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Licensing Begins Under Michigan Regulation and Taxation of Marihuana Act

One of the most recent opportunities for business development in Michigan is the passage of the Michigan Regulation and Taxation of Marihuana Act (MRTMA), making Michigan the 10^th state to legalize the recreational use of Marijuana. On November 1, 2019, Michigan began accepting license applications for recreational marijuana establishments. There are still a multitude of hurdles for businesses wishing to take advantage of this new opportunity, however, and the interplay between the MRTMA and the Medical Marihuana Facilities Licensing Act (MMFLA) creates even greater complexity.  Below are a few of the principal items to consider when determining whether to pursue a license under the MRTMA.

Make Sure Your Municipality Allows It

The most important step in deciding whether to pursue a license under the MRTMA is determining if your municipality allows recreational marijuana facilities within its borders. Unlike, the MMFLA, under which municipalities must affirmatively opt in, the MRTMA requires municipalities to opt out of the statute if they do not desire to permit recreational marijuana facilities within their borders. The Michigan Department of Licensing and Regulatory Affairs’ unofficial list of municipalities that have opted out of the MRTMA, as well as a list of municipalities that have placed restrictions on which type of establishments are allowed, can be found here. A similar list of municipalities that have opted into the MMFLA can be found here.  These lists are unofficial and change over time.  Accordingly, you should contact your municipality before beginning the process, as they may have plans to opt out of the MRTMA statute in the future, or they may require additional fees.

Determine What Kind of Establishment License You Need

The MRTMA creates 11 different types of marijuana establishment licenses, which are as follows: 1) Class A Marihuana Growers, 2) Class B Marihuana Growers, 3) Class C marihuana Grower, 4) Excess Marihuana Grower, 5) Designated Consumption Establishments, 6) Marihuana Event Organizers, 7) Marihuana Microbusinesses, 8) Marihuana Processors, 9) Marihuana Retailers, 10) Marihuana Safety Compliance Facilities, and 11) Marihuana Secure Transporters.  A brief description of the activities permitted under each type of license is set forth below:

1. Class A Growers can grow up to 100 marijuana plants and do not need to be licensed under the MMFLA but cannot stack licenses. License stacking is holding more than 1 license of that type per entity.
2. Class B Growers can grow up to 500 marijuana plants but cannot stack licenses and currently must be licensed under the MMFLA.
3. Class C Growers can grow up to 2,000 marijuana plants and can stack up to 5 Class C license but currently must be licensed under the MMFLA.
4. Excess Marihuana Growers can grow up to 2,000 marijuana plants for each MMFLA Class C Grower License it holds but must have 5 MRTMA Class C Grower Licenses and at least 2 MMFLA Class C Grower Licenses.
5. Designated Consumption Establishments are able to allow adults at least 21 years old to consume marijuana at their locations.
6. Marihuana Event Organizers are able to apply for temporary marijuana event licenses, which must be granted before holding a marijuana event.
7. Marihuana Microbusinesses can grow up to 150 marijuana plants, package and process marijuana, and sell marijuana to adults at least 21 years old.
8. Marihuana Processors can process and package marijuana, can sell marijuana to Marihuana Retailers or other Marihuana Processors, and currently must be licensed under the MMFLA.
9. Marihuana Retailers can buy marijuana from Marihuana Processors or Growers, can sell it to adults at least 21 years old, and currently must be licensed under the MMFLA.
10. Marihuana Safety Compliance Facilities test and certify marijuana for potency and contaminants.
11. Marihuana Secure Transporters transport marijuana between other marijuana establishments and currently must be licensed under the MMFLA.

There are different restrictions for the owners of each type of establishment on holding an ownership interest in certain other types of marijuana establishments.  These restrictions should be carefully investigated and considered if a person desires to have multiple ownership interests in different types of marijuana establishments.

Fill Out Your Application

The application for a license consists of 2 steps: entity prequalification and establishment license application.

Entity prequalification for the entity that will hold the license (the “main entity”) requires, among other things, signed disclosures about the entity, permission to conduct background checks, a copy of the organizational structure of the entity, and a social equity plan. Applicants already licensed under the MMFLA can submit a shortened version of the application. Similar supplemental applications for each managerial employee and entity or individual with more than a 10% ownership interest in the main entity must also be submitted, but without the social equity plan or organizational structure. Spouses of such individuals must also submit supplemental applications. A $6,000 application fee is due when submitting the prequalification application, but only for the main entity, not supplemental applicants. This fee is waived for Excess Marihuana Grower applications.

The establishment license application requires, among other things, an establishment plan, technology plan, marketing plan, inventory and recordkeeping plan, staffing plan, passing an inspection, and, only for Marihuana Secure Transporters, proof of automotive insurance and registration as a commercial vehicle.

Under the MMFLA, each type of establishment was required to meet certain capitalization requirements ($150,000 for Class A Growers; $200,000 for Secure Transporters and Safety Compliance Facilities; $300,000 for Class B Growers, Processors, and Provisioning Centers; and $500,000 for Class C Growers), but the MRTMA abandoned these requirements. Proof of financial responsibility is still required, however, so applicants must be able to show responsibility for at least $100,000 in liability for bodily injury, whether by insurance or a bond in a format acceptable to the Marijuana Regulatory Agency (MRA).

Pay Your Fees

Finally, each type of establishment must pay initial and annual renewal fees. Under the MMFLA, the MRA determines fees for each type of establishment annually (an example for 2020 is available here), but the MRTMA’s fees follow a fixed formula. Event Organizers and Designated Consumption Establishments pay an initial fee of $1,000; Class A Growers pay $4,000; Class B Growers and Microbusinesses pay $8,000; Retailers, Secure Transporters, and Safety Compliance Facilities pay $25,000; and Class C Growers, Excess Growers, and Processors pay $40,000. The MRA can increase these fees by a maximum of 10% each year. For renewals, fees depend on the initial license fee and the license holders’ relative success among other license holders of that type (other than licenses costing $1,000, which cost $1,000 to renew regardless). Annual renewal fees for licenses with an initial fee of $8,000 increase or decrease from $8,000 by $2,000 depending on whether the license holder is in the top or bottom third of that type of license, respectively (resulting in $6,000 renewal fees for the bottom third, $8,000 for the middle, and $10,000 for the top). Similarly, licenses with initial fees of $4,000 increase or decrease renewal fees by $1,000, renewal fees for $25,000 licenses increase or decrease by $5,000, and renewal fees for $40,000 licenses increase or decrease by $10,000.

Retailers and Microbusinesses must also pay a 10% excise tax on all marijuana sales (whereas “provisioning centers” under the MMFLA only pay a 3% tax on gross retail receipts). This tax is included in the price of the marijuana for the purposes of determining the regular 6% state sales tax. If Retailers and Microbusinesses are not careful with how they package their products, this excise tax can apply to more than just marijuana.

We Know How to Help

The elements above are just an overview of the requirements to consider when applying for licensing under the MRTMA. Determining the best path for your business and creating and gathering the necessary plans and information is a convoluted ordeal. The experienced attorneys at Gielow Groom Terpstra & McEvoy are well equipped to guide businesses through this ordeal under both the MRTMA and the MMFLA.

GGTM Law

We are a client-centric boutique law firm in Muskegon, Michigan, comprised of experienced Muskegon attorneys committed to serving the legal needs of a wide variety of businesses and individuals in Muskegon, Grand Rapids, Grand Haven, Spring Lake, Holland, throughout West Michigan, and beyond.