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Since the legislature adopted the Medical Marihuana Facilities Licensing Act (“MMFLA”) establishing commercial medical marihuana facilities for the first time, the State of Michigan has created an agency, the Bureau of Medical Marihuana Regulation (“BMMR”), and directed the BMMR to establish emergency rules for the upcoming deadline when applicants can first apply for state licensure to operate a commercial medical marihuana facility. The BMMR released its rules, totaling 51. All of the rules are important in understanding this newly authorized use, but there are 10 rules that standout for townships learning how Michigan’s Medical Marihuana program will proceed. This E-Letter highlights those 10 rules and discusses the potential impacts they may have on townships.

A.  Overview of the BMMR

The Medical Marihuana Facilities Licensing Act (“MMFLA”) establishing commercial medical marihuana facilities required creation of the BMMR. This state agency is charged with administering the state licensing of commercial medical marihuana facilities. We discussed the BMMR and its recent bulletins in our October E-Letter. (Click Here to read the October 2017 E-Letter). The MMFLA established December 15, 2017 as the deadline when the BMMR had to accept applications. In anticipation of this date, the BMMR adopted emergency rules on December 4, 2018. The rules are set to expire in 6 months; in the interim the BMMR can adopt final rules through the notice and comment process. Many estimate that the rules will be extended beyond the current 6-month expiration deadline.

The rules consist of 51 specific rules which are available on the BMMR’s website: (Click Here). All of the rules issued by the BMMR are helpful for a township to review whether or not the township has currently adopted a medical marihuana ordinance for multiple reasons. The rules help any township understand (1) the roles that the State and the BMMR will play in issuing licenses and enforcing compliance with the MMFLA and the rules; (2) how BMMR perceives the commercial medical marihuana industry will operate within the State; and (3) the role that townships play in authorizing and approving facilities within their respective jurisdictions. This is significant for even townships that have not adopted ordinances permitting medical marihuana within its own boundaries as medical marihuana may still be transported through a non-participating township, consumed in a non-participating township, or authorized along a non-participating township’s border.

B.  Top Ten BMMR Emergency Rules Every Township Should Read.

I.  Rule 4: Application Procedure.

An applicant submitting an application to the BMMR has two stages that must be completed. The BMMR has provided its own application form, which provides the details. The application process is available electronically. The two stages are split into: (1) prequalification process, and (2) final location and approval process. It is understood that an applicant can complete stage one without locating within a specific municipality. Completion of stage 2, however, includes approval of the final location. This will require a township to provide certain attestation forms and its ordinances as further discussed below.

II.  Rule 6: State Application Requirements.

Rule 6 explains the specific items that an applicant must disclose in requesting issuance of a state facility license. The detailed information requested by the BMMR evidences the extensive review that will be conducted by the BMMR. This includes disclosure of any direct or indirect ownership interest (i.e., members and nonmembers of the applicant corporation), tax information, property ownership information, financial statements of any monetary deposits held by the applicant, a CPA-attested financial statement, business information, and a facility plan. As part of the application process, applicants will be required to submit evidence that the township has adopted an ordinance consistent with the MMFLA, description of any zoning regulations, and an attestation form from the township clerk.

The application requirements evidence that the BMMR will be collecting a vast amount of information from the applicants to assure a legitimate business practice. The requirements also indicate that townships who have opted in will have to be contacted by any applicant applying to the BMMR, and thus will have notice of the applicants attempting to receive approval in their jurisdiction. Many townships – whether or not participating – should find the depth of information sought and reviewed reassuring.

III.  Rule 11: Capitalization Requirements for Applicant of Marihuana Facility.

In an effort to ensure that applicants are adequately capitalized and able to properly finance a commercial facility that satisfies the MMFLA and the rules, the BMMR has required certain capitalization requirements. This means that the applicant must disclose financial resources sufficient to meet the following capitalization requirements:

a.         Grower: Class A – $150,000.00.

b.         Grower: Class B – $300,000.00.

c.         Grower: Class C – $500,000.00.

d.         Processor: $300,000.00.

e.         Provisioning Center: $300,000.00.

f.          Secure Transporter: $200,000.00.

g.         Safety Compliance Facility: $200,000.00.

The total capitalization requirements can be satisfied by resources other than cash, including a small amount based on the value of marihuana inventory and equity in real property, supplies, equipment, fixtures and other nonliquid assets. The capitalization amounts must be attested to by a CPA. This requirement is designed to ensure that applicants are legitimate. Since these capitalization requirements are necessary to receive a state license, any applicant receiving local township approval will likewise be satisfying these capitalization requirements, which is a great benefit to townships—especially those participating under the MMFLA.

IV.  Rules 38-39: Marihuana Plant Tracking, Marihuana Product Sale or Transfer.

Many townships, regardless of whether they have opted-in, are concerned about commercial medical marihuana entering the black market. Given the capitalization requirements and currently limited number of local jurisdictions issuing permits, the risk of losing a commercial license potentially outweighs shifting marihuana into the black market. Even despite the incentive for compliance with the MMFLA and rules, the rules have extensive packaging and tracking requirements for marihuana that should hinder this potential.  Tracking and labeling requirements are set forth in various provisions of the rules. Specifically, rules 38 and 39 require RFID tags to be placed on the marihuana plant and products transferred and sold by a provisioning center. This information includes the name of the licensee that is the producer, a unique harvest number, strain name, concentration of THC or CBD and other identifying information so that the product can be identified from the original source (i.e. the grower or processor, the specific batch or plant). The RFID tags and related information are tracked in a statewide software system theoretically allowing a marihuana plant to be tracked from seed to sale.

