Michigan Cannabis Regulatory Agency Proposes Administrative Rule Revisions

The Michigan Cannabis Regulatory Agency (“CRA”) recently filed a Request for Rulemaking to formally begin the process of updating Michigan’s Marihuana Rules (Mich Admin Code, R 420.1 to 420.1004). In an effort to promote transparency and communication with industry stakeholders, the CRA is accepting feedback on its proposed changes at this early stage in the rulemaking process.

The proposed changes include revisions to rules addressing licensing, social equity, financial compliance, the statewide monitoring system, sampling and testing, general operations, and enforcement. As such, current and prospective licensees should consider taking the opportunity to provide the CRA comments on the proposed rules, particularly given the Detroit City Council’s recent approval to open “Round Two” of the adult-use limited licensing 30-day application periods.

Regarding licensing, the proposed rule revisions would make certain changes including the following, among others:

• Allow the CRA to deny a license or license renewal based on civil judgments/court orders resulting from unpaid debt for work, services, products, or equipment provided solely in the cannabis industry.
• Require licensees to notify the CRA prior to making a change to their business structure.
• Clarify that an applicant with a pattern of regulatory noncompliance or a criminal history that includes distribution of alcohol or tobacco to a minor is ineligible to receive a license.
• Allow the CRA to reassess and, if necessary, revoke a prequalification status at the time of applying for a step 2 license.
• Require that a named insured must be a licensee and that additional insured can only be supplemental applicants, municipalities, those with licensing agreements, landlords, etc.
• Add to the existing list of proposed material changes reported to the CRA:
  • Change in directors, spouses, and managerial employees.
  • Change in legal entity name, assumed name, or DBA
  • Any change or modification to the lease, deed, and/or insurance policy; submitted to CRA within 10 days.
  • A new tax liability or delinquency against an applicant by the state, another state, federal or foreign jurisdiction, including any pending delinquency.
  • A notice of eviction against a licensee by state, another state, federal or foreign jurisdiction, including pending eviction.
• Require applicants to notify CRA within 10 days of any of the following:
  • The initiation of any new lawsuits, legal proceedings, charges, or govt investigations.
  • The conclusion of any judgments, lawsuits, legal proceedings, charges, or govt investigations.
• Change the definition of a Temporary Event so that a license is only required if marijuana will be sold. A license will not be required if marijuana is only consumed.
• Eliminate the requirement that an applicant for a temporary event provide an event location number for where retailers will operate during the event.
• Require temporary marijuana event license applications to be submitted 120 days before the event instead of the current 90 days.

Regarding financial compliance, the proposed rule revisions would make certain changes including the following, among others:

• Exempt marijuana event organizers and designated consumption establishments from the requirement to submit annual financial statements (AFS).
• Require growers, processors, and retailers to reconcile revenue monthly and maintain it as an internal record.
• Require licensees to maintain records documenting payments made under any type of agreement. Require licensees to submit manufacturing agreements to the CRA for review and approval. The licensee must wait for CRA approval before they act on the agreement.
• Require marijuana transactions for which cost/payment is undefined at time of the transaction to be covered by an agreement between the parties outlining the terms.
• Require that the cost of services being shared by licensees be allocated between licensees.
• Require licensees to report changes to leases, including changes in payment or waiving of rent, and updates made by the landlord without being reimbursed.

Regarding the statewide monitoring system, the proposed rule revisions would make certain changes including the following, among others:

• Require that all licenses become active in the statewide monitoring system before acquiring or possessing plants or marijuana products.
• Require growers and processors to document in the statewide monitoring system the location of the product at each level of location available to the licensee, i.e. which room the product is in within a business.
• Require licensees to record the expiration dates of products with each production batch.
• Require processors to document when products change form and not just when a final product is created. Require that each batch created in a new form be documented as a production batch.
• Require licensees to report harvest schedules in the statewide monitoring system.
• Require processors to document in the statewide monitoring system the amount of raw product used in the extraction/distillation process and the amount of product created after the extraction/distillation process is complete.
• Require licensees to record in the statewide monitoring system the following information when creating a new item: name, brand, expiration date, and amount of THC for their infused products.

