How to Start a Medical Marijuana Business in Michigan

How to Start a Medical Marijuana Business in Michigan

The cannabis industry in Michigan is thriving, and now is an excellent time to enter the market. But, as with any business, it takes a lot of planning—and the cannabis industry, in particular, is highly regulated. That means you’ll have a lot of paperwork, inspections, and licencing fees to deal with before you even open your doors. However, if you have a strong commitment to the industry and a strong passion for it, your medical marijuana business has the potential to benefit a large number of people.

Part 1 Business Basics

1. Confirm that you meet the requirements for starting a medical marijuana business. Medical marijuana businesses in Michigan must adhere to stringent regulations. You’ll waste a lot of time, effort, and money if you go through the process of forming a business and applying for licencing only to find out you’re not eligible. These requirements are as follows:

Criminal history: There have been no felonies in the last ten years, no misdemeanours involving controlled substances in the last five years, no local ordinance violations in the last five years, and no history of noncompliance with state or federal regulations.

Financial history: No bankruptcies in the last 7 years, no unpaid tax lawsuits, and all taxes are current.

Capitalization: To even pre-qualify for a licence, you must demonstrate that you have several hundred thousand dollars available for your business. If you think this will be too difficult, you could look into an adult-use (recreational) licence, which does not have capitalization requirements.

2. Become a member of the Department of Licensing and Regulatory Affairs (LARA). Choose a distinct name for your company, then visit the LARA website to register. Keep in mind that the business name you select will be the name on your licence, and everyone with a financial or criminal background stake in the company must meet the eligibility requirements.

Online registration is not difficult, but it can be time-consuming. To help you, LARA has provided a user manual for the online system at https://www.michigan.gov/documents/lara/COFS Public User Manual 604579 7.pdf.

Contact the Michigan Small Business Development Center (https://michigansbdc.org/) if you’ve never registered a business before or aren’t sure which business entity is best for you. They have free consultants and resources available to assist you.

If you’re a sole proprietorship or partnership, you’ll register your name with the county clerk in the county where you intend to open your medical marijuana business rather than the state.

3. For tax purposes, obtain a federal employer identification number (EIN). Even if you don’t have any employees, you’ll need this number. To get started, simply go to https://sa.www4.irs.gov/modiein/individual/index.jsp and click the “Begin Application” button. You’ll need this number not only to file taxes, but also to open bank accounts for your business.

Because marijuana is illegal at the federal level, you cannot deduct the “ordinary and necessary” business expenses that most small business owners can. Rather, you’ll pay federal taxes on all of your company’s profits.

At the state level, the law governing the regulation and taxation of the marijuana industry allows you to deduct business expenses in the same way that any other business does.

Because of the complicated tax situation for marijuana businesses, having an accountant manage your company’s finances and prepare your tax returns is a must if you want to avoid mistakes.

4. Make a budget for your startup. Starting a medical marijuana business is not an inexpensive venture. Simply obtaining state licencing for your business can cost up to $62,000.  You’ll also have expenses for your stock, growing materials if you intend to grow, facility expenses, security, and insurance.

Examine the Social Equity Program. If you live in one of the 19 communities identified as being disproportionately affected by marijuana prohibition, you can get a licence discount. The programme also provides free assistance with the licencing process and access to other resources.

5. Create a simple business plan. You must submit a business plan with your pre-qualification application to the Michigan Marijuana Regulatory Agency (MRA). A basic business plan includes a product description, marketing strategy, financial planning, income projections, and a budget.

If you intend to seek outside funding, any investors will undoubtedly demand a detailed and well-thought-out business plan.

It’s a good idea to have your business plan reviewed by an accountant or attorney who specialises in the cannabis industry. They will advise you on how to strengthen it.

6. Obtain adequate funding for your company. Medical marijuana businesses in Michigan are required by law to produce documents demonstrating that they have enough money and assets to operate—this is known as the business’s “capitalization.” A minimum of 25% of your capitalization must be in liquid assets (cash or investments that are easily converted into cash). The remainder may consist of equity in real estate or other property. The amount of money you’ll need on hand is determined by the type of medical marijuana business you want to start:

Class A Grower (not more than 500 plants): $150,000

Class B Grower (not more than 1,000 plants): $300,000

Class C Grower (not more than 1,500 plants): $500,000

Processor: $300,000

Provisioning Center (retail dispensary): $300,000

Secure Transporter: $200,000

Safety Compliance Facility: $200,000

7. Hire a CPA to verify your business’s capitalization. Your best bet is to find a CPA (certified public accountant) locally who has experience with medical marijuana businesses. They’ll understand the state application requirements and can help you make sure you’ve got everything you need.

The CPA will help you get together financial statements for any bank or investment accounts you’re using to capitalize your business. They’ll verify those statements so you can include them with your pre-qualification application.

8. Create a bank account for your medical marijuana company. Because most major national banks will not touch marijuana businesses, finding a bank may take some time. Speak with your CPA if you have one! They’ll most likely know banks that are willing to open accounts for cannabis businesses, especially if they have industry experience.