V.  Rule 26: Inspection of Facility Building by State.

The BMMR contemplates physical inspections to verify the “safety, security, and integrity” of the proposed facility. The BMMR intends to complete these inspections and verify compliance with the rules through its own investigators, agents, auditors and the State Police. These inspections are further set forth in Rule 26 where any applicant’s facility may be inspected by a state building code official, state fire official, or code enforcement official. Rule 26 prohibited a licensee from operating a commercial facility unless a permanent Certificate of Occupancy has been issued from the appropriate building department. Importantly, the BMMR even contemplated licensees who intend to operate a currently existing facility, since the Rules specify that use of an existing building as a marihuana facility is a change of use and requires obtaining a building permit. Thus, township concerns of applicants converting current existing structures into commercial facilities without obtaining permits are addressed in the rules. The physical inspections reassure that applicants will comply with the building and fire codes.

VI.  Rule 29: Plant Testing Procedures.

Many concerns regarding non-commercial grow and processor operations have centered on potential herbicides, molds and toxins being consumed by the patient when using medical marihuana. The testing procedures in the rules require that a marihuana plant be tested by a licensed safety compliance facility and receive a passing result before it can be packaged and transferred. Similarly, a processor cannot transfer or sell a final package until after it has received a passing test. The sampling requirements are set forth in Rule 32. The BMMR has already issued additional clarification regarding the testing procedures as it is understood to be very complex to test for all of the characteristics identified in the rules. Even though there are may be initial testing difficulties, this process ensures that marihuana with only safe active ingredients is reaching caregivers and patients.

VII.  Rule 19: Temporary Operation of Facilities.

Rule 19 allows a proposed marihuana facility to operate under Rule 19 (1)(b) if the facility is “within a municipality that has adopted an ordinance pursuant to section 205” or has an ordinance pending for appeal “before December 15, 2017.” The applicant must submit an “attestation on a form” established by the BMMR. The form will require the clerk of the municipality to confirm that an ordinance has been adopted, or will be adopted, the limitations on the types of licensees and the signature of the clerk confirming that the applicant is authorized to temporarily operate the proposed marihuana facility.

This rule allows a township to permit temporary operation prior to any state license approval. It is an exception to the rule and presents significant risk for an applicant. Under the rule, an applicant would only need to be approved for a township’s local permit and submit the attestation form to be completed by the township clerk. The operation can only continue until June 15, 2018 according to the rule. At that point, the BMMR will have either denied or granted the applicant’s state license. If it is denied, then the applicant will need to stop operation as he or she is in violation of the law.

VIII.  Rule 22: Stacked License Class C Growers.

A Grower Facility-Class C can be stacked with other Class C facilities approved by the BMMR. This means that five Class C grower facility licenses can be stacked at the same location. A single Class C license allows the growth of 1,500 plants. Five licenses in one location would allow 7,500 plants. Rule 22 does not allow the same benefit to the other commercial facility types. This rule has resulted in site plans being submitted to townships with large grow developments, which does have the benefit of concentrating the grow operation in a single facility.

IX.  Rule 24: Co-location of Facilities Licenses.

The rules provide that a grower, processor, or provisioning center may operate as “separate marihuana facilities at the same location.” The rules define “same location” as “separate state operating licenses that are issued to multiple marihuana facilities that are authorized to operate at a single property but with separate business addresses.” It does not allow the same for safety compliance facilities or secured transporters. This suggest that those two facilities cannot operate at the same location as a grower, processor, or provisioning center. Although it is early to fully see how applicants will structure proposed developments, the industry will likely look to subdivide, create condominiums or divide purchased properties to allow the siting of multiple facilities in a given area.

Rule 24 regarding co-location further complicates locating multiple facilities in a marihuana development by requiring common ownership if the facilities want to transfer marihuana product or money between the marihuana facilities located at the same location without a secured transporter. This provides an incentive for certain facilities to integrate vertically in producing a final product, and eliminates the need of a secure transport. This exception is only allowed for facilities with common ownership.

X.  Rule 35: Storage of Marihuana.

Many townships are concerned about the extensive storage of marihuana, believing it will create theft. The rules require all marihuana inventory to be stored in a limited access area or restricted area. These are areas that exclude patients and caregivers in some respect and the public. The same inventory must also be stored in a safe and secure vault consistent with the requirements of the rules.

— Christopher S. Patterson

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Fahey Schultz Burzych Rhodes PLC, Your Township Attorneys, is a Michigan law firm specializing in the representation of Michigan townships. Our lawyers have more than 150 years of experience in township law, and have represented more than 150 townships across the state of Michigan. This publication is intended for our clients and friends. This communication highlights specific areas of law, and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation.