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November 2017

Cannabis Licenses Carry High Capitalization Costs

11-16-17-Cannabis-Licenses-Carry-High-Capitalization-Costs

As has long been suspected, the state announced last week that those seeking licenses from the Michigan Bureau of Medical Marihuana Regulation (BMMR) beginning in December will undergo an evaluation of their capitalization. In other words, the state intends to evaluate an applicant’s ability to operate and maintain a marijuana facility.

The advisory from the state comes ahead of the implementation of the Medical Marihuana Facilities Licensing Act (MMFLA) next month, at which time applicants can seek licenses to be medical marijuana growers, processors, secure transporters, or to operate either a provisioning center or safety compliance facility. Applicants must demonstrate capitalization amounts for each license as follows:

  • Grower: Class A (500 plants) – $150,000
  • Grower: Class B (1,000 plants) – $300,000
  • Grower: Class C (1,500 plants) – $500,000
  • Processor – $300,000
  • Provisioning Center – $300,000
  • Secure Transporter – $200,000
  • Safety Compliance Facility – $200,000

While those are some big numbers, the state is willing to be somewhat flexible. Namely, the bureau is requiring that only 25% of an applicant’s capitalization be in liquid assets. This includes not only cash, but 401k accounts, stock, bonds and even marijuana and marijuana-infused product inventory. The remaining 75% of an applicant’s capitalization may be in the form of non-liquid assets such as equity in real property and supplies, equipment and fixtures, and must show that there is no lien or encumbrances on the asset(s) being used for capitalization. All amounts and sources of capitalization must be validated by CPA-attested financial statements.

This seems to be an effort by the state to strike a balance between two worthy goals – ensuring that licensees and businesses are stable, have sufficient financial resources and can safely offer their products to those in medical need while also allowing those younger persons and new businesses to meet capitalization standards by means other than liquid assets. For months now, some members of the public have complained that capitalization standards would box out individuals and favor larger companies. These standards attempt to strike a balance, although all applicants will still have to offer proof of significant assets, liquid or otherwise.

The state also announced that applicants for provisioning centers and safety compliance facilities can be persons, corporations, LLCs, a partnership, a trust or other legal entity.

Foley, Baron, Metzger & Juip will continue to follow these and other developments with the act as the state prepares to accept applications in December. Our firm offers comprehensive administrative licensing services, including guidance with applications and the defense of licenses before the state licensing board. We also advise clients regarding medical marijuana law and state regulations, as well as land use, environmental compliance, facilities siting and related issues. Contact Richard Baron or Daniel Cortez for more information.