1FIVE LICENSE TYPES (NO FULL VERTICAL INTEGRATION) – Let’s start at the very very basic, the licensing structure. So far Michigan is the only state that has adopted a structure quite like this one. There are five basic license types – Cultivation (Class A 500 plant, Class B 1000 plant, or Class C 1500 plant), Processing, Provisioning Centers (Dispensaries), Safety Compliance (Testing Laboratory), and Secured Transport. If you have any sort of financial interest in a Safety Compliance Facility or Secured Transport company, you are not allowed to have any interest in any of the other license types. Keep in mind, you are required to use a Safety Compliance company to have your product tested, and you are required to use a Secured Transport company any time your product moves on public roadways.
2MINIMUM CAPITAL REQUIREMENTS – Like many other states, Michigan is requiring that you show that you have the capital available to run a successful business in order receive a license. You can use the value of business assets to meet this requirement, but you do need 25% of the amount available in liquid assets, which can include cash or inventory. While many people have complained about this, Michigan is actually much lower than many other states. Taken directly from the state website, the capital requirements are as follows –
“BMMR has determined that at least 25% of an applicant’s capitalization sources must be in liquid assets. Liquid assets are easily convertible to cash and may include:
- Cash, including checking or savings accounts
- Marihuana and marihuana-infused product inventory (in compliance with the Michigan Medical Marihuana Act, 2008 IL 1 or administrative rules)
- Certificates of deposit, 401k accounts, stocks, and bonds
The remaining capitalization may be evidenced in either additional liquid assets or in non-liquid assets. Evidence must be provided that shows there is no lien or encumbrance on the asset provided as a source of capitalization. Examples of non-liquid assets include but are not limited to:
- Equity in real property
- Supplies, equipment and fixtures
In order to be granted a proposed medical marihuana facility license, applicants will be required to demonstrate capitalization amounts as follows:
- Grower: Class A – $150,000
- Grower: Class B – $300,000
- Grower: Class C – $500,000
- Processor – $300,000
- Provisioning Center – $300,000
- Secure Transporter – $200,000
- Safety Compliance Facility – $200,000”
This is required for every license that you apply for, so if you apply for a Class C cultivation license, Processing license, and Provisioning Center license, you will have to have enough to cover all three together, or 1.1 million in assets. Additionally, these numbers have to be attested by a CPA, which means that an accountant will have to investigate your financials and verify that the numbers are correct.
3NO BANKS – Marijuana is federally illegal, which most people know. What many people don’t realize, is that banks are regulated by federal law, which means that if they open an account for you, they are taking on a lot of liability. The result? Most businesses in the marijuana industry do not have a bank account! This means they have to do business in cash, which is a really really big deal. When is the last time that you tried to pay your utility bill in cash? Especially a very very large utility bill. You can’t just put cash in an envelope and mail it out to pay your bills. If you are considering opening a business in the marijuana industry, you are going to need a cash management system and a plan in place to convert that cash into something that is easier to spend.
4NO MORTGAGES – This is a shock to many people who are trying to buy real estate to use for their cannabis business. A lack of access to banks means that you also cannot get a mortgage! Most banks are going to have terminology in their mortgage documents allowing them to call the loan if a property is being used for federally illegal activity, which includes marijuana! The term ‘calling the loan’ means that a bank can demand immediate payment for the entire amount that is outstanding on the loan. That means that if you don’t have the cash on hand to pay off the mortgage at all times, the bank could potentially come take the property back. This is also applicable when you are looking for a space to lease for your business. If your landlord has a mortgage, they are exposing themselves to that same risk.
5YOU HAVE TO PAY MORE TAX (A LOT MORE) – If you have never heard of 280E, you have some research cut out for you! A cannabis business is treated much differently from a tax perspective than any other business. A normal business receives income from the sale of a product or service, and then before they pay taxes they deduct the cost of that product, and then they deduct any other expenses related to the business, and then they pay taxes on the remainder. A business involved in the sale of marijuana is different. 280E is the tax rule defining the only deductible expense is a Cost of Goods Sold, which makes it extremely important to work with an accountant who understands marijuana tax law. Your tax strategy could be the difference between making and losing money.
6YOU NEED A CAREGIVER ON STAFF – We have had many clients from out of state that are completely unaware of this requirement. Every marijuana business is going to need to have an owner, or somebody on staff who has at least two years of experience as a licensed caregiver in the state of Michigan. Need help finding somebody to work with? Let us know, we can likely help you connect.
7MUNICIPALITIES HAVE TO OPT IN – Michigan has an interesting structure in that the municipalities have to decide to allow marijuana facilities within the city or township. On top of opting in, each municipality sets their own limit to the number of licensed facilities allowed in the city, and which types of licenses are allowed. Once this is decided, they have to write a marijuana ordinance allowing them, and then they have to modify their zoning ordinance to outline exactly where the facilities will be allowed. This process can take anywhere from a few months, to six months, to even a year or more.
8FINDING QUALIFYING REAL ESTATE IS COMPLICATED – Since every municipality has to decide to opt in, and then creates their own zoning rules, finding a qualifying property can be extremely time consuming. When you are looking for a space for your business, make sure you read the ordinances of each city that you are looking it, as areas where facilities are allowed are all very different. To start your search, you will need to know what municipalities have opted in, then find out what parcels qualify, and then either check those parcels to see if any of them are up for sale, or approach the property owners directly to see if they will sell.
9MUNICIPALITIES DON’T ISSUE LICENSES – We have had hundreds of calls with the same question, “Somebody is advertising a property that comes with a marijuana license, can I just buy that and get started?” The short answer is NO. At least not right now. As of today (3/11/2018), there have not been any state licenses issued, and a municipality cannot issue a license. What a municipality can issue is a permit, which is allowing you to operate a marijuana business as a specific location, AS LONG AS YOU ARE APPROVED BY THE STATE. Let me add some emphasis to that – AS LONG AS YOU ARE APPROVED BY THE STATE. Now don’t get me wrong, there is absolutely value in a property that has been permitted by the municipality, as long as that permit can be transferred to you, or you are able to apply for a permit in the same location. You should always check with the municipality to verify what their permit transfer process is, if they allow it. But no matter what their process, you will still have to apply at the state level and go through the same prequalification process as everybody else.
10MEDICAL ONLY MARKET – As of right now, Michigan is a medical only market. That means that patients have to get a prescription by a doctor, allowing them to use marijuana to treat one of the state approved ailments. After they get a prescription, they apply with the state to get a card, and then under the new MMFLA laws, they will be able to go into a provisioning center and purchase marijuana. While many medical marijuana state markets are small, Michigan’s is huge. Michigan is second only to California, with over 200,000 patients in the state. There is also a big push going to put recreational marijuana legislation on the ballot this November.