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Primer on the Emergency Rules for MRTMA

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Primer on the Emergency Rules for MRTMA

Co-Authored by Dykema Summer Associate Madison Laskowski

On July 3, 2019, the Marijuana Regulatory Agency (“MRA”) promulgated emergency rules to implement the Michigan Regulation and Taxation of Marihuana Act (“MRTMA” or the “Act”). The licensing requirements and procedures under the emergency rules are substantively similar to those provided for under the Medical Marihuana Facilities Licensing Act (“MMFLA”). These rules will remain in effect for six months and can be renewed for an additional six months, during which time additional rules may be promulgated. Final Rules will be promulgated thereafter. This process will likely replicate the rulemaking procedure used for the MMFLA rules.

Applications

The MRA will begin to accept applications for certain state license types on November 1, 2019. The emergency rules provide application criteria for the six licenses established under MRTMA: Grower, Processor, Retailer, Microbusiness, Secure transporter, and Safety compliance facility. The emergency rules also create and provide application criteria for four new types of special licenses: Marihuana Event Organizer, Temporary Marihuana Event, Designated Consumption Establishment, and Excess Marihuana Grower.

The rules define applicants the same way as the MMFLA, which generally means any person who has managerial control over the business or who holds a direct or indirect ownership interest in the business of 10% or more. Applicants are expected to provide the MRA with similar identifying information required under the MMFLA. This includes information on every individual who has direct or indirect control over the applicant, including financial information, criminal record, and compliance history. Unlike the MMFLA, the MRTMA rules do not set a minimum ownership interest threshold beyond which publicly traded companies must disclose shareholders.

Applicants must also submit a marihuana establishment plan and a diagram of the facility’s size and dimensions. Applicants have a responsibility to provide the MRA with any additional information or documents requested, and the MRA allows an applicant five days to cure any deficiencies in an application. However, unlike under MMFLA, there is no capitalization requirement for adult-use licenses.

The rules also require an applicant to submit a social equity plan detailing how the applicant will positively impact communities that have been disproportionately impacted by marihuana prohibition and encourage participation in the industry by people from those communities. Pursuant to MRTMA and the rules, MRA will also establish a Social Equity Program, whereby it will provide assistance to these communities. In a recent press release, MRA released a list of 19 disproportionately impacted communities and provided further details on its Social Equity Program.

Certain individuals are ineligible for a license, such as those with a prior conviction involving the distribution of a controlled substance to a minor. Likewise, applicants who are employed by this state, another state, or the federal government are ineligible to receive a state license. MRA will not issue a license to an applicant if its establishment will operate in a municipality that prohibits such establishments. Before December 6, 2021 applicants for most adult-use licenses must hold a state operating license under the MMFLA. This applies to retailer, processor, Class B grower, Class C grower, and secure transporter licenses. After this date, the application process opens up to all. Similarly, until December 6, 2021, individuals applying for a class A grower license or a microbusiness license must be a Michigan resident. There is no similar restriction on safety compliance facility licenses.

Applicants must pay a nonrefundable application fee of $6,000 and are subject to additional licensure and renewal fees. Before the MRA can issue or renew a license, an applicant must submit proof they are capable of covering at least $100,000 worth of liability for bodily injury. Licenses are issued for a 1-year period and are subject to annual renewal. Renewal fees are calculated based on the gross weight transferred by growers and processors, the gross retail sales by retailers and microbusiness, the net weight transported by secure transporters, and the number of tests performed by safety compliance facilities.

The application process for adult-use marihuana establishments largely replicates the process used under the MMFLA. Applicants follow a two-step process. Under the first step, applicants  apply for pre-qualification status. The second step is the facility license application, which allows applicants to specify which license they are applying for. Both step one and step two materials may be submitted at the same time to the MRA. Before MRA will issue a license, an applicant will also need to successfully pass state building and fire safety inspections.

Licenses

Growers

A marihuana grower is licensed to cultivate, sell, or transfer marihuana to marihuana establishments. While the emergency rules create 3 classes of grower licenses, the number of plants allowed under each class differs from the MMFLA.

  • Class A – Up to 100 Plants
  • Class B – Up to 500 Plants
  • Class C – Up to 2,000 Plants

Like the MMFLA, only Class C licenses may be “stacked,” meaning multiple Class C licenses may be operated in a single, integrated facility. The emergency rules rely on the MMFLA’s definition of “plant”, which defines it as “any living organism that produces its own food through photosynthesis and has observable root formation or is in growth material” (therefore, as with the MMFLA, clones count toward the maximum number of plants). Under the emergency rules, an individual with a marihuana grow license may only sell plants to another marihuana grower through a secure transporter. All transactions and inventory must be entered into a statewide monitoring system. Growers are authorized to provide samples of marihuana products to licensed processors and retailers, but these trade samples may not be sold to another licensee or consumer. The emergency rules limit the amount of trade samples a licensee can  provide to another licensee within a thirty day period to 2.5 ounces or less of marijuana and 15 ounces or less of marihuana concentrate.

Processors

A marihuana processing license allows for the purchase of marihuana from either licensed growers or other processors. Licensees who hold two or more marihuana processing licenses can transfer marihuana products between the licensed establishments only if they have common ownership. Like growers, processors must enter all transactions and inventory into a statewide monitoring system. A processor must properly package and label all marihuana infused products before sale or transfer. At a minimum, product labels need to include the: name and address of the packaging establishment, name of the product, ingredients, and net weight or volume of the product. If the product is an edible, it cannot be easily confusable with candy.

