Givens Shares Multi-State Licensing Adventure ~Ken Wachsberger

Cannabis licensing attorney Paula Givens, Women Grow-Southeast Michigan’s July speaker, has written license applications for medical and/or marijuana cultivation facilities and dispensaries in Illinois, New York, Oregon, Pennsylvania, Ohio, and Arkansas. She has provided the legal and compliance infrastructure necessary to help start-ups become licensed. She has a mantra that guides her actions and her advising: “Compliance, compliance, and more compliance.”

“If licensees get and stay compliant there is hope for a bright future for them and the industry as a whole.”

The Cannabis Experience in Other States

According to Givens, the challenge faced in each of those states, except for Oregon and Colorado, was that the number of licenses was limited and as a result, the applications were complex. She notes applications she recently submitted in Pennsylvania and Ohio were nearly 200 pages in length and included the following sections:

  • Employee qualifications and staffing plan
  • Security and surveillance
  • Transportation
  • Storage
  • Packaging and labeling
  • Inventory management
  • Waste disposal
  • Diversion prevention
  • Growing practice
  • Nutrient and additive practice
  • Processing and extraction
  • Sanitation and safety
  • Quality control and contamination testing
  • Recordkeeping

Other applications she has written require additional items, including a financial plan, a business plan, an adverse event and recall plan, a regulatory compliance, and a projected operational timetable.

“The GREAT news is that Michigan’s application will not be as complex as the applications in other states like Pennsylvania or Ohio, where the number of licenses is limited. The bad news is that licensees will need every single plan described above to operate their business well and in compliance with state law and the forthcoming regulations.”

In what other ways do other states’ models compare to ours:

  • Taxation: Other states have higher tax on cannabis. Washington has a 25% excise tax. Most often, the tax on recreational is greater than on medical.”
  • Security:Our regulations will be similar to all other states that regulate marijuana.”
  • Plant limiting:“Michigan has a low plant count per canopy space for growth. In Oregon’s recreational program the licenses are from 1 to 5,000 square feet and from 5,001 and 10,000 square feet of canopy space. In Ohio the law allowed for 25,000 square feet of canopy space. Few states regulate by the number of plants like Michigan. In Illinois, Nevada, New York, Colorado, and many other states there is no limit on size of facility.”
  • Packaging and labeling:“Our regulations will be similar to all other states that regulate marijuana.”
  • Transporting:“Michigan is unique in its demand that an independent transporter transport marijuana. All states regulate transportation heavily, but not to the point of demanding an unrelated third party transport it. This is the most worrisome part of Michigan’s law as it will inject unnecessary cost into the medicine.”
Just How Complex Is Michigan’s Application Procedure?

Givens anticipates that the complexity of getting a license will be somewhere between the Oregon recreational application and the more complex applications from states where the number of licenses is limited. For instance, every license holder will be required to have a security plan, waste plan, inventory control plan, and likely recordkeeping plan.

The administrative rules, she says, will still be exacting. All medical marijuana businesses will need a secure storage plan, packaging and labeling plan, nutrient and pesticide practice plan, diversion prevention plan, and others—but very likely these will not be required as part of the application process.

“Being compliant with every rule once they become operational is going to be difficult for many business owners,” she predicts, “as I expect the rules to be detailed and extensive, and many in Michigan who have operated in the ‘grey market’ are not used to this type of substantial oversight.”

Once these licenses are obtained the key to a successful marijuana business will be “a good product and an even better compliance program. Great bud without an equal measure of compliance will end badly for business owners.”

Although no costs have been announced by the department, Givens says $5,000 for the state is being thrown around as the license fee. It isn’t clear what the application fee will be. She also cautioned attendees to be on the lookout for a “mystery administrative fee,” which will be “whatever they think they need divided by the number of applicants they think they’ll get.” She hopes this administrative fee will not exceed $5,000.

Online applications will be issued beginning December 15 of this year but she doubts the state will be able to process all of the applications immediately. “The department is going to be overwhelmed by the number of applications,” she says.  Givens predicts the department will receive 1,000 applications in the first year.  “I think if they issue the first license by April they’re being efficient.”

“Applications should be processed according to both date of receipt and category. The state will select some cultivation applications to process first, but they will not process all of them immediately. Then probably laboratory and transportation next, but again not all. The goal will be to select a representative grouping from all possible license categories so that there is a representative sample among each of the five licensees in the first to market.”

As a result of the new rules, Givens sees an emerging cannabis community that soon will be divided among caregivers and licensed business owners. “First, dispensaries, at some point next year, will cease buying from caregivers and will only purchase product from other licensees. Second, the big players will come in from out of state using their years of experience to push around Michigan start-ups to gain market share. Small cannabis business owners in Michigan will be distinguished from the multitudes of big out-of-state players by the quality of product. There will always be a market for good cannabis.”

Paula’s Dozen Hot Tips for Future License Holders
  1. It is not too early to begin planning now.
  2. If you are speculating on real estate, make sure you are 1,000 feet from a public school, day care, public park, public housing, and possibly a church or liquor store. That way you will be safe no matter what policy the municipality or state enacts.
  3. Be very careful with your plant counts and weight. The finish line is near and it would be terrible to have a visit from state or local police to your garden before you are able to apply for a state license;
  4. Learn about IRS Section 280E (26 U.S Code Section 280E) and its impact on your future licensed marijuana business. There are no federal tax deductions in cannabis businesses and this heavily impacts the profit margin, particularly in dispensing, which becomes almost unprofitable when filing a 280E compliant tax return.
  5. Start building your brand now. It is never too early.
  6. Skilled cannabis business people must protect themselves and their products by “getting it in writing” long before they cash any checks. Get a lawyer to review your agreements.
  7. Designate one person to communicate with the state.
  8. Employees must have their marijuana workers’ cards before they may work for you.
  9. Don’t apply as an individual because of liability laws. The corporate entity shields you.
  10. In Michigan they will look at your spouse. No other state does this.
  11. They will tell you what may be your maximum dose. If you are a processor, hire a chemist who understands the distillation process and can help you get the right viscosity and precision dosing to go into your manufactured. Your product must be dosage-exact.

As far as any imperfections in your legal background, she concludes, “They won’t ask only about convictions. They’ll also ask about arrests, which is far broader than what they prohibit. Better to tell them up front than to explain why you didn’t tell them after they catch you. Do your own background check in advance from the state police. See if that old arrest shows up. If it does your failure to disclose it could cost your business the opportunity to become licensed.”

Ken Wachsberger, editor of Bloom Blog, is an author, editor, and book coach, and the founder of Azenphony Press.