In general, prioritise smaller, regional banks, as well as local banks and credit unions. They are more likely to open accounts for cannabis-related businesses.

While it may be tempting to sign up with the first bank that accepts you, wait until you’ve exhausted all other options. Some banks charge exorbitant fees, so it pays to shop around for the best deal.

Part 2 State Licensing Pre-Qualification

1. Fill out the pre-qualification form. To apply online, go to https://michigan.gov/mraonline. Click the “+New” tab on the home page and select “Medical Facility Licensing” from the drop-down menu. This will take you to the initial login screen, where you can log in to your LARA account (or create a new one) and begin your application.

Even if you’re filling out the application online, it’s a good idea to read the instructions for the paper application—they’ll walk you through the application and give specifics on how to fill it out. They can be found at https://www.michigan.gov/documents/lara/Application Instruction Booklet 660113 7.pdf. The final page includes a checklist that you can use to ensure that you have all of the necessary supporting documents for your application.

The name you enter as the “main applicant” will appear on your licence. So, if you’ve formed a company, list the company’s name as the primary applicant rather than your own.

Include information about yourself and anyone else who has a stake in the company. This includes information about a person’s criminal history as well as tax and financial records. Before your application is approved, you will all be required to undergo criminal background checks.

Please keep in mind that if you or any of your business partners are married, you must list your spouses on the licence application. Because the business is considered marital property, spouses are also considered owners, even if they don’t work in it.

2. Online, submit your pre-qualification application and supporting documents. Part 1 of the state application officially qualifies you to open a medical marijuana business, allowing you to move forward with local approval and facility development. The majority of the answers you provide on your application require you to provide supporting documentation, which includes the following:

Every person with an ownership interest and their spouses’ identities, including copies of government-issued identification and consent to background checks, must be provided.

A CPA audited the financial statements.

Tax information, such as W-2s and 1099s, verifying the income of all people with a stake in the company and their spouses.

The source and total amount of capitalization for your medical marijuana business, as well as verified financial statements to back that up

3. If you do not have a Social Security number, you must submit a paper application in person or by mail. You have the option of submitting a paper application if that is more convenient for you. However, if you are able to submit your application online, the MRA prefers that you do so.

Take your application in person to:

2407 N. Grand River Avenue

Lansing, MI 48906

Mail your application to:

Department of Licensing and Regulatory Affairs

Marijuana Regulatory Agency

Licensing Division

P.O. Box 30205

Lansing, MI 48909

4. You must pay your application fee. As of 2021, the application fee is $6,000 and is completely non-refundable. You can pay with a major debit or credit card online. Use a check or money order made payable to “State of Michigan” if paying by mail or in person.

There is only one fee for each application; there are no additional fees for anyone else you list who has an ownership interest.

5. Take your fingerprints for a background check. The MRA will direct you to the location where your fingerprints will be taken. Get this done as soon as possible to avoid delays in your application—it can take several weeks to receive your background check report.

Anyone else listed on your application who owns a stake in the company will also be subjected to a background check.

Part 3 Municipal Licensing and Land Use Approval

1. Decide on a location for your facility. If you’re unsure, check the most recent opt-in list to ensure that the city where you want to open your facility permits them. The state list is constantly updated and can be found at https://www.michigan.gov/documents/lara/Municipality Opt-In Spreadsheet 2-16-18 614253 7.pdf.

Some facilities are permitted in some areas but not in others. Some cities also limit the number of facilities in each category (this information is included on the state’s list). A quick call to the city clerk’s office can confirm whether licences for the facility you want to open are available.

Check the zoning requirements thoroughly. Cities that permit marijuana businesses have strict zoning regulations that govern where these facilities can be located.

2. Notify the city clerk’s office that you intend to open a medical marijuana dispensary. You have 10 days from the date you submit your pre-qualification application to notify the city that you’ve applied for a state licence, so you don’t have much time. Municipal licencing is handled by city clerk offices. You can find the official website by searching for the city’s name. You could also include “city clerk” or “city office.” To ensure you’re in the right place, look for a statement on the homepage stating that the site is an official government site—not all cities have a “.gov” address.

The city’s website usually has the most recent information on local ordinances pertaining to medical marijuana businesses. It’s a good idea to bookmark this page so you can check for updates on a regular basis.

In most cities, you must also register your business and obtain a municipal business licence. Keep in mind that this is not the same as a medical marijuana licence; it simply allows you to conduct business within the city. The city clerk will notify you if you also require a regular business licence, at which point you can go ahead and obtain one.

3. Make a facility layout plan. Get specifics from the city clerk so you know the exact dimensions of your plan and what it must include. Your plan should at the very least include the following:

Site plan review (for new construction)

A security plan with details regarding security arrangements

A lighting plan (for security purposes outside the facility)

Mold prevention plans (for growers and processors)

Disposal and ventilation system plans

Utility usage plans (for growers and processors)

4. Fill out a written application and submit it to the clerk’s office. Some cities, such as Detroit, only allow online submissions. You may be able to take your application to the clerk’s office in person in other cities. The information should be available on the city website, but you can always contact the clerk’s office and inquire.

