A Marihuana Microbusiness license allows an applicant to obtain three marihuana licenses in one: a grow license, a processing license, and a retail license.1 With this benefit, however, comes the regulations and restrictions of all three licenses.2 So, there are certainly pros and cons in the microbusiness license. Let’s take a deeper dive into the various aspects of the marihuana microbusiness license a potential applicant should consider before applying.
The Michigan Regulation and Taxation of Marihuana Act (“the Act”), which decriminalized and legalized recreational marihuana use, states that a microbusiness license allows on a licensed premises, (1) the cultivation of up to 150 marihuana plants; (2) the possession, processing, packaging storing, or testing marihuana from marihuana plants cultivated on the premises; (3) the selling or otherwise the transferring of marihuana cultivated or processed on the premises to a person 21 years of age or older or to a safety compliance center; and (4) the compensation for goods or services.3 This microbusiness license would therefore allow the cultivation of up to 150 marihuana plants, which is 50 more plants than a Class A Grow License. A microbusiness licensee, however, may not sell or otherwise transfer their cultivated marihuana to another marihuana establishment.4
Holding a microbusiness license will lock you out of other types of marihuana licenses offered by the State.
It is important to note Section 333.27959 of the Act states that no person may hold an ownership interest in both a microbusiness and any of the following: grower license, processor license, retail license, safety compliance facility license, or marihuana secure transporter license.
5 Thus, for example, an LLC that owns a microbusiness will not be able to obtain a grower license; the LLC is essentially limited to the microbusiness license. There is an argument, however, that a member of an LLC that owns a microbusiness could obtain other types of licenses. Nevertheless, is applying for a microbusiness license actually worth it?
Applying for these licenses at the state level has now become an easier process for applicants. This is especially true due to the elimination of the capitalization requirement. For medical marihuana licenses, the state required applicants to prove, on a per license basis, that they could afford to operate and maintain the particular license applied for. For example, if an applicant sought a provisioning center license under the Medical Marihuana acilities Licensing Act (“MMFLA”), he would have to show $300,000 in capital – 25% of which must be liquid.6 This means that an applicant seeking a provisioning center license must show $75,000 in his own money apart from any loan he may pursue.
For recreational licenses, the state has chosen to remove the capitalization requirement thus making it easier for applicants to obtain the license of their choice.7 This, however, does not mean that anyone can apply. The state, through its emergency administrative rules, still requires applicants to disclose all of their bank and loan accounts, and to give the state permission to review all of their financial information beyond mere bank accounts.8 The removal of the capitalization requirement simply means that the State cannot deny an applicant based solely on lack of capital.
The additional benefit of seeking a microbusiness license is that it is also exempt from the so-called qualification requirement under Rule 9(2)(f). In that Rule (which sunsets on December 6, 2021 and will no longer be applicable for licensing), in order to hold a marihuana retailer, marihuana processor, class B marihuana grower, class C marihuana grower, or a marihuana secure transporter license an applicant would also have to hold a license under the MMFLA to be eligible. The microbusiness license does not require prior licensing under the MMFLA and is exempt from the requirement.9
Beyond the financial aspect of applying, when can you apply and how does the application process work?
The state will begin reviewing applications by November 1, 2019. The Marihuana Regulatory Agency will approve a state license application and issue a state license if an applicant followed the rules of submission and paid the application fee ($6,000), the city acknowledges that the applicant is in compliance with local ordinances, and the property where the proposed marihuana establishment is to be located is not within an area zoned exclusively for residential use and is not within 1,000 feet of a pre-existing public or private school providing education in kindergarten and grades 1-12 unless the municipality adopts an ordinance that reduces the distance requirement.10 Furthermore, there is an “initial licensure fee” for marihuana microbusiness licenses of $8,000.11 This means that a microbusiness applicant will pay $14,000.00 in application and licensure fees plus any legal fees.
A noteworthy addition to the new administrative rules is the determination of renewal fees for retail and microbusiness licenses. The agency will determine renewal fees based on a given licensee’s gross retail sales. The agency will determine whether the gross retail sales made by the licensee are in the top third, middle third, or bottom third in the fiscal year compared against all other licensees for that specific license held.12 For example, if you are a microbusiness licensee, and your gross retail sales finished in the middle third compared to all other microbusinesses, your renewal fee would be $8,000. For the bottom 33%, the renewal fee is $6,000; for the middle 33%, the renewal fee is $8,000; and for the top 33%, the renewal fee is $10,000.13
Another caveat to applying is that a marihuana microbusiness may accept the transfer of medical marihuana plants only once upon licensure from a registered primary caregiver so long as that registered primary caregiver was an applicant for that marihuana microbusiness license as well. 14Therefore, if a microbusiness applicant currently has a medical grow license, and wishes to apply for a microbusiness license, he can bring his plants with him. That way the applicant does not have to regrow all of his plants and essentially has a "head start." However it is still unclear in the rules whether or not the microbusiness can purchase additional marihuana products from other licensees.
