As you may know, Michigan passed adult use cannabis in the election this past November. With the passage and coming implementation of the state’s recreational marijuana program, Michigan is primed to become one of the largest states in the country with legal adult use cannabis. Realizing the importance of this opportunity to the industry, McAllister Garfield, P.C. recently expanded our team to include a business, real estate, and licensing lawyer in Michigan, Scott F. Roberts. For more information on Scott, see https://mcallistergarfield.com/team/scott-f-roberts/
Until recently, Michigan’s cannabis laws effectively prohibited public companies from obtaining a Medical Marihuana Facilities Licensing Act (MMFLA) business license, and by extension a recreational marijuana license in the first three years of the state’s recreational program. This is because the MMFLA contained provisions that required all transfers of ownership be first reported to Michigan’s Department of Licensing and Regulatory Affairs (LARA) prior to transfer. Such reporting would have been impossible for publicly traded companies to comply with because every new stock trade would have required a new disclosure prior to the sale of the stock. This provision effectively barred publicly traded companies from Michigan’s cannabis market. In addition, the MMFLA requirement that owners of 1% or more of a Michigan cannabis facility be subject to the state’s intensive review process made it difficult for certain private equity backed companies to enter the Michigan market as well due to the state’s extensive reporting and vetting requirements.
However, the recent passage of Public Act 582 of 2018 ends these restrictions, now making it possible for publicly traded companies to enter the Michigan market and easier for institutionally backed companies as well.
P.A. 582 Allows Public Company Ownership
Public Act 582 took effect on January 1st, 2019. Public Act 582 exempts the owner of a less than 10% stake in an MMFLA applicant, who is not otherwise an officer, director or manager of the applicant, from the state’s intensive vetting process with respect to new applications. Just as important for publicly traded companies, the Act also specifies that transfers of ownership of less than 10% to a person who is not otherwise acting as an officer, director or manager of the applicant do not need to be submitted for approval. The new law also expands the ability to conduct profit sharing with employees and engage in intellectual property licensing agreements with non-licensees in Michigan. It should be noted that Michigan law limits the number of certain state licenses that one operator may possess, so opportunities may be limited by other state or local laws.
Where Do I Start?
While many cannabis industry players are coming to Michigan due to the state’s passage of recreational marijuana, larger cannabis companies will not initially be able to enter the recreational market directly. Instead, they will first need to obtain an MMFLA license before they can apply for one of the state’s recreational licenses. With the MMFLA licensing process taking up to 12 months for some businesses, it is recommended that those interested in Michigan’s recreational cannabis market start the MMFLA licensing process as soon as possible.
Moreover, in order to obtain a state MMFLA license, a company will also need to obtain a municipal license. The MMFLA provides municipalities the option to “opt-in” to the law to allow medical marijuana facilities within their borders. Depending on the municipality, the municipal licensing process can be competitive, with certain municipalities limiting how many licenses they will hand out. This is especially true for dispensaries—which the MMFLA calls “provisioning centers”—with most municipalities capping how many provisioning centers will be allowed in their borders. However, unlike the state licensing process, many of these municipal licenses can be transferred from company to company, with provisioning center licenses in high traffic, densely populated areas fetching a particularly steep price.
What’s Next for the Michigan Market
Regulations to implement Michigan’s recreational law are currently being drafted and will be issued no later than December of 2019. We expect there to be an influx of large publicly traded companies entering the market. Michigan is one of the most attractive marijuana markets in the country. Its population is roughly double that of Colorado, and it’s currently the only state in the Midwest to legalize recreational sales and consumption. This makes it quite an attractive prospect for public companies or private equity funds looking to expand their U.S. presence in the Cannabis industry.
Sean T. McAllister, Esq.