class A license in order to receive transfers from the equivalent licensed medical grower and to transfer product to adult-use customers and its own adult-use processor.
To grow 16,000 plants and make the harvest available in the adult-use market, the grower would need 11 medical class C grow licenses and one adult-use class A grow license at a total annual license cost of $51,000 ($49,500 for 11 medical class C and $1,500 for one adult-use class A). The savings from existing grow licensing cost would be $77,000. Unless this operation makes sales to medical retailers of processed product, the operator could also remove the medical processing license and save another $4,500 annually. Finally, unlike the Prior Bulletin which required the equivalent licenses to be co-located, there is no such requirement in the Revised Equivalent Transfer Bulletin, so distinct locations would presumably be eligible for equivalent license transfers.
Like most things in life, and almost everything in marijuana world, this possible renewal strategy has some complications:
- First, the plant count rules for medical licenses are slightly different than adult-use licenses. Medical licenses are capped at total plants, including immature plants. Adult-use plants only count toward the maximum if they are mature (over eight inches). So, when determining how many clones are needed, keep this in mind.
- Second, if plants are transferred between equivalent licenses, rather than marijuana product, the transferee would need to hold a license(s) for the number of plants being transferred. For example, a class A adult-use grower would be limited to receiving 100 plants from an equivalent licensed medical grower.
- Third, the CRA may revise the license fees for medical licenses every October. Thus, as of October 2022, the cost of a medical class C grow license was reduced from a three-tiered $8,000/$12,000/$16,000 fee to a flat $4,500. October 2023 could bring a steep increase if many growers shifted their production to medical grows. But even then, the savings for just one year might make it worth the work.
- And finally, the work. Some revisions will need to be made with and approved by the CRA to accomplish this switch. Again, the savings should in many cases make that work worth doing.
We’ve had communications with CRA officials about this interpretation of the Revised Equivalent Transfer Bulletin and no objection has been made to this analysis. However, if you consider making changes as outlined above, we recommend you have the change reviewed in advance by your analyst.
For questions about the new Advisory Bulletin and its impact to your cannabis business, please contact Bob Hendricks or a member of Warner’s Cannabis Industry Group.