Michigan medical pot industry waiting to take shape

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Michigan medical marijuana czar Andrew Brisbo hovered over a table stacked end to end with two dozen bulging accordion folders and banker boxes containing thousands of document pages from a single pot business license application.

“They’re not all this big,” he said of the filing, “but this isn’t the biggest we’ve seen.”

The Bureau of Medical Marihuana Regulation, created one year ago under a 2016 licensing law, is processing hundreds of massive applications from entrepreneurs looking to join what is projected to be a nearly billion-dollar industry. The businesses are estimated to generate roughly $75 million a year in new tax revenue for the state.

Brisbo anticipates the first state-sanctioned medical pot business in Michigan history will win approval to open within the next month or two, but a licensing board has so far approved 12 out of nearly 460 pre-qualification applications filed since December. Businesses also must pass a facility inspection to obtain a license.

The slow pace has frustrated applicants considering major facility or equipment investments. It also poses a threat to existing dispensary owners, who face a June 15 deadline to go legit or risk getting shut out of the legal market.

“We have orders on hold and our suppliers are being very kind to us,” said Tim Schuler, a former wholesaler for Anheuser-Busch who wants to open a medical marijuana transportation company in Pinconning, near the Saginaw Bay in Bay County.

Schuler and a business partner applied for a secure transporter license in February but have gotten “zero feedback” from the bureau and do not know how long they’ll have to wait.

The bureau has 14 staffers reviewing license applications, a 10-stage process that can take months for each case, including a required review by a contract investigation firm and an intelligence work-up by the Michigan State Police. There are another 14 state field staffers involved in the application process.

The goal is a professionalized medical marijuana industry filled with upstanding business owners who meet sometimes-vague requirements of the 2016 licensing law approved by Michigan’s Republican-led Legislature, including high “moral character, integrity and reputation.”

Overseeing it all is Brisbo, a 37-year-old who previously served as licensing division director for the state Department of Licensing and Regulatory affairs, branch manager for the Michigan Secretary of State and a regulation officer with the Michigan Gaming Control Board.

“I’m a bureaucrat,” Brisbo said Tuesday morning after a roundtable discussion with reporters detailing bureau efforts to process applications.

‘Vast’ background checks

Under the statute and subsequent administrative implementation rules, the medical pot bureau is required to conduct a criminal background check, financial background check and character assessment of every applicant, including anyone with an ownership stake.

The reviews are then forwarded to a new state licensing board, which on Thursday approved three pre-qualification applications for two companies seeking to run growing, processing and storefront dispensary operations, and a third planning to transport medical pot.

“There’s not a person in the process that is not frustrated with the pace that we’re at,” said board member Donald Bailey. But given how “voluminous some of these applications can be,” the bureau is doing a “really good job.”

A single application has required information from as many as 39 individuals involved in a business, according to the bureau. Applicants often have multiple bank accounts and must supply at least three years of documentation, including tax returns.

A blank application is 47 pages, but completed filings are often more than 1,000 pages long, according the bureau. As of April 24, 175 applicants sought the second step of the process: A facility review, some of which the state has already completed.

It’s a “complex” process, and the amount of documentation requested by the state “is vast and it’s deep,” Brisbo acknowledged. But the state wouldn’t have implemented the application rules “if we didn’t feel they were good processes and adequate in terms of establishing eligibility.”

“The overarching concerns about the applicants in this industry are true in most states” that license medical marijuana businesses, Brisbo said. “You want to make sure they don’t have any criminal background that should disqualify them, that they don’t have any ties to gangs or cartels or so forth, and I think we’re right in line with what other states are doing.”

June 15 deadline

The application bottleneck presents an obstacle to existing medical marijuana business owners who had operated without state authorization after voters approved medical marijuana use in 2008. Under emergency rules adopted by the bureau, they must be licensed by June 15.

Operating after that date “is a risk” because the licensing board could deny an owner’s application, Brisbo said, but the bureau does not intend to shut down shops with pending applications or refer them to law enforcement officials.

The bureau is “diligently” processing applications based on filing order after many applicants took months to submit paperwork, Brisbo said. The state received 68 applications between Dec. 15 and Dec. 31. More than 250 were submitted in the three days leading up to a Feb. 15 deadline for existing businesses to seek licensure or face closure.

Businesses that met that deadline followed the rules, but “they may have to follow the rules on June 15 as well,” said licensing board Chairman Rick Johnson.

If they are forced to close or are denied licenses, “you’re really going to see outrage from the business owners and patients,” said Bloomfield Hills attorney Michael D. Stein, who is helping roughly a dozen entrepreneurs navigate the process.

Medical marijuana dispensaries and other existing businesses could decide to temporarily close rather than risk being shut out of the industry, said Robin Schneider of the National Patient Rights Association, who is urging the state to extend the June 15 deadline.

“We’d like (an extension) for the patients’ sake so they don’t lose access to medication and return to the black market,” Schneider said.

Changing the rules would require action by the Michigan Legislature or sign-off by Gov. Rick Snyder’s office, Brisbo said. The licensing board cannot change the rules itself, Johnson said.

Anxious entrepreneurs

Entrepreneurs who paid a $6,000 application fee for the chance to join the industry are anxiously awaiting state action even as they consider significant investments in facilities and equipment, Stein said.

“Because of the amount of money invested in these ventures, they are most certainly anticipating their approvals,” he said. “Frustrated might not be the word, but they’re definitely asking questions, trying to figure out what place they are in line and when their application is going to be reviewed.”

Schuler, who is trying to open a transportation middleman firm, said investing in the business is already complicated because of the unique state requirements, which include strict security rules and a seed-to-sale tracking system.

“It’s not just trucks. Each one of these trucks have to be outfitted with a secure division between the driver and the passenger and the product itself,” he said, noting additional security concerns for what is largely a cash-only industry because of federal rules.

Stein has worked with medical marijuana companies seeking licenses in Arizona, Colorado, California and Ohio and said Michigan’s application process includes a much deeper financial review than those states.

“That certainly seems to be what’s holding things up,” he said. “To go through tax returns of high-worth individuals is a daunting task.”

For a limited liability company with five owners, each must submit detailed financial records, including bank accounts and tax returns. It’s common for a wealthy applicant to have 15 to 18 personal and business accounts, according to the bureau. In one instance, a single applicant filed 1,572 pages of tax records.

“I hope they can find a way to streamline the process, even if that means hiring more staff,” Stein said. “At the same time, I know they’re not dragging their feet or taking an excessive amount of time.”

While she is concerned about the impact the June 15 deadline could have on patients, Schneider praised the bureau and said Brisbo has been “outstanding.”

“They’ve had to hire employees, draft rules, set up an entire department, learn about the industry and begin reviewing applications,” she said. “I think considering the amount of workload they have before them, we couldn’t have expected them to do any better than they have.”