Interested in becoming part of Michigan’s Green Rush but don’t know where to start? Investors who are looking to get into the marijuana industry should take a serious look at opening a facility in Michigan. There are plenty of amazing Green-Zoned properties right here in the Mitten State. Here we offer a step-by-step guide, explaining how to open a marijuana facility in Michigan.
Do your research before deciding what type of facility you would like to open. There are many options to choose from. Your first decision will be whether to open a recreational or medical facility.
In certain municipalities, there is the option to cultivate marijuana outdoors, indoors, or in a greenhouse, so this should also be considered as an option. Other types of facilities include processors, safety compliance facilities, secure transport, consumption lounges, and dispensaries/retail facilities.
First of all, it is important to allow for approximately six months to complete prequalification.
The application process requires two steps: the prequalification, and the final licensure. Step 2, final licensure, occurs near the end of the entire process, after the facility has been built out.
The first step of the marijuana establishment application process is prequalification. The main applicant must submit a prequalification application, as must as any supplemental applicants, to LARA, Michigan’s Department of Licensing and Regulatory Affairs. During prequalification, background checks are completed on the main applicant and any supplemental applicants. The main applicant is the entity. For example, the limited liability company, corporation, partnership or individual, also known as sole proprietorship, seeking to hold the marijuana establishment license. Expect to pay a $6,000 application fee. Both the main applicant and the supplemental applicants must submit step 1 prequalification applications, although only the main applicant is required to pay a fee. The Marijuana Regulatory Agency(MRA) will begin to process prequalification applications once the $6,000 prequalification application payment is received.
This process can take anywhere from 3 – 6 months depending on how complicated your business is. A business with a lot of partners that own many other businesses is going to have a lot more documentation that they need to submit for review than an individual with no partners who has never been in business before.
Once step one has been completed, the applicant can continue by finding and purchasing a facility and completing construction. Only after construction is completed can the main applicant submit the licensing application(s) for step 2 and obtain the full License. We will mention more details about this later in the article, after “Build Out Facility”.
If working capital is needed, Bricks & Mortar Cannabis can help guide you to trusted lenders. Traditional banks typically do not write mortgages on cannabis-based properties, so private lenders are typically the best choice. It may take longer than expected to secure a mortgage.
One great option to take a look at is Copper Street Lending. They specialize in financing marijuana businesses, so they understand the unique needs of the industry. Their dedicated team of professionals works hard to get you approved and secure capital for your business. By working with various private and hard money lenders, they will present you with a variety of options so you can choose the best deal for your needs.
Find qualified professionals, including an architect, attorney, property inspector, contractor, etc. When you find the right property, you need to be prepared to move quickly. This means knowing who you are going to work with for your site plans and applications ahead of time. You should also have a contractor lined up who can quote construction costs for you immediately. Make certain the professionals you plan to work with are experienced in marijuana permitting and licensing.
Start researching available real estate options and municipal rules as soon as possible. It may take a few months to find the right location. Buying a property in a niche market, such as the cannabis industry, requires a specific scope of knowledge. A traditional real estate agent typically does not have expertise in this area of business.
Green Zone Certified Agents specialize in cannabis real estate deals, and are the best option to help you find the best qualifying location. From municipal permitting, to zoning requirements, specialty building requirements, unique contract negotiation terms, access to cannabis market data, deal management, and industry-specific knowledge, we at Bricks + Mortar Cannabis are highly experienced and strive to find the perfect property for your needs.
Before you make an offer on a property, you should thoroughly understand the municipal approval process. You don’t want to move forward with a deal only to find out that it doesn’t qualify for a marijuana facility, or that all of the available permits have already been issued. Some municipalities also require that you complete pre-qualification with the state before applying for a permit. If you aren’t prequalified and you want a property owner to wait for you to go through the process, you should be prepared to offer a non-refundable deposit or some other strong incentive for them to let you tie up their property.
Be ready to move really fast when you find the right one. Good properties often have multiple offers, within only a couple of days of going on the market. Make sure you are organized and ready to move quickly when the right property comes up. Sellers will want to see proof of funds, such as a bank statement, or a letter from a private lender or investor, along with their bank statement.
