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Michigan Continues to Fine-Tune How Marihuana Businesses Can Operate Before Licensure

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Michigan Continues to Fine-Tune How Marihuana Businesses Can Operate Before Licensure

Earlier this month, Michigan’s Department of Licensing and Regulatory Affairs (“LARA”) announced that its forthcoming emergency rules will allow existing unlicensed medical marihuana businesses to continue to operate while they seek licenses under the new Medical Marihuana Facilities Licensing Act (“MMFLA”). LARA’s announcement was a surprising reversal of its earlier proposed policy that continued operation after December 15, 2017, would harm an applicant’s chances to receive a license.

LARA’s announcement came by press release, accompanied by an “FAQ” document, and was followed by an Advisory Bulletin the next day. Even with the release of three informational documents, though, LARA’s change in policy left many uncertainties as to how the policy would be implemented. LARA has now quietly issued an updated FAQ sheet to address at least some of those uncertainties.

As anyone following this issue knows, this has been a fluid and rapidly evolving situation, where LARA, members of the Medical Marihuana Licensing Board (the “Board”), and the Michigan Legislature all have expressed divergent views. LARA’s new policy also comes at a time when LARA is simultaneously completing emergency rules and putting the finishing touches on an application process that opens in less than three weeks—creating a whole new regulated industry from scratch in less than a year after the MMFLA took effect. Accordingly, it should come as no surprise that LARA’s press release, FAQ, and Advisory Bulletin appeared to create as many questions as they provided answers.

Overview of Conditions for Continued Operation

First, the basics. In September, amid controversy after some Board members stated that they would not vote to give a license to businesses that had opened without one, LARA announced that those businesses had until December 15 to close. If they did not, their continued operation would be an “impediment to licensure.” This led to hours of contentious Board meetings, with patients and dispensary owners arguing that patients would be without access to critical products (especially extracts and edibles) for the months until product began to move through the new regulated system. In response, legislators in both chambers introduced bipartisan bills to provide for temporary licensure.

LARA’s decision to create a path to licensure for those medical marihuana businesses that wish to remain open during the transition period is a direct response to patient concerns. Under the new approach, LARA’s emergency rules will provide that continued operation of an unlicensed facility is not an impediment to licensure—subject to the following primary conditions:

  • By December 15, the host municipality has adopted an ordinance allowing the activity, either a pre-MMFLA ordinance or a new MMFLA ordinance, and the applicant submits an attestation by the clerk along with its state license application.
  • The applicant applies for state licensure by February 15, 2018.
  • The applicant can then operate without a state license until the earlier of its state license application being denied or June 15, 2018.
  • If and when the applicant is granted a state license, the applicant must then comply with all MMFLA rules and regulations.

LARA was careful to say that operating without a license under these conditions is not “legal” under Michigan law. Operation during this interim period is instead a “business risk” for the operator—just as it is for those dispensaries operating today.

Ambiguities and Uncertainties

Apart from the fact that LARA’s safe harbor for existing medical marihuana businesses really isn’t one, LARA’s pronouncements left a lot of significant grey areas, including:

(1) When must a facility be open to qualify for “continued operation” treatment? LARA’s original press release and FAQ document could be read to say that the applicant must be open by December 15—but could also be read to say that only the municipal ordinance must be in place by December 15. LARA’s revised FAQ document deleted what could have been interpreted as a requirement that the facility must have operated “prior to December 15,” meaning LARA need only look to the municipality having an ordinance in place by that date. Theoretically, LARA’s policy now opens the door to applicants opening early—if they can satisfy the municipal ordinance requirement and wish to take the business risk that law enforcement will not act.

(2) Does the municipal attestation have to state that the applicant itself is specifically authorized to operate? LARA’s press release and FAQ stated that the local clerk must attest that the municipality has an ordinance allowing marihuana establishments or has adopted a new MMFLA ordinance. Press reported that LARA’s spokesperson said that if a municipality has adopted a new MMFLA ordinance, that is all an applicant must show on its application. But LARA’s Advisory Bulletin states that “the municipality must authorize the temporary operation of the applicant.” (Emphasis added.) Does this mean each specific applicant must be authorized? How does LARA determine that a specific applicant has been authorized if the municipality does not confirm that?

