Michigan’s Cannabis Regulatory Agency Proposes Changes to Cannabis Licensing Requirements

Michigan’s Cannabis Regulatory Agency (CRA) recently proposed amendments to the state’s Marihuana Rules that (if adopted) will change not only the licensure requirements that new applicants must meet, but could also create hurdles for existing licensees seeking renewal of their licenses. The proposed rules would impact different aspects of the current regulatory scheme, including licensing requirements, financial compliance, social equity, monitoring, sampling and testing, general operations, and enforcement. Many of the proposed changes are therefore likely to be consequential for clients already invested in the cannabis space or those looking to get into the industry. A full summary of the proposed changes can be found here, but key components include the following:

• Licensing: The rules proposed by the CRA would change the licensing requirements necessary for growers and their businesses. Notably, the proposed rules clarify the definition of “reasonable payment” under a licensing or rental agreement under the Michigan Administrative Code by providing that it means less than 10% of the profit from the licensee. Thus, any payment (including rent or lease payments) exceeding 10% of the business’ “profit” – a term currently undefined but presumably referring to annualized gross profit – could be deemed “unreasonable” under the proposed rules. Additionally, the changes would require licensees to report to the CRA their current business structure and brands produced under that business structure. The rules would also require licensees to notify the CRA upon changing their business structure. The CRA believes that this will prevent those who would not otherwise qualify for a license under one business structure from undermining licensing requirements.
• Financial Compliance: The proposed rules may affect general financial compliance requirements for businesses. First, the new rules would require monthly revenue reconciliation, which must be maintained as an internal business record. According to the CRA, this will improve compliance by licensees and statewide monitoring of the industry. In addition, to further encourage compliance with the regulatory system, the proposed rules would require licensees to report changes made to lease agreements, such as “payment or waiving of rent, and updates made by the landlord without being reimbursed.”
• General Operations: The rules impose a variety of new regulations on general business operations. For example, growers, class A microbusinesses, and microbusinesses would be required to have at least one employee with a Michigan Department of Agriculture and Rural Development (MDARD) applicator certification and Master Grower certification within one year of becoming licensed. In addition, to reduce non-regulated cannabis products from entering the regulated market, the proposed rules (1) specify that a harvest batch must be “dried and trimmed” at the business location where it was grown and (2) require those with a certain type of license to perform physical audits of their inventory two times a year or more. Lastly, to protect consumers, businesses would be required to identify serving sizes on edible marijuana products using one of three methods: providing single-serving packaging, breaking down multi-serving products into single portions, or including a measuring device that a consumer can use to measure one serving.

The proposed rules will be subject to public comment in the coming months. If adopted, they are likely to take effect either later this year or in early 2024.

Rhoades McKee is tracking these proposed changes to the Marihuana Rules and will continue to assist our clients in navigating future changes to the regulatory scheme. To discuss how the CRA’s proposed rules may affect your business, please reach out to an attorney within our Cannabis Law Services Team.

This alert was drafted with the assistance of Rhoades McKee Law Clerk, Peter McAndrews (Indiana University Maurer School of Law, J.D. Candidate, 2024).