Mom and pop could be squeezed out of Michigan’s marijuana industry 

Attorney Clarence Dass addressed the crowd assembled at the Reserve in Birmingham for Howard & Howard's "The Business of Cannabis conference": "All of you are going to be very wealthy people."

That is yet to be seen as the state rules for the medical marijuana regulation and distribution system take form. However, as we learn more about discussions taking place with the Medical Marihuana Licensing Board, it's starting to look like you may have to already be wealthy to get into the game at all. Proposed rules, leaking out from committees, suggest that some businesses will have to have up to a half-million dollars in liquid assets (cash) just to get into the game.

Numbers recently announced by the state Bureau of Medical Marihuana Regulation suggest that recipients of Class C grower licenses (up to 1,500 plants) will have to have $500,000 on hand. Class B licenses (1,000 plants) come in at $300,000, and Class A licenses (500 plants) come in at $150,000. Provisioning centers will be required to maintain $300,000.

By comparison, the state requires $50,000 of liquor store owners.

"I didn't think the numbers were going to be that high going into this," says Jamie Lowell, owner of Third Coast Compassion Center in Ypsilanti — the first licensed, openly operating facility in the state. "I don't really know where those numbers came from. Obviously the lower you go the more participation, and that's what I personally would like to see."

Those numbers aren't written in stone and Lowell hopes the state board brings them down, as an activist fighting for the 2008 Michigan Medical Marihuana Act and this year's MI Legalize petition effort to put legalization on the 2018 gubernatorial ballot. Most of the grassroots level folks who have been fighting to get this system set up don't have the kind of money necessary to participate.

Andrew Brisbo, director of the Bureau of Medical Marihuana Regulation, displayed some flexibility in saying that the suggested amounts of money are "a starting point for discussion."

It may be a starting point but it has also sent an alarm through the legions of prospective business owners in this precarious new industry.

"I believe that it is tragic that the very people that created this industry are being pushed out," says George Brikho, a cofounder of Evergreen Management, a consortium of various marijuana and related businesses. "Adding these ridiculous fees to existing costs was only geared by the special interest groups that Evergreen has been fighting through the legislative process."

Brikho specifically named the beer, wine and liquor distribution industry as supporting provisions to keep smaller mom and pop businesses from the core of the industry.

"We did our best to make it as small-business friendly as possible," Brikho says. "They want to snuff out the very people who created this industry."

His fear is that the usual arc of capitalism, wherein small markets spring up and are nurtured by an industry until it grabs the attention of big corporate interests, is ready to come in and rake up the mega profits. In a practice known as stacking, one entity can own more than one license. Michigan will allow stacking. That means, for instance, that while the most plants a grower can get a license for is 1,500, one entity might own enough licenses to grow 150,000 plants. And when you get into the economics of scale, it's going to be pretty tough for mom and pop to compete with the purchasing power, lower prices and volume of goods the big companies can leverage.

And none of this even addresses the cost of licenses from the state and municipality, property costs, setup fees, equipment (lights, etc.), inventory, payroll, and more. You're going to have legal fees because anybody who steps into the legal morass of the marijuana business without a good lawyer's advice is foolish.

One of the conundrums of that legal maze, perhaps the primary conundrum, was addressed by a participant at the Howard & Howard conference. He seemed dumbfounded at the fact that even though there is a medical marijuana system up and running, it's federally illegal. He came back to the point a few times just to be clear that after you get your local permission and your state certification and put all your money down that it's possible that the feds could arrest you and take all your property.

Yes, it can happen — even though you get permission to operate from the city and the state!

And based on the way things are going in Washington these days, we have little guidance as to which way this medical marijuana thing is going to swing. The feds are still hanging on to the claim that marijuana has "no accepted medical use" while people across the country are using it to control seizures, cancer, and pain — just to name a few.

I don't know how these things usually go when a new industry springs up. Or if there is anything usual about the path marijuana is traveling. But it seems pretty clear that folks who want to come in from the cold in the marijuana business better bring a lot of cold, hard cash with them.

Actually, that's another of the problems with the marijuana business maze. Since banks are regulated by federal law, mostly they don't touch marijuana businesses due to drug money laundering laws. It's pretty much cash only.

In view of this issue, director of the state Licensing and Regulatory Affairs Shelly Edgerton, who I have seen three times at marijuana events trying to help people understand what is going on, said at the MMFLA Application Primer and Participant Conference at the Kensington Hotel in Ann Arbor that LARA will be accepting cash when it begins taking applications on Dec. 15.

There was also discussion at the Ann Arbor conference that some new banking products are being developed for marijuana businesses in Michigan so that people don't have to walk around with giant wads of cash in their pockets. But that is for another discussion.

Dec. 15 also seems to be the date that marijuana storefronts need to shut down in order to be considered for a state license under new regulations.

"As far as the state is concerned, they say if you're open past Dec. 15 there could be an impediment in your application," says Lowell. Lowell has been a principal in putting on these conferences and has been in contact with LARA's Edgerton, so I'm inclined to believe his take on this. Some storefronts have closed already in order not to annoy folks at the state. Do what you feel is necessary, but it seems like there shouldn't be any problem until Dec. 15.

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