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ECONOMICS & ENTERPRISE Growing Pains Michigan marijuana business remains a perilous pot of gold BY PAUL NATINSKY Editor’s Note: This article is part of a series called Great Michigan Stories. It examines the legal marijuana industry in Michigan and the large part that Chaldean entrepreneurs have had in creating it. They invested early in the fledgling industry, seeing the opportunity to make considerable profit by getting in on the ground floor. Savvy business people like Justin Elias of Puff Cannabis Company, his partner Nick Hannawa, and Mark Savaya of Future Grow Solutions have made a fortune off the product. Mike Bahoura is one of many Chaldean attorneys who specialize in licensing and cannabis issues. History Even before the 2020 election that featured a national explosion of approval for ballot proposals legalizing marijuana production, processing and sales, the industry had taken off, with Michigan among the most lucrative states for cannabis crop sales. However, the lure of marijuana money comes with expensive federal tax headaches, restrictions on trade across state lines, and a depressed market overcrowded with licensees. In November 2018, a ballot proposal made recreational marijuana sales legal in Michigan. Prior to that, medical marijuana sales were legal through a “caregiver” program that evolved into legalized medical marijuana dispensaries. But the true boom came with the 2018 ballot proposal. The first recreational businesses opened after a year of regulatory ramp-up. A New Industry We interviewed several sources for this story in early 2022. In the short time since then, the marijuana industry saw a boom in licensees and a market oversaturated with product and plagued by freefalling prices. The price drop put a number of growers at risk of failing and sent ripples throughout the Mark Savaya of Future Grow Solutions. Michigan marijuana industry. On the bright side, the cost of licenses and land decreased and the rush of licensees—including many poorly qualified and capitalized entrants—slowed. Through a name change and byzantine series of rules, regulations and legislation, the Marijuana Regulatory Agency emerged as the administrator of all things marijuana in Michigan. The MRA created a board of five members that considered medical marijuana applications. Since we last wrote about the industry, the agency’s name has changed to the Cannabis Regulatory Agency (CRA) to cover the wide array of cannabis products, including oils and edibles. Licensing Mike Bahoura is an attorney who specializes in cannabis licensing issues. He closed a marijuana dispensary in the city of Lapeer and opened two stores in New Baltimore and Monroe since we last talked to him in 2022, when he said, “It wasn’t an easy process. They were throwing out denials left and right, so it wasn’t easy to get approved.” The board considered a broad range of criteria from applicants, including litigation history, criminal history, bankruptcy history and moral character. “The most memorable denial that was issued was Calvin Johnson of the Detroit Lions getting denied because of some unpaid parking tickets in Georgia like a decade prior,” said Bahoura. The MRA dissolved the board at the end of 2019, holding its last meeting in December of that year. With the approval of recreational sales, the process has evolved from being very restrictive to being more like applying for a liquor license. “They started granting approvals unless you had something on your record,” said Bahoura. “They were looking for ways to approve you rather than ways to deny you.” Bahoura says the CRA has made strides toward effective regulation on the licensing end, but is still inconsistent and capricious when it comes to doling out discipline. Fines and penalties are case-by-case and very arbitrary, he says. Operating Challenges With the loosening of the state licensing process came the rush for real estate. The state grants licenses, but city governments establish the zoning rules governing where marijuana growers, processors and retail dispensaries can operate, and under which conditions and caveats. Outrageous real estate prices have since plummeted, with relaxed government attitudes toward the marijuana industry. Still, local regulations vary wildly. As of 2022, Harrison Township does not allow retail sales, but permits growing and processing facilities. Ferndale allows retail sales, but not growing and processing. There are also conditions attached to where marijuana operations can do business. Restrictions on how close the facilities can be located to schools and neighborhoods are not uncommon. And grow and processing operations are often restricted to areas of cities zoned for industrial activity. As convoluted as all of this sounds, it is better than the contentious process that preceded it, in which applicants were scored on a point scale and the top scorers were awarded licenses. A spate of lawsuits against municipalities brought the current system—and the subsequent rush of applicants. Growing Green It also brought city treasuries and state coffers a lot of money. License fees are limited for cities to $5,000 per year. State licenses correspond to a fee schedule and depend on the size of the operation and in which part of the process—cultivation, processing, retail— the licensee works. Bahoura says state license fees range in cost from $7,000 to $24,000, and that money flowing to the CRA far exceeds that of any other state agency of its kind. Despite the economic boon marijuana brings to the state, Bahoura said larger, national banks still won’t accept marijuana industry deposits. Marijuana is still an illegal controlled substance under federal law, so federally regulated banks and credit card companies cannot work with those growing, processing or selling marijuana. It takes bank loans off the table and makes marijuana a cash-only business, forcing businesses to transport large amounts of cash and face the attendant security risks. 42 CHALDEAN NEWS APRIL 2024
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