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A year after legalization, Michigan months away from retail sales

Bridge Magazine

 

Retail sales of recreational marijuana may still be months away and confined to select communities, even though Michigan began taking applications for businesses on Friday.

The Marijuana Regulatory Agency last week began accepting applications for what is expected to be a lucrative new industry. That’s more than a month ahead of a deadline established in the adult-use marijuana law approved by voters in 2018.

Exclusive Brands of Ann Arbor applied online at 12:17 a.m. Friday and got a pre-qualification notice 43 minutes later. The process takes little time for companies like Exclusive that already have been vetted to work in the state’s medical marijuana industry.

“There's still a lot of question marks” about recreational marijuana rules, "but I'm excited to learn all the answers and be part of the movement,” owner Omar Hishmeh told Bridge Magazine.

Exclusive operates as a “vertically integrated” medical marijuana business in Ann Arbor, where it is licensed to grow up to 500 plants and operate a retail dispensary and a processing facility that supplies products to other medical shops around the state. Medical marijuana has been legal in Michigan since a 2008 ballot measure.

“We're doing great on the medical side,” Omar said, noting he expects state inspectors to visit Exclusive next week for the second step of the recreational application process. Regulators must sign off on the actual building before awarding a full license.

While applications are open, recreational retail sales are not expected to start statewide until February or March because the state is effectively asking growers across Michigan to start from scratch.

Due to product supply shortages in the medical marijuana industry, the Michigan Regulatory Agency is not planning to allow plant or product transfers for recreational sales. That means growers will have to plant new crops to obtain a recreational license.

“You definitely want to ensure that there's access for patients using marijuana for medicinal purposes,” Andrew Brisbo, director of the Michigan Marijuana Regulatory Agency, said Friday.

“There's not adequate supply in the regulated market to meet consumer demand right now.”

Michigan’s new recreational marijuana law includes restrictions on who can apply. For the first two years, only certified medical marijuana businesses can qualify for most recreational license types, including large growing operations and retail stores.

Additionally, more than 1,200 Michigan municipalities – two-thirds of the state's 1,773 cities, townships and villages – “opted out” of the law and prohibit recreational marijuana businesses. Officials in Detroit, the state’s largest city, are considering whether to temporarily opt out next week.

Those communities could still opt back in once officials see how the law is executed, said Robin Schneider, executive director of the Michigan Cannabis Industry Association, who called the start of license applications a big day for the state.

“Every time we come to one of these milestones it reminds us of all the work that it took to get here,” said Schneider, who also worked on the 2018 ballot campaign to make Michigan the 10th state nationwide to legalize pot.

Medical businesses that apply for recreational licenses right away should be allowed to legally operate even if their local government later chooses to opt out of the law, said attorney Denise Pollicella.

She was working with several firms to submit applications on Friday and said the process went “very smoothly.”

But ongoing uncertainty about long-term rules and supply shortages means recreational sales will take "a little bit longer to get going than I think anybody was anticipating," Pollicella said.

“Michigan makes an art form out of reinventing the wheel, so it's going to take a minute, but we'll get there."

The new law gives the state 90 days to process facility applications, but Brisbo expects his agency will begin to issue the first recreational marijuana licenses well before then, likely by the end of November or December.

Most retailers, however, will then have to wait for the first legal crop to mature, which might take another three to five months.

Michigan could have avoided the projected supply chain crunch by licensing recreational growers earlier, said Matthew Abel, a longtime pot activist and attorney at the Cannabis Counsel in Detroit.

“But that didn't happen, so now they're in the uncomfortable position of having to take the medicine away from medical patients in order to supply the recreational market, because the recreational market is so much larger," Abel said.

Ensuring a stable supply for medical patients is “the right way to go" even if it delays recreational sales, he said.

Abel was also working with several clients to submit applications on Friday and said the process was slowed in some instances by delays in tax status verification through the Michigan Treasury.

Legal sales could start sooner at so-called microbusinesses licensed to grow up to 150 plants, process them and sell them directly to adults.

That's because Michigan will allow microbusiness owners who are also medical caregivers to sell marijuana they are already authorized to grow for patients – up to 72 plants – to recreational customers.

“If one of those gets licensed quickly and they're a caregiver, they can bring plants in and may be close to having retail sales very quickly," Brisbo said.

As of 5 p.m. Friday, 34 businesses had applied to be prequalified for a recreational license. The state also received 18 applications for facility inspections, a precondition to full licensure. That’s a far cry from the 355 licensed medical marijuana businesses in the state.

Country Boy Farms of Chesaning was prequalified for a recreational marijuana license at around 9:30 a.m. Friday. The company is currently licensed as a Class C medical marijuana grower, which allows it to cultivate up to 1,500 plants.

Only licensed medical pot businesses can currently apply for most recreational license types, but anyone can apply to be a small grower or microbusiness. The state is also allowing open applications for “designated consumption establishments," safety compliance facilities and marijuana event organizers.

Applicants must pay a $6,000 fee that isn’t refundable. Any company that wins final approval will also need to pay a licensing fee before opening its doors. Local governments can also charge separate fees.

Brisbo said some potential applicants may be waiting to see how local officials decide to treat marijuana businesses. He noted that nine communities approved local rules last week, bringing the unofficial state tally up to 15.

“I think a number of operators are waiting for that piece to come online as well before they submit their state-level application since they only have 90 days to complete the process," Brisbo said. “I'd want to see that the municipality is going to be able to authorize them as well.”

Local communities are not required to “opt in” to the recreational law, but several have designed regulations in order to give certainty to local businesses.

Burton, a city in Genesee County, set up rules to allow all recreational marijuana business types and will not cap the number of licenses they will allow. Other communities established more stringent restrictions.

Mount Pleasant, for instance, will allow only a handful of grower and retailer licenses but an unlimited number of processors and product testing facilities. Orion Township in Oakland County won't allow retailers or large-scale growers but will allow a limited number of other business types.

Timing of sales of recreational marijuana could affect state and local tax revenue this year. Consumers will pay the state's 6 percent sales tax on any retail sales, while retailers and microbusinesses will also pay a 10 percent excise tax on the sale price.

Sales tax revenue primarily supports the state's School Aid Fund. Excise tax revenue will be earmarked for road repairs, schools and local governments that allow marijuana businesses.

The nonpartisan Senate Fiscal Agency in 2018 projected recreational retail sales could eventually generate $262 million a year in annual tax revenue for the state and local governments. Smaller revenue is expected in early years as the industry ramps up.

How fast the industry grows in Michigan remains to be seen.

“What we do know is that adults want to purchase cannabis," Abel said. “There's not a lack of demand.”

 

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