Once an applicant has applied for the microbusiness license at the state level, what municipality rules must he follow?
Municipality rules provided for in the Act, unfortunately, are as restrictive as the Medical Marihuana Act. A municipality may completely prohibit or limit the number of marihuana establishments within its boundaries as well as authorize the sale for consumption in areas that are only accessible to persons 21 years of age or older. 15 If they wish, individuals may petition to initiate an ordinance to provide for the number of marihuana establishments allowed within a municipality, or to completely prohibit marihuana establishments within a municipality. 16 Furthermore, municipalities have the discretion to regulate the time, place, and manner of operation of marihuana establishments as well as the production, manufacture, sale, or display of marihuana accessories. 17 The municipality or city, however, may not impose qualifications for licensure that conflict with the Michigan Regulation and Taxation of Marihuana Act or the rules promulgated by the Marihuana Regulatory Agency.18
The Combination of Licenses
The Act and Emergency rules seem to permit a microbusiness licensee to apply for a Designated Consumption Establishment License. A Designated Consumption Establishment License allows a business to permit adults 21 years of age and older to consume marihuana products at the location indicated on the state license.19 This means a person with a microbusiness license may be able to simultaneously apply for a designated consumption establishment license for people to come and enjoy their marihuana on site. In fact, the administrative rules, which established the designated consumption establishment license, says a marihuana microbusiness licensee cannot have both a microbusiness and a grow license, a processor license, secure transporter license, or a safety compliance license.20 Conspicuously absent from this list is a designated consumption establishment license. Furthermore, an open question remains whether a microbusiness licensee, while also holding a designated consumption establishment license, can sell food and drinks on the premises where consumption of marihuana will take place; it appears the Emergency rules merely require city health inspection approval and/or obtaining a food service license.
Earlier in the article it was mentioned that a microbusiness license essentially has three licenses in one: Grow license, processor license, and retail license. But what are these licenses and why is it important that a microbusiness owner be familiar with all three? Well, according to the Emergency rules, a marihuana microbusiness license is subject to all applicable provisions in the Act and the administrative rules related to a marihuana grower, marihuana processor, and a marihuana retailer but is restricted to growing, processing and selling only for its own retail customers and for no one else.22 Furthermore, a marihuana microbusiness, as applicable, must operate the corresponding areas of a marihuana microbusiness in compliance with the operation requirements of a marihuana retailer, grower, and processor.23 A Class A grower is licensed to grow up to 100 marihuana plants – meaning a microbusiness has fifty (50) more plants to cultivate than a Class A grower. A processor is a person or entity licensed to obtain marihuana from marihuana establishments in order to process and package the product (a processor can produce edibles, process the oil from marijuana, etc). 24 Lastly, a marihuana retailer is authorized to sell marihuana to an individual over the age of 21. An applicant needs to make sure that his lawyer explains the importance of complying with all three licenses’ rules and regulations. Do not give the Marihuana Regulatory Agency any reason to administer a violation simply because of the disregard for compliance of all three licenses.
It is still federally illegal, so what other type of compliance/legal issues should I worry about?
The Act and Regulations make clear the authorized use of a few things. Namely, the authorized use of leasing and contracting. The Act asserts that it is not illegal or in any way improper to lease or otherwise allow the use of property owned, occupied, or managed for lawful marihuana activities.25 The Act does state, however, that a person who owns, occupies, or manages a property may still prohibit smoking marihuana. 26 Furthermore, the Act allows a person to prohibit or otherwise regulate marihuana consumption, cultivation, distribution, processing, sale, or display on the property the person owns, occupies, or manages.27 Yet, a lease agreement may not prohibit a tenant from lawfully possessing and consuming marihuana by means other than smoking.28 It is therefore important to make sure lawyers are well aware of these types of leasing issues when negotiating lease terms. Caution should be given to any language in a lease which states that the tenant will not use or permit any person to use the premises in any manner which violates or would create liability under federal, state or local laws, ordinances, rules, regulations or policies. This could result in a basis for a Landlord to terminate a lease agreement. As for all types of marihuana-related contracts, the Act says that it is the public policy of the State of Michigan that contracts related to the operation of marihuana establishments be enforceable.
How Do I Market My Microbusiness?
Due to the overflow of marihuana-related licenses in the Michigan market, a marihuana entrepreneur needs to properly market his business – especially marihuana retailers and microbusinesses. This is where a Temporary Marihuana Event License will help. A Temporary Marihuana Event License allows a marihuana event organizer to plan an event where the onsite sale and consumption of marihuana products are authorized.30 It essentially provides an opportunity for a microbusiness or retailer to advertise their product at an event, and allow consumers the opportunity to test and view the business’s products. To be licensed as a marihuana event organizer, an applicant must fill out a state application, pay a $6,000 application fee, and a $1,000 licensure fee. Once the State grants the license, a licensee will be able to hold temporary marihuana events where only a microbusiness or retail licensee can sell marihuana products to customers.31 Accordingly, while applying for a microbusiness license, applicants should simultaneously apply for a marihuana event organizer license so they can plan temporary marihuana events to market their product.
Should I Be Concerned With Tax and Finance?
When it comes to financial and tax planning, microbusiness licensees should understand, at least generally, how state taxes will operate for marihuana establishments. The Act states that, in computing net income from marihuana establishments, deductions from state taxes are allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying out a trade or business.32 In addition to all other taxes, an excise tax is imposed on each marihuana retailer and on each marihuana microbusiness at the rate of 10% of the sales price for marihuana sold or otherwise transferred to anyone other than a marihuana establishment.33 As a microbusiness owner, make sure employees of the business stay aware that a product subject to the excise tax may not be bundled in a single transaction with a product or service that is not subject to the tax.
Ultimately, a marihuana microbusiness seems like a good investment. The best way to view a microbusiness is to view it in the same light as a microbrewery; the microbreweries (Shorts, Bells, etc) are all popular because they have their own brand. That is precisely what a microbusiness is meant for – a small business that creates, processes, and sells its own brand of marijuana. Because a microbusiness licensee cannot hold any of the other major types of licenses (which is up for interpretation), an applicant must seriously consider whether a microbusiness presents them the best investment opportunity. For those interested in obtaining a microbusiness license, they must anticipate the complex compliance issues of gaining three licenses in one as well as tax and financial planning.
The Michigan Regulation and Taxation of Marihuana Act (“the Act”), which decriminalized and legalized recreational marihuana use, states that a microbusiness license allows on a licensed premises, (1) the cultivation of up to 150 marihuana plants; (2) the possession, processing, packaging storing, or testing marihuana from marihuana plants cultivated on the premises; (3) the selling or otherwise the transferring of marihuana cultivated or processed on the premises to a person 21 years of age or older or to a safety compliance center; and (4) the compensation for goods or services.3 This microbusiness license would therefore allow the cultivation of up to 150 marihuana plants, which is 50 more plants than a Class A Grow License. A microbusiness licensee, however, may not sell or otherwise transfer their cultivated marihuana to another marihuana establishment.4
Holding a microbusiness license will lock you out of other types of marihuana licenses offered by the State.
It is important to note Section 333.27959 of the Act states that no person may hold an ownership interest in both a microbusiness and any of the following: grower license, processor license, retail license, safety compliance facility license, or marihuana secure transporter license.
5 Thus, for example, an LLC that owns a microbusiness will not be able to obtain a grower license; the LLC is essentially limited to the microbusiness license. There is an argument, however, that a member of an LLC that owns a microbusiness could obtain other types of licenses. Nevertheless, is applying for a microbusiness license actually worth it?
Applying for these licenses at the state level has now become an easier process for applicants. This is especially true due to the elimination of the capitalization requirement. For medical marihuana licenses, the state required applicants to prove, on a per license basis, that they could afford to operate and maintain the particular license applied for. For example, if an applicant sought a provisioning center license under the Medical Marihuana acilities Licensing Act (“MMFLA”), he would have to show $300,000 in capital – 25% of which must be liquid.6 This means that an applicant seeking a provisioning center license must show $75,000 in his own money apart from any loan he may pursue.
For recreational licenses, the state has chosen to remove the capitalization requirement thus making it easier for applicants to obtain the license of their choice.7 This, however, does not mean that anyone can apply. The state, through its emergency administrative rules, still requires applicants to disclose all of their bank and loan accounts, and to give the state permission to review all of their financial information beyond mere bank accounts.8 The removal of the capitalization requirement simply means that the State cannot deny an applicant based solely on lack of capital.
