It took eight years, but a regulatory framework for growing and selling medical marijuana in Michigan has been finalized at last. Unfortunately, the regulations favor over-regulation — something that Cannabiz Media reveals as a factor that limits the growth potential of marijuana-related businesses in its upcoming reference guide, Tracking Marijuana Licenses State by State: 2017 Edition (click here to be notified when the guide is available).

The new regulations bring a complete state licensing structure to Michigan with five types of licenses available:

  1. Grower licenses
  2. Processor licenses
  3. Safety Compliance Facilities licenses
  4. Transporter licenses
  5. Provisioning Center licenses

The Trickle Down Effect in Michigan

In addition to over-regulation, another factor that affects the growth potential of a marijuana-related business that is discussed in detail in Tracking Marijuana Licenses State by State: 2017 Edition is the trickle down effect. In simplest terms, the trickle down effect happens when fees, taxes, and other regulations that increase the cost of doing business are passed on to consumers in the form of higher prices.

Highly Regulated Seed-to-Sale Tracking

Opponents of Michigan’s new regulations argue that the highly regulated seed-to-sale tracking required under the new rules will cause legal medical marijuana prices to go up. As a result, patients might prefer to buy on the black market where prices are lower. This is something Cannabiz Media identified as already happening in multiple states in its upcoming reference guide.

Marijuana License Fees

Grower licenses are capped at 500 plants under the new Michigan regulations with a fee cap of $10,000 or less for licenses. According to MiBiz, proponents of the new regulations believe these caps make Michigan’s marijuana industry “small business-friendly” because the licensing fees are much lower than they are in many other states.

However, while Michigan’s Department of Licensing and Regulatory Affairs sets the fees for marijuana licenses, these fees are in addition to fees required by local municipalities. In other words, fees add up, and businesses pass them on to consumers by raising prices for medical marijuana.

Taxes

Taxes will also add to the trickle down effect in Michigan. A 3% tax will be levied on gross sales at dispensaries, which will generate $21.3 million per year to be split among four entities (30% for the state, 30% for counties with a medical marijuana facility, 25% to local units of governments with medical marijuana facilities, and 15% to state and local law enforcement.) Dispensary sales might also be subject to sales tax, which could add another $42.7 million in tax revenue that would be split between schools, local revenue sharing, and a general fund.

Lawmakers claim that the tax on medical marijuana will be eliminated when recreational marijuana is legalized, but of course, there is no guarantee on that. In the meantime, medical marijuana patients’ prices will go up to offset these taxes for businesses.

Local Rules Create More Obstacles

Another finding in Tracking Marijuana Licenses State by State: 2017 Edition shows that local rules can have a significant effect on the growth and profitability potential of a marijuana business. In fact, state vs. local rules creates a burden for marijuana businesses in numerous states.

In Michigan, the new bill includes a local opt-out provision. That means a local municipality could choose to not allow marijuana businesses within its borders even if those businesses have state-issued licenses. MiBiz reports that Grand Rapids, the second largest city in Michigan, currently does not allow marijuana dispensaries to operate within its borders and has no plans to change that regardless of the new statewide regulations.

Not only does this make it more difficult for patients in Grade Rapids to access medical marijuana, but it also leaves a market with consumer demand wide open with no businesses able to serve it locally.

The Future of Michigan’s Medical Marijuana Industry

There is no doubt that there is a demand for medical marijuana in Michigan (voters approved the use of medical marijuana eight years ago), but accessing it and paying a reasonable price for it (i.e., less than or equal to prices in the illegal market) might be difficult for patients in the state.

Strict regulations, fees, and taxes add to the price consumers will have to pay to purchase medical marijuana legally, and local rules can make it even more difficult for marijuana businesses to operate under the new regulatory framework.

All hope isn’t lost for Michigan. The state does cover the most important condition for industry growth (chronic pain), which increases patients’ access to medical marijuana. However, as we’ve seen in Minnesota and identified in Tracking Marijuana Licenses State by State: 2017 Edition, tight regulations can make marijuana businesses unprofitable.

We’ll have to wait and see how this plays out in Michigan. What do you think about the state’s new regulations?

To be notified when Cannabiz Media’s state-by-state marijuana licensing report is released, add your email address here.