Obtaining a municipal permit is a crucial step; one that can take 3 to 6 months, sometimes longer. Municipalities often require state prequalification to be completed first. Steps to obtaining your municipal permit can vary greatly depending on municipality. Each municipality has its own zoning laws. Different locations in certain municipalities are Green Zoned, which means marijuana facilities are allowed. Finding the right Green Zoned Agent can help guide you through these steps.
Building requirements will depend on the type of marijuana facility you have chosen to open, as well as which municipality it is located in. For example, many facilities will have certain security requirements, while other types of facilities will require odor removal systems, heat and light systems, and more.
Ensuring that you have contractors and architects on board with experience in the cannabis industry will help make this process much smoother. You should plan for at least 6 – 12 months to build out your facility, potentially longer due to COVID related material and staff shortages.
As previously mentioned, only after construction is completed can the main applicant submit the licensing application(s) for step 2. The supplemental applicants will not be required to complete step two. The MRA will thoroughly vet the intended marijuana establishment for business specifications, proof of financial responsibility, municipality information and general employee information.
Each establishment must pass an MRA approved inspection within 60 days of submission of the application. If you are seeking a license as a grower, processor or microbusiness, you must pass a Bureau of Fire Services plan review as well. You cannot be issued a state license until all requirements in the Michigan Regulation and Taxation of Marijuana Act and administrative rules are met.
After step two is completed, an applicant will be required to pay an initial licensure fee for each license type they have been approved for. Once all inspections and reviews have been completed and the license fee is paid, the operator will receive their full license and be allowed to open.
Depending on the type of facility you open, you will need a variety of staff members. For example, a grow operation will need management and security employees, as well as packagers, trimmers, and employees who care for the plants. A dispensary on the other hand, would also need security, as well as budtenders, management, and more. Regardless of the type of marijuana facility you choose to open, hiring reliable security guards and trustworthy employees should be at the top of the list.
Try to market and publicize your new business as much as possible. Use social media, email campaigns, and word of mouth to your advantage. Schedule, market, and host a Grand Opening!
FIVE LICENSE TYPES (NO FULL VERTICAL INTEGRATION) – Let’s start at the very very basic, the licensing structure. So far Michigan is the only state that has adopted a structure quite like this one. There are five basic license types – Cultivation (Class A 500 plant, Class B 1000 plant, or Class C 1500 plant), Processing, Provisioning Centers (Dispensaries), Safety Compliance (Testing Laboratory), and Secured Transport. If you have any sort of financial interest in a Safety Compliance Facility or Secured Transport company, you are not allowed to have any interest in any of the other license types. Keep in mind, you are required to use a Safety Compliance company to have your product tested, and you are required to use a Secured Transport company any time your product moves on public roadways.
MINIMUM CAPITAL REQUIREMENTS – Like many other states, Michigan is requiring that you show that you have the capital available to run a successful business in order receive a license. You can use the value of business assets to meet this requirement, but you do need 25% of the amount available in liquid assets, which can include cash or inventory. While many people have complained about this, Michigan is actually much lower than many other states. Taken directly from the state website, the capital requirements are as follows –
“BMMR has determined that at least 25% of an applicant’s capitalization sources must be in liquid assets. Liquid assets are easily convertible to cash and may include:
The remaining capitalization may be evidenced in either additional liquid assets or in non-liquid assets. Evidence must be provided that shows there is no lien or encumbrance on the asset provided as a source of capitalization. Examples of non-liquid assets include but are not limited to:
In order to be granted a proposed medical marihuana facility license, applicants will be required to demonstrate capitalization amounts as follows:
This is required for every license that you apply for, so if you apply for a Class C cultivation license, Processing license, and Provisioning Center license, you will have to have enough to cover all three together, or 1.1 million in assets. Additionally, these numbers have to be attested by a CPA, which means that an accountant will have to investigate your financials and verify that the numbers are correct.
NO BANKS – Marijuana is federally illegal, which most people know. What many people don’t realize, is that banks are regulated by federal law, which means that if they open an account for you, they are taking on a lot of liability. The result? Most businesses in the marijuana industry do not have a bank account! This means they have to do business in cash, which is a really really big deal. When is the last time that you tried to pay your utility bill in cash? Especially a very very large utility bill. You can’t just put cash in an envelope and mail it out to pay your bills. If you are considering opening a business in the marijuana industry, you are going to need a cash management system and a plan in place to convert that cash into something that is easier to spend.