The additional benefit of seeking a microbusiness license is that it is also exempt from the so-called qualification requirement under Rule 9(2)(f). In that Rule (which sunsets on December 6, 2021 and will no longer be applicable for licensing), in order to hold a marihuana retailer, marihuana processor, class B marihuana grower, class C marihuana grower, or a marihuana secure transporter license an applicant would also have to hold a license under the MMFLA to be eligible. The microbusiness license does not require prior licensing under the MMFLA and is exempt from the requirement.9
Beyond the financial aspect of applying, when can you apply and how does the application process work?
The state will begin reviewing applications by November 1, 2019. The Marihuana Regulatory Agency will approve a state license application and issue a state license if an applicant followed the rules of submission and paid the application fee ($6,000), the city acknowledges that the applicant is in compliance with local ordinances, and the property where the proposed marihuana establishment is to be located is not within an area zoned exclusively for residential use and is not within 1,000 feet of a pre-existing public or private school providing education in kindergarten and grades 1-12 unless the municipality adopts an ordinance that reduces the distance requirement.10 Furthermore, there is an “initial licensure fee” for marihuana microbusiness licenses of $8,000.11 This means that a microbusiness applicant will pay $14,000.00 in application and licensure fees plus any legal fees.
A noteworthy addition to the new administrative rules is the determination of renewal fees for retail and microbusiness licenses. The agency will determine renewal fees based on a given licensee’s gross retail sales. The agency will determine whether the gross retail sales made by the licensee are in the top third, middle third, or bottom third in the fiscal year compared against all other licensees for that specific license held.12 For example, if you are a microbusiness licensee, and your gross retail sales finished in the middle third compared to all other microbusinesses, your renewal fee would be $8,000. For the bottom 33%, the renewal fee is $6,000; for the middle 33%, the renewal fee is $8,000; and for the top 33%, the renewal fee is $10,000.13
Another caveat to applying is that a marihuana microbusiness may accept the transfer of medical marihuana plants only once upon licensure from a registered primary caregiver so long as that registered primary caregiver was an applicant for that marihuana microbusiness license as well. 14Therefore, if a microbusiness applicant currently has a medical grow license, and wishes to apply for a microbusiness license, he can bring his plants with him. That way the applicant does not have to regrow all of his plants and essentially has a "head start." However it is still unclear in the rules whether or not the microbusiness can purchase additional marihuana products from other licensees.
Once an applicant has applied for the microbusiness license at the state level, what municipality rules must he follow?
Municipality rules provided for in the Act, unfortunately, are as restrictive as the Medical Marihuana Act. A municipality may completely prohibit or limit the number of marihuana establishments within its boundaries as well as authorize the sale for consumption in areas that are only accessible to persons 21 years of age or older. 15 If they wish, individuals may petition to initiate an ordinance to provide for the number of marihuana establishments allowed within a municipality, or to completely prohibit marihuana establishments within a municipality. 16 Furthermore, municipalities have the discretion to regulate the time, place, and manner of operation of marihuana establishments as well as the production, manufacture, sale, or display of marihuana accessories. 17 The municipality or city, however, may not impose qualifications for licensure that conflict with the Michigan Regulation and Taxation of Marihuana Act or the rules promulgated by the Marihuana Regulatory Agency.18
The Combination of Licenses
The Act and Emergency rules seem to permit a microbusiness licensee to apply for a Designated Consumption Establishment License. A Designated Consumption Establishment License allows a business to permit adults 21 years of age and older to consume marihuana products at the location indicated on the state license.19 This means a person with a microbusiness license may be able to simultaneously apply for a designated consumption establishment license for people to come and enjoy their marihuana on site. In fact, the administrative rules, which established the designated consumption establishment license, says a marihuana microbusiness licensee cannot have both a microbusiness and a grow license, a processor license, secure transporter license, or a safety compliance license.20 Conspicuously absent from this list is a designated consumption establishment license. Furthermore, an open question remains whether a microbusiness licensee, while also holding a designated consumption establishment license, can sell food and drinks on the premises where consumption of marihuana will take place; it appears the Emergency rules merely require city health inspection approval and/or obtaining a food service license.
