Michigan’s medical marijuana market has experienced a flurry of activity in the past two weeks involving court rulings, state guidelines and legislation, and culminating in a showdown within the marijuana business community.
The contention hinges on competition between state-licensed and unlicensed businesses and growers. Specifically, the question lies in whether unlicensed provisioning centers should remain open as the state has stalled on processing applications, and also whether caregivers should continue supplying the licensed market.
Among the latest developments, Michigan Court of Claims Judge Stephen Borrello on April 30 issued an opinion saying the state could no longer set compliance deadlines for unlicensed dispensaries. For months, the state has set deadlines for when unlicensed shops had to close, and those timelines were repeatedly rejected in court. Borrello criticized the state’s regulatory approach until now, calling it “freakish” and “whimsical.”
On the same day, a state Senate committee advanced H.B. 4440 to amend the Medical Marihuana Facilities Licensing Act, specifying that anyone operating a medical marijuana facility without a license after June 1 would be ineligible for a license for a year. The bill could be moot, though, if the state decides quickly on issuing outstanding licenses or if court appeals persist.
In response to Borrello’s ruling, the newly created Marijuana Regulatory Agency said on May 2 it would streamline applications to “ensure access to safe marijuana products.” However, the agency also said licensed provisioning centers could no longer buy product from caregivers, only from licensed growers and processors. Caregivers are still able to sell to licensed growers and processors, who would effectively enter the product in the state’s tracking system.
The state’s largest marijuana trade group, however, has raised concerns about whether this approach will work.
Activists describe it as a confusing time for Michigan’s marijuana industry that may not be resolved for up to a year.
“What we’re seeing is an industry in its infancy and some of the growing pains that come with starting a new industry from scratch,” said Josh Hovey, spokesperson for the Michigan Cannabis Industry Association. “There’s a lot of debate on how to ensure we have a fully regulated, licensed market.”
Driving much of the uncertainty has been the state’s troubled licensing process that arbitrarily and slowly approved applicants, and mostly provisioning centers. This created a supply shortage from licensed growers, and provisioning centers had to rely on caregivers for product.
In late April, marijuana advocates held competing protests at the state Capitol focused largely on caregivers’ role.
Green Peak Innovations LLC, which owns a large, licensed grow facility near Lansing, was spearheading a newly launched MICleanCannabis campaign, criticizing the state’s allowance of caregiver-grown marijuana in the market. The company pointed to multiple product recalls over the past several months after testing facilities found contaminated product.
Joe Neller, Green Peak’s executive vice president of government affairs and business development, said the company simply supports the intent of the state’s 2016 Medical Marihuana Facilities Licensing Act.
“We felt consumers would want to know the products they’re ingesting to help alleviate some medical issues with them are not filled with pesticides or other contaminants,” Neller told MiBiz.
Others, such as the Great Lakes Cannabis Chamber of Commerce, have criticized unlicensed activity as unfairly undercutting the business of licensed facilities that have spent tens of thousands of dollars getting licensed and have trouble competing with “gray market” pot. Green Peak Innovations, whose facility is southwest of Lansing in Windsor Township, says it has 1,000 pounds of product in storage that it hasn’t been able to sell to provisioning centers when the operations can get it easier and cheaper from caregivers.
The Michigan Cannabis Industry Association took a neutral position following last month’s competing protests. However, the group’s executive director, Robin Schneider, sharply criticized Green Peak’s campaign against unsafe pot.
While Schneider’s group supports a “fully regulated” testing program, “It is really not OK for any company to message that marijuana is unsafe, as far as I’m concerned. It’s important to remember no one has been reported sick or injured from caregiver medicine, and cannabis — whether tested or untested — is in general a safe product,” Schneider said.
Neller responded: “Our issue is with the testing. Despite the law that says all marijuana must be tested and certified as safe and free from toxins, at the present, untested caregiver marijuana is still legal to sell.”
Roberta King, founder of the Muskegon-based public relations firm Canna Communication LLC, said it “appears Green Peak has a lack of understanding of cannabis culture.”
“They’ve either intentionally or unintentionally attacked the integrity of caregivers,” she said. “It’s distasteful to the people who for the past 10 years have been providing the cannabis for medical patients in Michigan.”
Starting to move
Schneider is optimistic that the impasse may start to resolve. The Marijuana Regulatory Agency created by Gov. Gretchen Whitmer to address the licensing problems already issued several licenses for businesses within its first week.
“They are already doing a fantastic job of taking the necessary steps to turn the program around,” Schneider said. “Ultimately, the goal is to get as many growers and processors licensed as quickly as possible so we can fill that supply.”
Still, it could take at least another six months or a year until the supply meets demand given the time constraints of growing marijuana.
Schneider said there are two sides to the debate over caregivers’ role now. If they are allowed to sell directly to provisioning centers, the other four license types (growers, processors, testing facilities and transporters) are “cut out of that equation and they’re losing business. That’s not good for the overall health of the industry.”
On the other hand, when the state took the same approach earlier this year and prevented caregivers from selling to retail stores, provisioning centers “ran out of product so quickly.”
Caregivers were not willing to drop off their product at a grower or processor, risking that it would fail to pass quality tests, Schneider said, calling it a “huge financial risk.” The state doesn’t allow caregivers to get their product back if it fails to pass testing.
“Our concern is that we can’t have provisioning centers close if this rule doesn’t work and there’s not an adequate supply,” Schneider said of the state’s latest guidance. “We will at that point have to sound some alarm bells and address it.”
Another ongoing concern within the marijuana industry is whether small businesses will have space in the market among large companies like Green Peak.
Schneider said she is already “seeing a lot of acquisitions in the works. Obviously, we want there to be all sizes of cannabis businesses.” Small business owners’ ability to compete will likely come down to quality and customer service, she added.
The group also says Michigan’s recreational law allowing for microbusinesses to grow, process and sell marijuana on site will help smaller companies.
Green Peak’s Neller said it’s a “massive industry for the state of Michigan” that’s poised to grow with recreational businesses.
“We think there’s space in the industry for everybody,” Neller said.
Others are more skeptical. King, who serves on the board of the West Michigan Cannabis Guild, said the acquisitions of smaller businesses are a growing concern.
“They’re definitely under threat,” King said. “It’s going to be more difficult for small businesses to survive.”
And that’s if they even get into the market. In cities like Grand Rapids that are starting to permit facilities, real estate prices have skyrocketed in places where the businesses are allowed.
State Sen. Jeff Irwin, D-Ann Arbor, said “huge financial barriers” and restrictions on who can apply for licenses are creating barriers for smaller companies. He called the 2016 MMFLA “flawed from the outset.”
“We have to set up a system that’s rational for people to participate in if we want it to work,” he said.
Efforts to limit the role of caregivers and closing unlicensed businesses, he said, create a “huge boon to the black market. It’s great for illegal dealers, but it hobbles the legal market in ways that are fundamental.”
Until both the medical and recreational markets mature, it appears more growing pains are ahead.
Summing up where Michigan’s industry is at now, Schneider said: “We’re hopeful this is going to work. If it doesn’t, there needs to be a reasonable compromise.”