NO MORTGAGES – This is a shock to many people who are trying to buy real estate to use for their cannabis business. A lack of access to banks means that you also cannot get a mortgage! Most banks are going to have terminology in their mortgage documents allowing them to call the loan if a property is being used for federally illegal activity, which includes marijuana! The term ‘calling the loan’ means that a bank can demand immediate payment for the entire amount that is outstanding on the loan. That means that if you don’t have the cash on hand to pay off the mortgage at all times, the bank could potentially come take the property back. This is also applicable when you are looking for a space to lease for your business. If your landlord has a mortgage, they are exposing themselves to that same risk.
YOU HAVE TO PAY MORE TAX (A LOT MORE) – If you have never heard of 280E, you have some research cut out for you! A cannabis business is treated much differently from a tax perspective than any other business. A normal business receives income from the sale of a product or service, and then before they pay taxes they deduct the cost of that product, and then they deduct any other expenses related to the business, and then they pay taxes on the remainder. A business involved in the sale of marijuana is different. 280E is the tax rule defining the only deductible expense is a Cost of Goods Sold, which makes it extremely important to work with an accountant who understands marijuana tax law. Your tax strategy could be the difference between making and losing money.
YOU NEED A CAREGIVER ON STAFF – We have had many clients from out of state that are completely unaware of this requirement. Every marijuana business is going to need to have an owner, or somebody on staff who has at least two years of experience as a licensed caregiver in the state of Michigan. Need help finding somebody to work with? Let us know, we can likely help you connect.
MUNICIPALITIES HAVE TO OPT IN – Michigan has an interesting structure in that the municipalities have to decide to allow marijuana facilities within the city or township. On top of opting in, each municipality sets their own limit to the number of licensed facilities allowed in the city, and which types of licenses are allowed. Once this is decided, they have to write a marijuana ordinance allowing them, and then they have to modify their zoning ordinance to outline exactly where the facilities will be allowed. This process can take anywhere from a few months, to six months, to even a year or more.
FINDING QUALIFYING REAL ESTATE IS COMPLICATED – Since every municipality has to decide to opt in, and then creates their own zoning rules, finding a qualifying property can be extremely time consuming. When you are looking for a space for your business, make sure you read the ordinances of each city that you are looking it, as areas where facilities are allowed are all very different. To start your search, you will need to know what municipalities have opted in, then find out what parcels qualify, and then either check those parcels to see if any of them are up for sale, or approach the property owners directly to see if they will sell.
MUNICIPALITIES DON’T ISSUE LICENSES – We have had hundreds of calls with the same question, “Somebody is advertising a property that comes with a marijuana license, can I just buy that and get started?” The short answer is NO. At least not right now. As of today (3/11/2018), there have not been any state licenses issued, and a municipality cannot issue a license. What a municipality can issue is a permit, which is allowing you to operate a marijuana business as a specific location, AS LONG AS YOU ARE APPROVED BY THE STATE. Let me add some emphasis to that – AS LONG AS YOU ARE APPROVED BY THE STATE. Now don’t get me wrong, there is absolutely value in a property that has been permitted by the municipality, as long as that permit can be transferred to you, or you are able to apply for a permit in the same location. You should always check with the municipality to verify what their permit transfer process is, if they allow it. But no matter what their process, you will still have to apply at the state level and go through the same prequalification process as everybody else.
With the November 2018 ballot passing of recreational marijuana in Michigan, legislators have been working to create growth opportunities and have a positive impact in disadvantaged communities. In July 2019, the Marijuana Regulatory Agency announced the details of their Social Equity program for Michigan. This program allows individuals from all walks of life, even those with prior marijuana convictions, to participate in the marijuana industry. They are able to acquire licenses for adult- use facilities, establishments, organizing, and events.
The Social Equality program applies to 42 Michigan cities where at least 30% of the population lives below the poverty line. The state picked the communities based on the number of marijuana convictions and the communities’ poverty rate, designating them as disproportionately impacted by marijuana enforcement laws. The program gives participants a variety of fee reductions for their applications, licenses, and renewals. The total discount will depend on how many of the criteria are met.
Applicants in the program will also have access to industry educational resources, and easier access to governmental agencies that regulate taxes, environmental laws, business registration, health and human services, and occupational safety, according to the Detroit Free Press.