Retailers

A marihuana retailer license authorizes a licensee to obtain marihuana from marihuana establishments and to sell to those at least 21 years old or to other marihuana establishments. Retailers may not make a sale of more than 2.5 ounces of marihuana in a single transaction and not more than 15 grams of marihuana can be in concentrate form.

Microbusiness

A microbusiness license authorizes the cultivation of up to 150 plants and the sale of marihuana to those at least 21 years old. Microbusinesses must comply with the rules for retailers, processors, and growers and may not operate at multiple locations. Licensees must enter all transactions into the statewide monitoring system.

Secure Transporter

A secure transporter license authorizes the transportation of marihuana to marihuana establishments. It also authorizes the storing of marihuana and money associated with the purchase or sale of marihuana in between trips to different establishments. Each driver must have a chauffer’s license issued by the state, and each vehicle must be operated by a 2-person crew. Like the MMFLA, marihuana must be transported in sealed containers and inaccessible while in transit. When transporting marihuana, at least one individual must remain in the vehicle at all times and the transport vehicle itself may not have any markings that suggest that it is transporting marihuana.

Safety Compliance Facility

Safety compliance facilities perform safety tests to ensure marihuana is free of known contaminants and uses validated testing methods to determine chemical concentrations. A license for a marihuana safety compliance facility authorizes the testing of marihuana, including certification for potency and presence of contaminants. A facility must be accredited by an MRA-approved entity one year after the date the license is issued. Moreover, the emergency rules require that a safety compliance facility employs at least one laboratory manager with a relevant medical or laboratory degree.

Special Licenses

As noted, the emergency rules create four new types of  licenses: designated consumption establishments, excess marihuana growers, marihuana event organizers, and temporary marihuana events. All are valid for one year, except for temporary event licenses which are valid for a minimum of one day and end on a date specified on the issued license.

Designated consumption establishment:

  • Authorizes a licensee to use a commercial space to permit those at least 21 years of age to consume marihuana products.

Marihuana event organizer:

  • Authorizes the license holder to apply for temporary marihuana event license.

Excess marihuana grower:

  • Allows a licensee who holds five class C marihuana grower licenses to expand their marihuana plant count.
  • Sets the total marihuana plant count for an excess grower license in increments of 2,000 marihuana plants.

Temporary marihuana event:

  • Allow for events to be held for the onsite sale or consumption of marihuana products.
  • Are issued only for a single day or up to seven consecutive days.
  • Can be granted only to those holding a marihuana event organizer license.

Equivalent Licenses

The emergency rules also state that a licensee may hold “equivalent licenses” issued under the MMFLA. Equivalent licenses are those that have similar functions under the MMFLA and MRTMA, e.g., a provisioning center license is equivalent to a retailer license. Those with equivalent licenses with common ownership under MRTMA and the MMFLA may operate those equivalent licenses at the same location. If operating equivalent licenses at the same location, the medical marihuana and adult-use marihuana products must be physically separated and displayed in a way that makes the different inventories clearly identifiable. For those with equivalent licenses, the rules allow growers, processors, and retailers to transfer marihuana product from their medical marihuana inventory to their adult-use inventory.

Co-Location

Like the MMFLA, the emergency rules also allow for co-located facilities, which allows licensees that have different types of adult-use licenses to operate separate marijuana establishments at the same location, but the location must have distinct areas specific to each license type. If the stacked license includes an adult-use marihuana retailer license, the retailer’s entrance, exit, and entire inventory must be physically separated from the other licensed establishment.

Sales to Unaffiliated Licensees

To ensure there is adequate marihuana supply, growers and processors are required to make reasonable efforts to sell products to retailers with which they are not under common ownership. MRA may issue orders (and impose fines for violating those orders) limiting the amount of marihuana transferred between growers, processors, and retailers under common ownership.

Employees

Employees must be over 21 years old and cannot have a record involving distribution of a controlled substance to a minor. Employers must conduct background checks on all prospective employees and employee information must be entered and updated in the statewide monitoring system. Licensees are also required to train employees in safe handling practices and, for retailers, patient education. The rules have provisions for home delivery that mirror the MMFLA rules, allowing a retailer to establish a delivery service and accept online orders and payments.

Sampling and Testing

Every plant greater than eight inches in height or more than eight inches in width must be tagged and the information recorded in the statewide monitoring system. Plant tags are RFID tags that are supplied through the statewide monitoring system and identify individual marihuana plants. Before leaving a grower facility, a plant must be sampled by a licensed safety compliance facility, except if the marihuana is being used to create live resin. Once a plant has been harvested and tested, the plant tags must be destroyed and packaged with a package tag attached. Plants that fail testing may be sold only if they undergo remediation testing, which requires the plant to pass two separate tests. The emergency rules outline the specific calculations that must be used when calculating the potency of total THC and total CBD. The rules do not set a maximum THC limit at this time, nor do they provide equivalency standards for determining quantities of marijuana in infused products.

Hearings

Denied applicants may request a public investigative hearing within 21 days of the denial. At a hearing, an applicant may provide evidence and testimony to prove suitability for a state license. Licensees who are notified of a state license violation are given a chance to prove compliance with state licensing requirements before the MRA takes action.

Conclusion

These long-awaited emergency rules provide much needed guidance for those who wish to apply for an adult-use state license. Although subject to change while permanent rules are promulgated, they offer applicants an idea of how the MRA plans to license and regulate adult-use marihuana establishments.

As always, stay tuned to Dykema’s Cannabis law blog for more information as the MRA implements these emergency rules and works to develop permanent rules to regulate Michigan’s marihuana industry.