An influx of new recreational marijuana businesses could be coming to Michigan some time after Nov. 1.
If that happens, marijuana customers may see lower prices and a greater selection of recreational marijuana. It could also push medical marijuana shoppers, who play an increasingly smaller roll in the Michigan marijuana universe, further to the side.
The Michigan Regulatory Agency is considering doing away with a requirement that any recreational marijuana applicant first possess a medical marijuana business license, a stipulation that’s so far limited access to the recreational market and ensured a certain level of supply and retail options for medical marijuana customers.
“No decision has been officially made, yet,” Marijuana Regulatory Agency Director Andrew Brisbo said. " ... But I’ve mentioned publicly a number of times that we were leaning in that direction of eliminating the requirement.”
Budget forecasters in Lansing are counting on the recreational marijuana industry hitting $1.5 billion in total sales between October of this year and September of 2020, which translates to nearly $240 million in tax revenue for the state. While Brisbo said the market is already on pace to meet that mark, opening it up to more participants is sure to further increase Lansing’s cut, which includes a 6% sales and 10% excise tax. As of July, customers spent more than $200 million on marijuana products since the first stores opened in Ann Arbor on Dec. 1.
Robin Schneider, director of the Michigan Cannabis Industry Association, a trade organization comprised of over 200 marijuana businesses, said the original intent of the medical license prerequisite was to give pioneering companies that assumed risk and invested early a chance to establish themselves and recoup costs before the recreational market was flooded with competition. The first medical marijuana business licenses were issued in 2018 and recreational businesses began opening last December.
The recreational marijuana law, which Schneider participated in the drafting of, left the medical license prerequisite in place for two years after the first applications were received. While most accepted this would mean stand-alone recreational marijuana businesses would be barred from the industry until after Nov. 1, 2021, there was a caveat.
The 2018 voter-passed law said the state could do away with the requirement one year after the first recreational business applications were received in order to curb the black market, increase access to rural communities or to satisfy supply shortages.
Brisbo said doing so in November would serve to do all those things.
Marijuana access in rural areas is improving with increased delivery options but remains sparse, Brisbo said. He believes elimination of the prerequisite would allow the regulated market to grow, thereby reducing any existing reliance on black market products.
“And the greater number of operators and the more competition there is, that would tend likely to reduce prices through the supply chain and at the retail level,” Brisbo said. “We certainly aren’t meeting demand yet, but I think it is important to consider the pace of growth in the regulated market and whether that is consistently increasing to meet that demand at some point in a reasonable time frame.”
Brisbo said a byproduct of eliminating the medical license prerequisite would be greater access to social equity. Built into the law is a requirements that the industry assist Michigan residents and communities who’ve been disproportionately impacted by prior marijuana prohibition, such as those previously convicted of marijuana possession crimes. Some social equity efforts have included licensing and application fee reductions and free assistance with license submissions or business plans.
Elimination of the medical license prerequisite would lower the initial cost for new businesses to enter the market. Brisbo also noted that some would-be recreational business owners are barred from the market because of their criminal records.
While the marijuana legalization law allows those convicted of marijuana possession or distribution crimes to apply for recreational licenses, the medical law does not. Since you need a medical license before applying for a recreational license, those applicants are effectively cut off from the recreational market that’s seeking to include them.
“The requirements for eligibility on the adult-use side are not as strict as those on the medical side,” Brisbo said. The recreational licensing law only blocks someone who’s been convicted of distributing controlled substances to a minor, “whereas the ineligibility provisions related to convictions in the (medical licensing rules) are more strict.”
In Detroit, where medical marijuana businesses already operate, leaders have blocked recreational business. Councilman James Tate Jr. said this because creating a framework that encourages the inclusion of local residents most harmed by prior marijuana prohibition has proven difficult.
The Green Door in downtown Bangor, Michigan on Monday, Feb. 24, 2020. The shop opened medical marijuana sales in 2017, today is the first day they are selling recreational adult-use marijuana. Joel Bissell | MLive.com
Members of the Michigan Cannabis Industry Association are split on whether the change should occur.
“Stand-alone retailers are going to say we need more production licenses on the rec side,’ Schneider said. “If you are a medical grower or a vertically integrated grower, you’re probably not going to be as supportive.”
There are several behemoth companies in the market that hold licenses to grow tens of thousands of marijuana plants. They’re able to leverage limited supply in a high-demand, slim-pickings market, which can artificially increase prices retailers and their customers pay for marijuana.
According to state monthly statistical reports, the average retail cost of an ounce of marijuana has risen $85 in six months, from $311.96 in January to $397.70 in June.
Steve Linder is director of the Michigan Cannabis Manufacturers Association, which advocates for some of the industries largest companies representing over $400 million in investments, said his members are against eliminating the medical license prerequisite.
“Because it’s a regulated industry, you have to assume the rules that manage the structure of the industry are enforced as they’re written,” he said.
Linder points out inconsistency in the clause that allows the Marijuana Regulatory Agency to eliminate the prerequisite, noting that it is included in the language original law but left out of the more-expansive set of permanent rules that the Marijuana Regulatory Agency put into effect this summer. He also questions the fairness, since his members approached their business plans and investment strategy with certain assumptions, one being that the market space would be limited until November 2021.
In order to meet booming recreational demand, the state began allowing medical marijuana to be transferred for recreational sale. Retailers are allowed to transfer 50% of any marijuana for recreational sale once it’s been in inventory for 30 days. Medical marijuana processors and growers are allowed to transfer 50% of any harvested marijuana or finished produces for recreational sale.
Much of the marijuana on store shelves that’s for purchase by the general public originated under medical licenses and was later transferred for recreational sale.
There are nearly twice as many recreational marijuana stores as there are recreational growers, and multiple businesses that possess grow licenses supply only their own retail locations.
The dynamics of the growing industry can make it difficult for independent retailers, like Freddie’s in Clio, to get the marijuana products they and their customers want.
“The demand, as far as recreational availability, I can tell you is not being met,” said Freddie’s general manager Brett Stephens. This change would be “an alteration to meet the demands of the adult-use customer statewide.”
In an effort to combat its own recreational marijuana shortages, Freddie’s is currently seeking a recreational marijuana growing license of its own.
Stephens said it’s a constant battle to acquire marijuana and marijuana products, especially popular vaping cartridges that came under heavy regulation following a health scare last year.
While he sees the proposed changes increasing the size of the recreational market, he fears what it will do to the medical marijuana market.
“What I don’t like about it is the medical customer, they were advocates for the industry this entire time,” he said, “so I would just like for them not to be forgotten, but I think there is a happy medium between the two ideologies and the two customer bases.”
Stephens said only about 5% to 15% of the customers he serves are registered medical marijuana patients. While the same products are generally available for both recreational and medical consumption, medical customers usually have access to lower-priced marijuana and are not required to pay an excise tax.
The number of registered medical marijuana patients, 246,000 as of June, is dwarfed by the 6 million-plus, 21-and-up Michigan residents who make up the possible recreational market. The medical marijuana market has shrunk by 20,000 registered patients and 3,500 registered caregivers since January.
More on MLive:
Michigan businesses licensed tow grow over 500,000 plants
Marijuana thrives in market changed by the coronavirus
Spouses of licensees may be able to work for government
A prior marijuana conviction could be a good thing
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