“We want to provide an opportunity to get into the business to individuals that might not otherwise have that opportunity, and we’re focusing our resources on those specific communities that have been disproportionately impacted.”
MRA director, Andrew Brisbo
There is one main requirement in order to obtain a fee reduction. You must be a resident of one of the 42 cities for the last 5 consecutive years. This criteria will give you a 25% reduction. There are two additional opportunities to receive more reductions. If you have a marijuana related conviction, with the exception of distribution of a controlled substance to a minor, you can receive another 25% reduction. You may receive an additional 10% reduction if you have been a registered primary caregiver for at least 2 years between 2008-2017. The conviction and caregiver reduction requirements are optional. The most important part of the fee reduction is making sure that each individual/team of individuals has majority ownership (more than 50%) of their entity.
The application itself is a two-step process. Step one is the prequalification phase. A background check, as well as a financial background check, will be conducted. Step two is an establishment review. The MRA looks into the municipal compliance, verifies if the municipality has opted out or not, and is following local ordinance. The establishment must also pass an inspection from the BFs and MRA enforcement section. Once MRA has received the application, they will require supporting documents for each criteria. For residency, the documents include, but are not limited to: W-2, rental agreement, and voter registration card. In order to verify any marijuana related convictions, a copy of the judgment of sentence is required. To verify 2 years of caregiver experience, an authorization of release of MMMP information form is needed.
There are several license types that can be obtained and potentially have fee reductions through the social equity program. The applicable license types available to Michigan residents are: Grower Class A, microbusiness, safety compliance facility, designated consumption establishment, marijuana event organizer, and temporary marijuana event.
Grower Class A license holders cultivate marijuana, then sell or transfer it to marijuana establishments. This license fee is $4000.00. Microbusiness’ cultivate no more than 150 marijuana plants. They process, package, and sell or transfer marijuana to individuals who are 21 years of age or older. They also sell to marijuana compliance facilities, but not to other marijuana establishments. This fee is $8,000. Safety Compliance Facilities are licensed to test marijuana, including certification for potency and the presence of contaminants. This licensing fee is $25,000. Designated consumption establishments are commercial spaces that are licensed and authorized to permit adults 21 and older to consume marijuana products at the location on the license. This license fee is $1,000.00. Marijuana event organizers are individuals that are licensed to hold a temporary marijuana event. Each of these licenses are also $1,000.00. Temporary Marijuana Event licenses are a state license that can be obtained in order to hold a marijuana event, where onsite sale or consumption of marijuana products is permitted. Temporary marijuana events have two fees. $500 per day, plus $500 per licensee authorized to sell marijuana at the event.
There are also several medical marijuana facility licenses that have the opportunity to receive reductions. Grower Class B license holders have the ability to grow up to 500 plants, while Grower Class C can have up to 2,000 plants. The Class B growers have an initial fee of $8,000, and Class C growers have an initial fee of $40,000. Processors and retailers obtain marijuana from growers, then process and package the marijuana, to be sold or transferred to retailers. The initial fee for processors is also $40,000. The initial fee for retailers is $25,000. Secure transporters obtain marijuana from marijuana establishments in order to transport it to other establishments. This initial fee is $25,000.
The main goal of the social equity program is to create a regulated market that will help reduce the existing black market. The hope is to see at least half of the marijuana businesses in each targeted community be a part of the social equity program.
Applying for a marijuana facility license can be a confusing and complicated ordeal. For this reason, Bricks + Mortar is here to guide you through each step.
To acquire a medical marijuana license in Michigan, a business must first achieve prequalification. This is done by submitting documents for consideration, then paying a $6,000 fee. All persons who are involved in the potential marijuana business will have a background check. If the medical marijuana license application passes the first step, the business will enter the license qualification phase. Therefore, license qualification requires specific information about the physical location of the applicant’s business, as well as which type of facility license the potential licensee is applying for.
After license qualification is completed, the application is presented to the Medical Marihuana Licensing Board. Upon approval from the MMLB, the applicant will be required to pay a regulatory assessment for each license. After the assessment is received, the license is issued. If the business is granted a medical marijuana license, it now qualifies to apply for an adult-use marijuana license.
