Michigan's Adult-Use Regulations Will Shape a Robust Industry

Michigan’s Marijuana Regulatory Agency released the emergency adult use cannabis regulations last week, which allows the agency to begin accepting applications prior to December 6, 2019. Local cities and prospective business owners have been waiting for the state to release the rules prior to finalizing plans for participating in the adult-use market.

To date, a significant number of local municipalities have opted of the adult use cannabis market. Other cities delayed the decision to opt in until the MRA’s release of the adult use regulations. These cities must quickly enact ordinances that permit establishments to engage in adult use cannabis activities so that businesses may locate available property ahead of the opening of the application window.

The state’s recreational market may be saddled with the same growing pains that the medical marijuana market is currently experiencing including a limited number of cities offering licenses, inadequate inventory from the limited number of licensed grow facilities, and the complexities associated with a nascent industry. State regulators will need to manage the public’s expectations in order to ensure a smooth rollout of the recreational market.

Michigan’ rules are forward thinking and encompass the newest license types that are being adopted by Colorado and California including marijuana event organizers, consumption lounges, and temporary events, which will allow the state to quickly build out a mid-west cannabis tourism scene. The rules also allow the inflow of capital to build out the market by permitting out-of-state investors and limiting the residency requirements to microbusiness and Class A growers.

Michigan’s rules permit institutional investors and establish thresholds for investor suitability reviews that are in line with other states. However, the requirements around franchise arrangements are more stringent in that it limits the franchiser’s ability to obtain a royalty based on a percentage of sales. A franchiser that enters into an arrangement other than a fixed fee may be considered an applicant under the regulations.

Like Illinois, Michigan will provide medical marijuana license holders with priority in the application process. The state will continue to use its two-step application process that requires applicants to be prequalified prior to providing final approval. Businesses that decide to obtain property in a city that requires applicants to be prequalified may be further delayed in building out their businesses.

Finally, Michigan’s rules require all adult-use applicants to include a social equity plan in their application. The social equity plan must describe how the business will encourage persons that have been impacted by the illegal marijuana laws to participate in the industry and positively impact the communities.

The rollout of Michigan’s adult-use market poses a significant risk to early entrants that are not currently in the medical marijuana market. Businesses will need capital and perseverance to successfully make it through the lengthy approval process, local permitting, early inventory shortages, and costly build out. We look forward to the real-time comparison of the different approaches to establishing an adult use market being used by Illinois and Michigan.