January 30, 2019

Slow Retailer License Approval Process Results in Michigan Regulators Changes Requirements for Product Sourcing


Michigan regulators have announced that they would once again seek to change allowances regarding inventory produced by registered caregivers, while also permitting applicants that have not yet received their state licenses, but have met other criteria, to reopen and do business with licensed operations.

At the beginning of this year, Michigan regulators compelled roughly 70 dispensaries – called “provisioning centers” in state rules – to shut down. Those dispensaries had submitted applications for a state license and had been running under temporary authorization for much of 2018. However, the slow pace of the state’s Medical Marihuana Licensing Board (MMLB) in issuing permits meant that only about 50 dispensaries out of several hundred applicants received state licenses last year and were eligible to continue operating when 2019 began.

Prior to imposing and enforcing the December 31, 2018 licensing deadline, the Michigan Department of Licensing and Regulatory Affairs (LARA) recommended that dispensaries be allowed to sell product obtained from registered caregivers through the end of January, as long as it was tested according to new requirements. As a result of LARA’s recommendation, licensed cultivators were technically allowed to obtain product from caregivers through the end of February, but again must have it tested prior to transferring it wholesale.

Despite these allowances, reports from MLive and the Detroit News describe bare shelves at some dispensaries, while others that have licenses have shut down voluntarily for lack of inventory. According to the reports, dispensary owners have been balking at high asking prices, choosing instead to close their doors until more product is available at better rates. Whether cultivators have taken advantage of the allowance to bring caregiver product into the regulated market is unknown, but the high costs of meeting new compliance requirements, obtaining a license, and getting up and running mean that many may not have large amounts of excess cash on hand to engage in such deals.

In response to the situation, LARA issued a notice, stating that it will recommend to the MMLB that it adopt a new resolution designed to increase patient access and available inventory. LARA’s recommendations will allow the roughly 70 dispensaries that were operating under temporary authorization last year to reopen through the end of March.

Additionally, dispensaries will in the same period be permitted to obtain product from registered caregivers and from unlicensed facilities under temporary authorization. Prior to LARA’s new motion, dispensaries have since the start of this year been restricted to obtaining product only from licensed cultivators, many of whom are still working to get up and running fully. Furthermore, dispensaries will be able to sell product purchased from caregivers and temporarily operating businesses without having it tested according to requirements now in effect, if patients are willing to sign a consent form.

Finally, cultivators and processors will also be allowed to purchase inventory from caregivers and temporarily operating facilities through the end of March but may only transfer products that have met all of the state’s new testing requirements. Notably, LARA has already issued four recalls this year of product that has either failed testing, or entered commerce without undergoing required screenings. If product is unable to meet stringent testing requirements, then available supply could be crimped even more than it reportedly is already.

It should also be pointed out that with so few dispensaries open to serve the state’s roughly 300,000 patients, it is likely that many do not have convenient access to a licensed storefront, even if the 70 businesses compelled to shut down at the start of the year do reopen. Prior to local and state regulators attempting to reign in the state’s long standing informal medical market, hundreds of dispensaries operated across the state; in Detroit alone there were nearly 300, more than twice the number of currently licensed dispensaries and those just authorized to reopen temporarily combined. The contraction of dispensaries in Michigan, whether licensed or not, has likely pushed a significant number of patients to obtain product from caregivers or other unlicensed sources, reducing demand in the regulated market.

The MMLB adopted LARA’s recommendations at its meeting on Thursday, January 16th, according to MLive. Whether the new measures put forward by LARA will ameliorate the issues plaguing Michigan’s nascent regulated cannabis market remains to be seen.