As you can expect, there are more steps to attain an adult-use license. Therefore, many of the previous steps must be repeated including paying another $6,000 application fee.
Despite all of the progress that has been made over the past ten years, the marijuana industry as a whole still has a major barrier to overcome: the banking industry. Banking is the biggest issue for legal marijuana business owners all over the country, quite simply because they don’t have access to regulated banking.
The Federal Deposit Insurance Corporation (FDIC) will not insure a bank that takes on “Existential Risks”, in other words: loans to companies in violation of federal law. Furthermore, banks themselves don’t want to have any criminal liability for aiding and abetting activities still considered federally illegal, even if it is legal at the state level. Although this law hasn’t been widely enforced with marijuana banking, knowingly accepting deposits from or loaning to marijuana businesses can be considered money laundering. This combination of ambiguous laws and regulations is stopping the marijuana industry from becoming an accepted part of our economy, and is hurting business owners all over the country.
Marijuana business owners are therefore forced to operate as all cash businesses and successful dispensaries can take in well over $250,000 in cash per month. These massive amounts of cash flow make dispensaries, and other marijuana businesses, prime targets for robbery. The harsh banking regulations on marijuana businesses are actually putting businesses at a public safety risk.
Back in June, 2018, there were a few different federal banking law proposals that would create a legal banking environment for marijuana business. Representative David Joyce (R-OH) said, “The issue is not whether one approves of marijuana. This is about public safety and financial transparency.” Unfortunately, these marijuana banking bills were voted down over the summer.
Another difficulty that marijuana businesses face due to restricted banking is the lack of ability to use financial leverage to operate. Most businesses take out loans to purchase buildings, buy equipment, extend credit to their customers, and fund other business activities. This is especially common in the agriculture industry, where farmers will have a lot of expenses for a full year and then one big influx of cash at harvest time.
While legal marijuana business owners probably won’t have access to mainstream banking until marijuana comes off of the federally controlled substance list, there are still other options for financing that may prove incredibly helpful.
Private Money – The most common type of lending to a marijuana business comes from a private loan. Private money may come from friends, family, associates, or other people within your circle. They might want equity in the company, a high interest rate loan, or just desire to see you succeed. This is typically the least expensive form of financing for somebody just getting into the marijuana industry, and sometimes the only form of financing available.
Personal Loans – A personal loan is a loan that is based on the individual applicant. The lender will look at their credit, personal income, and other assets, and decide how much money to offer them. These are useful because the lender often doesn’t care about the use of the money, just your ability and likelihood of repaying it. One marijuana friendly loan source is www.copperstreetlending.com . They work with loan brokers that send applications to several different lenders to see what the best option is for your situation.
Asset Backed Loans – Another type of financing available to marijuana companies is asset backed loans. These assets can range from equipment, to automobiles, to intangible assets like brands and websites. Asset backed loan structures vary widely. Sometimes the lender will buy the equipment through a different entity and lease it to the operator, and other times they will just loan the money to the operator directly with a lien on the equipment.
Hard Money Real Estate Backed Loans – Hard money lenders are often used in real estate transactions as an alternative to traditional banks. Since they are typically individuals, or groups of individuals, hard money loans aren’t affiliated with banks. If the lender is willing to work in the space, the loans can also be used in marijuana related transactions. Hard money lenders are typically very focused on the value of the deal, the likelihood of it making money, and the experience of the borrower in similar transactions. The loans are usually expensive, but the capital can be deployed immediately if they decide to fund the deal, and you have the opportunity to make your case about why they should work with you.
Until the federal government loosens up on marijuana businesses, many obstacles are going to remain for operators in the industry. While there are options available for financial services in the space, they remain few and far between. With the likelihood of a cash sale, especially using private money, you want to make sure you are protected.
Title insurance is a wise decision when purchasing any real estate property, whether residential or commercial. A cannabis related property is no different. A title insurance policy can protect against many pre-existing issues in regard to the property. The title insurance policy is typically paid for at closing and lasts the life of the ownership. How can you find a cannabis title insurance company?
Like an insurance policy protects the property, an escrow agreement between yourself as the buyer, the seller and an escrow agent protects the funds. An escrow agent can mediate and protect the buyer (and seller) throughout the real estate transaction. As soon as the transaction is completed, and there are no disputes, the escrow agent releases the assets to the appropriate party.