The municipal application typically includes many of the same questions you answered on the state pre-qualification application, so simply copy those answers. This also ensures that you have the same data on both applications.

5. You must pay your application fees. Municipal application fees are never refunded. However, the exact amount of the fee varies depending on where you live. Cities are only allowed to charge a fee of up to $5,000 under state law.

Some cities charge far less than the state maximum. In Detroit, for example, application fees are only $116.  The fees in Bay City, on the other hand, are $5,000.

6. If necessary, attend a land-use hearing. Before issuing conditional approval of your application, some cities, such as Detroit, hold public hearings. When you submit your application, the city clerk will notify you if a public hearing is required.

Bring a copy of your facility plan and any other zoning-related documents to the hearing. You should also consult with an attorney who specialises in zoning hearings. Even if they do not accompany you to the hearing, they can provide guidance.

7. You should wait for a decision on your application. Some cities can make a decision relatively quickly if your application is complete. Bay City, for example, states on their website that they typically make a decision within 1-3 months.

If the city approves your application, you can proceed with state licencing. Remember that you will need both city and state licencing before you can begin operating your business.

If the city denies your application, they will usually explain why. If it’s something you can fix, you might be able to do so if you talk to someone in the clerk’s office about it—but in most cases, you’ll need to fill out another application (which also means paying another application fee).

Part 4 State Licensing Facility Approval

1. Prepare your facility. You can begin building or modifying an existing facility once the city has granted land-use approval. Before you begin Part 2 of the state application process, your facility should be operational and ready to pass inspection.

Within 60 days of submitting Part 2 of your application, the MRA will inspect your facility. However, you don’t want to leave it until the last minute and risk failing your inspection.

You have up to two years before your pre-qualification expires to complete your facility.

2. Part 2 of your state application must be completed through your LARA account. The first section of your application dealt with you and any other business owners. Part 2 focuses on the actual facility you wish to open. Before you begin, carefully read through the application and instructions to ensure you understand the information you’ll need.

Your application is extremely time-sensitive because Michigan law requires the MRA to inspect your facilities and make a decision on your application within 180 days of receiving your completed application.

Check that you have everything you need! If you leave something out, your application may be denied, and you will have to start over (including paying a second application fee).

3. Submit your Part 2 application to complete the state licensing process. You can submit your application online, mail a paper application, or take your paper application to the MRA office in person. Include following supporting documents:

A description of the type of facility you want to open, including an estimated number of employees and projected gross receipts

Your business plan

The proposed location of your facility

Your security plan

A copy of your proposed facility plan (the one you submitted for municipal licensing)

A statement of proof of financial responsibility (injury liability insurance)

Proof of auto insurance and commercial vehicle registration for each vehicle you’re using in your business, if you’re applying for a license as a secure transporter

4. Finish your facility inspection. An MRA inspector will contact you to arrange an inspection of your property. Check that everything is in working order and that all of your security measures are in place, including locks and barriers to access other than a customer point-of-sale area.

The inspector will confirm that all of your products are secure and inaccessible to anyone other than your company’s employees.

They will also inspect your facility to ensure that it is safe and operational.

If the inspector finds any problems, they may give you a chance to fix them if there is enough time before the MRA has to make a decision on your application.

5. Learn the outcome of the MRA’s decision on your application. If you pass the facility inspection and the rest of your paperwork is in order, the MRA will send you an official notice that your licence has been granted. This should happen within 60 days of your inspection. Keep in mind that the MRA has only 180 days from the date you submitted your application to make a decision.

If the MRA approves your application, you will be notified of the next steps to take in order to obtain your licence and officially open for business.

If the MRA rejects your application, the reason will be stated in the denial notice. You are welcome to reapply for a licence once you have resolved the issues listed.

6. Pay your regulatory assessment to get your license. The regulatory assessment covers your equitable portion of the expenses required to regulate marijuana throughout the state.[40] These are the new license regulatory assessments for each license category as of fiscal year 2020:

Class A Grower (not more than 500 plants): $10,000

Class B Grower (not more than 1,000 plants): $30,000

Class C Grower (not more than 1,500 plants): $56,000

Processor: $56,000

Provisioning Center (retail dispensary): $44,000

Secure Transporter: $44,000

Safety Compliance Facility: no fee

7. Within 60 days, submit proof of general commercial liability insurance. In addition to bodily injury insurance, you must have at least $100,000 in general commercial liability insurance. Despite the fact that you have 60 days, it is generally best to submit your proof of insurance as soon as possible.

Even though you can’t get commercial liability insurance until you have a licence to operate, you should call around to a few insurance companies ahead of time and decide which one you’ll go with. As a result, when your licence is approved, you won’t have much to do.

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