The Advisory Bulletin also states that if the municipality has authorized operations by a pre-MMFLA ordinance, the municipality must also be “pending adoption” of a new MMFLA ordinance. How can a clerk attest to this? Is a draft before a city council sufficient, even though council might not act favorably?

The revised FAQ document begins to address only part of this question. In a final section added to the end of the document, LARA responded to the first ambiguity regarding attestation by a municipality: “Local units of government may pass a resolution that authorizes the clerk to sign the attestation form—which will be provided by LARA—in order to allow for local authorization of continued operation of proposed medical marihuana facilities.” Potentially, then, since “continued operation of… facilities” is plural, once the clerk signs an attestation form confirming local authorization, all applicants within the municipality will be authorized to continue operations. But since each applicant needs to submit the attestation with an application, it is also possible that a municipality will provide the attestation to some businesses, but not others. Whether and how a clerk may attest to a pending ordinance also remains unclear. Presumably, LARA’s form will help resolve these questions.

(3) Must the applicant be in compliance with the municipal ordinance? LARA’s initial FAQ stated that the applicant can continue to operate if “in full compliance with local authorization.” In a classic Catch-22, most if not all of the municipal ordinances adopted or being drafted around the state prohibit operation unless the operator also has a valid state license, or provide that the municipality will not issue local permits until a state license is granted. It is, therefore, impossible to operate prior to state licensure in compliance with such ordinances. Do municipalities that wish to allow continued operations need to amend their ordinances to account for this? If so, the time is very short.

LARA’s revised FAQ document fixes this problem in two ways. First, it removes the language “in full compliance with local authorization” from the requirement for continued operation. Second, it includes a simple, direct mechanism for a municipality to authorize continued operation without resorting to the lengthy and uncertain process for amending an ordinance:

LARA recognizes that amending or passing ordinances at the local level is a time-consuming task and that it might not be feasible for a local governmental entity to accomplish before December 15, 2017. LARA also recognizes that certain local medical marihuana ordinances—that have already been passed—require state approval before local approval is given. Local units of government may pass a resolution that authorizes the clerk to sign the attestation form—which will be provided by LARA—in order to allow for local authorization of continued operation of proposed medical marihuana facilities.

Under this new FAQ section, applicants need not be in full compliance with a local ordinance in order to obtain local authorization. The limited effect of the revision is to allow applicants who are unable to fully comply with municipal ordinances (because state licenses will not be issued until next year) to continue operations despite that noncompliance.

(4) Will there still be a gap in the transition period when patients cannot get product? LARA’s Advisory Bulletin states that when applicants receive their state license, they will need to comply with MMFLA rules. Presumably this means dispensaries buying product only from licensed growers and processors, using secure transporters, collecting and remitting the new cannabis tax, etc. A dispensary that receives a license as a provisioning center before new licensed grows are producing product, though, would not be able to immediately comply with the new regulatory requirements, such as obtaining medical marihuana only through the seed-to-sale system. Thus, there may still be a gap during which sufficient product is not yet flowing through the regulated system. The revised FAQ document does not address these timing issues, but the eagerly anticipated emergency rules might bring clarity yet.

Unintended Consequences

As is the case for any major transition for an industry, unintended consequences are inevitable. One here may be that existing dispensaries that are authorized for continued operation under local ordinances, with owners who know they cannot be licensed due to disqualifying criminal or financial histories or other ineligibilities, will be able to operate as late as June 15, 2018, without adverse consequences—a major windfall for facilities that were supposed to close by December 15 of this year. Or, investors who wish to win first-mover advantage may well start looking for existing dispensaries to acquire, allowing them early market entry. In the end, all that is certain in this process is that some uncertainty will continue. Hopefully, though, LARA’s emergency rules and forms will provide some greater clarity.

As always, check back with Dykema’s Cannabis Law Blog for further updates.