Nothing’s Experimental About Michigan’s Approach to Cannabis

Michigan is about to begin a great experiment regarding medicinal cannabis, with the high likelihood that recreational cannabis will not be far behind. Businesses involved in this industry will require legal representation on a variety of fronts, involving an array of legal expertise.

Various states across the country have decriminalized cannabis for medicinal and recreational purposes. While the federal question remains in flux, the federal government most likely will not or cannot interfere in legitimate state efforts to make cannabis available to its citizens, at least with respect to medicinal cannabis.

The medicinal cannabis industry is maturing at an exponential rate, and Michigan is one of the most recent additions to the list of states to decriminalize the possession of cannabis for medicinal purposes. Entire industries have formed around medical cannabis, and public support continues to grow for decriminalizing possession of cannabis, which remains a controlled substance under federal law.

According to a recent report in Forbes magazine, the national cannabis industry was projected to grow to $7.1 billion in 2016. Some estimates indicate a continued steep upward curve with respect to legal sales of cannabis, which could reach $22 billion by 2020. State and local government officials look to the potential for new revenue generation from the regulated sale of cannabis. From business taxes, to licensing fees, to sales tax, cannabis now represents a much-needed revenue boost to state and local municipalities.

Consideration of the establishment of cannabis businesses necessarily revolves around the legal status of the substance, the interplay between conflicting state and federal laws. Businesses may be in compliance with state law, but in technical violation of federal law. Essentially, state laws that meet specific requirements, as set out by the U.S. attorney general, will not be subject to federal prosecution, either by the action of the attorney general or by congressional restrictions on the U.S. Department of Justice.

Legal Status of Cannabis - Federal Law

Under federal law, cannabis is a Schedule I Controlled Substance pursuant to the Controlled Substances Act (CSA), 21 USC § 801 et seq. Congress placed cannabis on the Schedule I list because it determined that it has a high potential for abuse, there is no current medically accepted use for it and there is a lack of accepted safety for use of the drug under medical supervision. 21 USC § 812(b)(1).

The CSA makes it illegal to “manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance.” 21 USC § 841. The CSA preempts state laws in the event of “a positive conflict between that provision of this sub-chapter and that State law so that the two cannot consistently stand together.” 21 USC § 903.

The U.S. attorney general possesses the authority to add or remove a substance from a schedule. 21 USC §§ 811(a), 814. On Aug. 11, 2016, the Drug Enforcement Administration (DEA) announced that it considered two petitions to remove cannabis from Schedule I, which it declined. The DEA concluded that the best way to determine if cannabis should be delisted is to conduct additional research on the medicinal uses of cannabis. It therefore remains a Schedule I drug.

Cole Amendment

On Aug. 29, 2013, an Assistant Attorney General, James M. Cole, released a memorandum entitled “Guidance Regarding Marijuana Enforcement,” referred to as the “Cole Memorandum.” The Cole Memorandum considers federal enforcement efforts in the light of decriminalization of cannabis by various states.

The Department of Justice concluded that it could exercise its prosecutorial discretion on a case-by-case basis based “on its expectation that states and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective regulatory enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests.”

So long as the particular state program contained protections in place consistent with the several factors related to the attorney general’s enforcement priorities and the particular parties were complying with state law, the attorney general would decline to prosecute. While the new U.S. attorney general has made his distaste for cannabis known, he has concluded that the Cole Memorandum is “valid,” for now.

“FinCEN” Guidance

In response to the Cole Memorandum, the Financial Crimes Enforcement Network (Fin-CEN) of the U.S. Treasury Department, under the Obama Administration, issued its own memorandum to clarify the effect of the Cole Memorandum on financial institutions pursuant to restrictions placed on them as it related to scheduled drugs in the Bank Secrecy Act, 31 USC §§ 5311-5330. Citing prosecutorial discretion, the attorney general states that the justice department will not prosecute banks using the same priorities identified in the Cole Memorandum.

Rohrabacher–Farr Medical Marijuana Amendment

While Congress has yet to pass a statute on how federal enforcement efforts of the CSA should or would affect state cannabis decriminalization efforts, it has hamstrung the justice department. The Rohrabacher–Farr Medical Marijuana Amendment prevents the justice department from using appropriated funds to interfere with states that have implemented their own laws regarding medical cannabis (passing by a margin of 242-186 in the House of Representatives). Specifically, this amendment to the justice department budget appropriation provides the following:

None of the funds made available in this Act to the Department of Justice may be used, with respect to any of the States of Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wisconsin, or with respect to either the District of Columbia or Guam, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

Congress reauthorized the amendment in the short-term appropriation that just passed and was signed into law. That appropriation expires in April 2017. At that time, the amendment would need to be added back into any future appropriation bills. The amendment specifically does not apply to state laws decriminalizing recreational use of cannabis.

Congressional Cannabis Caucus

With the installation of a new presidential administration, some members of Congress established a working group called the Congressional Cannabis Caucus. The caucus is a bipartisan group of legislators who have proposed legislation to protect states that have decriminalized cannabis and their citizens. Given that a majority of states have decriminalized cannabis in some form, the caucus’ efforts may have some traction.

Michigan Law

By a 2008 ballot measure, Michigan voters approved the use of cannabis for medical use. In 2016, The Michigan Legislature passed the Michigan Medical Marihuana Act (MMMA) to establish some parameters for the growth, distribution and use of cannabis for medicinal purposes.

The MMMA does not make cannabis legal, but provides for defenses to those who meet the MMMA’s requirements. On Sept. 21, 2016, Michigan Governor Snyder signed three bills, House Bills 4209, 4827 and 4210 (now, Public Acts 281-283 of 2016), into law, which clarify the voter-approved use of cannabis for medicinal uses (Public Acts).

The public acts establish a Medical Marijuana Licensing Board (Board) within the Michigan Department of Licensing and Regulatory Affairs (LARA). The Board may grant five types of state operating licenses in the following categories: (1) Class A, B, or C grower; with Class A having a limit of 500 plants, Class B a limit of 1,000; (2) processor; (3) provisioning Center; (4) secure transporter; and (5) safety compliance facility.

The public acts provide definitions for each license and specifies conditions for approval and prohibits certain conflicts of interest. Some examples include the following: to be eligible for a grower license, the grower and each investor in the operation cannot have an interest in a secure transporter or a safety compliance facility; and to be eligible for a secure transporter license, the transporter and each investor cannot have an interest in any other license authorized under the act and may not be a registered qualifying patient or a registered primary caregiver.

Although the public acts took effect on Dec. 20, 2016, the entire implementation of them may take up to one year. The Michigan Department of Licensing and Regulatory Affairs (LARA) will promulgate rules and emergency rules in consultation with the Board. The Public Acts also require provisioning centers (currently known as dispensaries) to pay an excise tax of three percent (on top of the six-percent state sales tax) to be deposited in a “Medical Marijuana Excise Fund” (Excise Fund). The money in the Excise Fund will benefit the state, the municipalities that approve facilities under the public acts, and counties where facilities are located.

What Comes Next

While LARA busily tries to develop regulations under the public acts to meet a December 2017 deadline, a variety of business leaders and entrepreneurs are positioning themselves to take advantage of this new market. 

The medicinal cannabis business in Michigan will come with a variety of challenges from local approvals, state authorizations and licenses and technical requirements, which may also require understanding of the legal terrain. Some of this will involve cannabis-specific legislation and regulation, but also may include traditional business and compliance concerns common to commercial activity requiring legal expertise. Venturing into this morass without proper legal representation may be a recipe for failure.

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