Regarding sampling and testing, the proposed rule revisions would make certain changes including the following, among others:

• Require all safety compliance facility sampling to be performed in front of a camera with an unobstructed view for the entirety of the sampling event.
• Allow the CRA to audit licensees and request testing of one or multiple testing panels for products located at a marijuana business.
• Allow the CRA to audit and request potency testing of a product if the agency is unable to determine whether the product is hemp or marijuana.
• Allow growers to mix strains, but require homogenization at the grower level and homogeneity testing at a safety compliance facility for each product batch.
• Require licensees who are creating any pre-roll product to have the product tested in final form (after they have been placed into the pre-roll delivery system). This includes both raw pre-rolls and infused pre-rolls. Non-cannabis ingredients are not permitted in pre-rolls.

Regarding general operations, the proposed rule revisions would make certain changes including the following, among others:

• Require that a grower, class A microbusiness, and microbusiness have at least one employee obtain an MDARD pesticide applicator certification and Master Grower certification within 1 year of licensure.
• Eliminate the requirement that a marijuana sales location, except for microbusinesses, have a separate room that is dedicated as the point-of-sale area.
• Require licensees to weigh flower products not more than 48 hours prior to shipping and to make any adjustments that need to be made to account for moisture loss before shipping (the justification for this change notes that on “several occasions there has been a significant discrepancy between the weight of the product when it was shipped and the weight of the product when it was received).
• Clearly establish the circumstances in which the CRA may require the destruction of the product.
• Require serving sizes and doses to be identified on a product and require edible marijuana products to include one of the following:
  • Single-serving packaging.
  • Scoring of a solid item that assists with breaking a multi-serving product into single-serving portions.
  • A measuring device that is designed, sized, or marked to measure a single serving.
• Specify that labeling requirements apply to inner packaging as well as outer packaging.
• Require marijuana businesses to adhere to recognized cannabis standards for general operations, quality systems, cultivation, processing, sampling, testing, and other cannabis standard practices published by an approved independent third party and require marijuana businesses to keep and provide evidence of compliance for adherence to the published standard.
• Require certain license types to perform physical audits of inventory not less than twice per year.
• Eliminate the requirement that marijuana waste be rendered unusable before disposal.
• Remove the requirement for strain.
• Require growers to ensure that all plants have a plant tag physically attached to the plant once the plant reaches a height of 8 inches and that tags remain on the plant during the curing/drying phase after harvest.
• Require that processors identify as part of their application which of the following types of processing they intend to do and require a processor to notify and receive approval from the CRA prior to expanding their scope of operation.
  • Repackage ready-made products.
  • Extract raw material.
  • Manufacture edibles.
  • Use a kitchen to manufacture edibles.
  • Produce infused – non-edible products.
  • Purchase extracted products from other licensees to manufacture additional concentrate products – inhalable concentrates.
• Revise existing advertising rules to apply consistently to all types of advertising, including brands and business names, not just to marijuana products.
• Require all marijuana or marijuana products received by a licensee to be recorded in the statewide monitoring system within 72 hours of receiving them into inventory.

The revisions would also establish the Social Equity Program in the rules, including eligibility requirements, application requirements, renewal requirements, and fee reductions. Regarding enforcement the revised rules would establish specific provisions concerning product recalls and clarify the “limitations on a marihuana license” that can be imposed on licenses as disciplinary actions resulting from a violation.

Stakeholders wishing to provide feedback to the CRA as the rules are being drafted can submit their comments to CRA-AdminRules@michigan.gov. The CRA has noted that it may, at its discretion, respond seeking additional information or clarification. There is no hard deadline for submitting comments; the drafting process will likely take several months.

The views and opinions expressed in the article represent the views of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.