Earlier in the article it was mentioned that a microbusiness license essentially has three licenses in one: Grow license, processor license, and retail license. But what are these licenses and why is it important that a microbusiness owner be familiar with all three? Well, according to the Emergency rules, a marihuana microbusiness license is subject to all applicable provisions in the Act and the administrative rules related to a marihuana grower, marihuana processor, and a marihuana retailer but is restricted to growing, processing and selling only for its own retail customers and for no one else.22 Furthermore, a marihuana microbusiness, as applicable, must operate the corresponding areas of a marihuana microbusiness in compliance with the operation requirements of a marihuana retailer, grower, and processor.23 A Class A grower is licensed to grow up to 100 marihuana plants – meaning a microbusiness has fifty (50) more plants to cultivate than a Class A grower. A processor is a person or entity licensed to obtain marihuana from marihuana establishments in order to process and package the product (a processor can produce edibles, process the oil from marijuana, etc). 24 Lastly, a marihuana retailer is authorized to sell marihuana to an individual over the age of 21. An applicant needs to make sure that his lawyer explains the importance of complying with all three licenses’ rules and regulations. Do not give the Marihuana Regulatory Agency any reason to administer a violation simply because of the disregard for compliance of all three licenses.
It is still federally illegal, so what other type of compliance/legal issues should I worry about?
The Act and Regulations make clear the authorized use of a few things. Namely, the authorized use of leasing and contracting. The Act asserts that it is not illegal or in any way improper to lease or otherwise allow the use of property owned, occupied, or managed for lawful marihuana activities.25 The Act does state, however, that a person who owns, occupies, or manages a property may still prohibit smoking marihuana. 26 Furthermore, the Act allows a person to prohibit or otherwise regulate marihuana consumption, cultivation, distribution, processing, sale, or display on the property the person owns, occupies, or manages.27 Yet, a lease agreement may not prohibit a tenant from lawfully possessing and consuming marihuana by means other than smoking.28 It is therefore important to make sure lawyers are well aware of these types of leasing issues when negotiating lease terms. Caution should be given to any language in a lease which states that the tenant will not use or permit any person to use the premises in any manner which violates or would create liability under federal, state or local laws, ordinances, rules, regulations or policies. This could result in a basis for a Landlord to terminate a lease agreement. As for all types of marihuana-related contracts, the Act says that it is the public policy of the State of Michigan that contracts related to the operation of marihuana establishments be enforceable.
How Do I Market My Microbusiness?
Due to the overflow of marihuana-related licenses in the Michigan market, a marihuana entrepreneur needs to properly market his business – especially marihuana retailers and microbusinesses. This is where a Temporary Marihuana Event License will help. A Temporary Marihuana Event License allows a marihuana event organizer to plan an event where the onsite sale and consumption of marihuana products are authorized.30 It essentially provides an opportunity for a microbusiness or retailer to advertise their product at an event, and allow consumers the opportunity to test and view the business’s products. To be licensed as a marihuana event organizer, an applicant must fill out a state application, pay a $6,000 application fee, and a $1,000 licensure fee. Once the State grants the license, a licensee will be able to hold temporary marihuana events where only a microbusiness or retail licensee can sell marihuana products to customers.31 Accordingly, while applying for a microbusiness license, applicants should simultaneously apply for a marihuana event organizer license so they can plan temporary marihuana events to market their product.
Should I Be Concerned With Tax and Finance?
When it comes to financial and tax planning, microbusiness licensees should understand, at least generally, how state taxes will operate for marihuana establishments. The Act states that, in computing net income from marihuana establishments, deductions from state taxes are allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying out a trade or business.32 In addition to all other taxes, an excise tax is imposed on each marihuana retailer and on each marihuana microbusiness at the rate of 10% of the sales price for marihuana sold or otherwise transferred to anyone other than a marihuana establishment.33 As a microbusiness owner, make sure employees of the business stay aware that a product subject to the excise tax may not be bundled in a single transaction with a product or service that is not subject to the tax.
Ultimately, a marihuana microbusiness seems like a good investment. The best way to view a microbusiness is to view it in the same light as a microbrewery; the microbreweries (Shorts, Bells, etc) are all popular because they have their own brand. That is precisely what a microbusiness is meant for – a small business that creates, processes, and sells its own brand of marijuana. Because a microbusiness licensee cannot hold any of the other major types of licenses (which is up for interpretation), an applicant must seriously consider whether a microbusiness presents them the best investment opportunity. For those interested in obtaining a microbusiness license, they must anticipate the complex compliance issues of gaining three licenses in one as well as tax and financial planning.