Government, Health Care, and Law

Medical marijuana industry still hazy

Attorney says money, security issues may continue to plague businesses even as new legislation boosts oversight.

June 2, 2017
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The state is trying to clear the air with new regulations surrounding medical marijuana.

Although Michigan legalized the drug as a form of medicinal treatment by enacting the Michigan Medical Marijuana Act (MMMA) in 2008, questions have lingered regarding exactly who is authorized to grow and consume — and how much.

In September, Michigan passed the Medical Marijuana Facilities Licensing Act, which creates a licensing board to oversee the growth, sale and distribution of the substance. The MMFLA also requires medical marijuana facilities at all stages of the process to obtain an annual license to operate — growers, processors, provisioning centers, secure transporters and safety compliance facilities.

The board will begin taking applications from current and future entities in December.

Chris Spain, an attorney at Smith Haughey Rice & Roegge, said the 2008 MMMA established two classes of people who could grow the drug: primary caregivers and qualified patients. But eligibility isn’t always clear.

“I think there was some confusion as to what you needed to do to be a caregiver, what you needed to have, how much you could grow for each patient,” Spain said. “From the state’s perspective, the regulations weren’t as tight as they are under the new MMFLA, and I think since they did the original act back in 2008, the medical marijuana industry has grown exponentially, not only in Michigan but across the country.”

Although early estimates say this new legislation might allow the industry to generate between $44 million and $64 million per year in revenue for the state of Michigan and create an estimated 10,000 jobs, Spain said there are fundamental financial issues this act won’t change.

Marijuana is listed as a controlled substance under federal law, and money generated from the production or sale of marijuana is illegal federally.

Banks are required to comply with federal law, so taking money from medical marijuana companies requires multiple additional steps to ensure compliance.

To avoid the hassle, certain banks have refused to accept money from marijuana business in some of the states where medical marijuana is legal, Spain said.

“The biggest questions out there are — first, the money, what do you do with the money?” he said. “It’s not like you can walk into Bank of America and deposit all this cash. It’s going to be regulated heavily.”

Spain said medical marijuana operators in Colorado “had all sorts of issues” with handling the money.

“A group of medical marijuana operators tried to charter their own bank, but their application to open a master account with the Federal Reserve (which is required for a bank to operate) was rejected,” he said.

A second money-related complication is with marijuana being classified as an illegal substance federally; marijuana businesses pay up to 70 percent in taxes under Section 280E of the Internal Revenue Code.

“Tax-wise, you’re going to be taxed under the same tax code illegal drug traffickers get taxed under. That’s going to be an issue that will have to be dealt with,” Spain said.

With marijuana businesses often running as cash operations due to their difficulty with banks, Spain said another factor to consider is risk.

“I think a sub-industry that will benefit from medical marijuana growth is the security industry,” he said. “I would think that will be almost like bank trucks, transporting not only the products but the money. In every phase, you will have to think about security — during growing, you will have to worry about fencing and barbed wire. In every process — the grow stage, transport stage, provision center stage, security will be something that will have to enter into the operation’s business plan.”

Spain, who recently lived in California, said he witnessed that state’s entry into the marijuana industry, and security was a hot topic there, as well as in Washington and Colorado.

With the new MMFLA, municipalities will have the power to say yes or no to marijuana facilities in their jurisdiction.

“It is an ‘opt-in’ provision, meaning that if a municipality wants to allow a facility, it must enact a specific ordinance authorizing the operation,” Spain said. “If a municipality does nothing, the law states that medical marijuana facilities are not allowed.

“If a municipality allows a facility in its jurisdiction, the municipality is authorized under the MMFLA to charge an annual, nonrefundable fee of up to $5,000 and adopt further ordinances related to the facility (for example, zoning), as long as it is within the municipality’s jurisdiction.”

Opting in would generate income for both sides of the equation, Spain said.

“There’s money to be made, both on the private sector side and on the state side. The municipalities that opt in under the state regulations are set up to make a lot of money, in tax revenue and revenue from licenses.”

Since the legislation passed, Spain said he has heard from several clients and friends of clients who want to apply for a facility license, and the firm expects to advise on a “floodgate of applications” before the deadline in December.

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