Michigan’s Marijuana Regulators Are Running Ahead of Schedule
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Michigan’s Marijuana Regulators Are Running Ahead of Schedule

Michigan is also pioneering a new data-sharing platform to allow banks and credit unions to perform enhanced due diligence on marijuana businesses that apply for accounts with them.

Regulators in Michigan are impressively progressing on the regulatory items needed for the state’s new recreational marijuana program, which voters approved via Proposal 1 last November.  The initiative made it legal for adults to possess up to 2.5 ounces of marijuana for recreational purposes and requires regulators to establish a framework for the commercial production and sale of marijuana.

The initiative required regulators to draft and pass a comprehensive set of rules and begin accepting applications for commercial marijuana licenses within 12 months, which seemed like an aggressive timeline.  By comparison, there were 26 months between the 2016 passage of California’s marijuana legalization initiative and its adoption of final rules.  In fact, California still isn’t issuing permanent licenses and doesn’t have a fully operational track-and-trace data system.

In sharp contrast, Michigan regulators are poised to have the initial rules in place far ahead of the deadline.  What’s more, they’ve been able to do this while undergoing major structural changes within their ranks.

Under the state’s previously existing medical marijuana program, a licensing board made up of political appointees met monthly to decide which applicants would be awarded licenses to sell products.  But applicants frequently complained the process was slow and the board’s decisions were arbitrary.  Stories also emerged detailing potential corruption, with elected officials and the licensing board allegedly giving preferential treatment to some businesses.  As a result, Michigan Gov. Gretchen Whitmer scrapped the board, creating the new Marijuana Regulatory Agency, which has already doubled the rate at which it processes applications for medical licenses.

The Marijuana Regulatory Agency expects to set rules later this month and those rules will establish a framework to allow the agency to begin accepting applications for commercial licenses.  The agency has held a number of workshops across the state to gather public comments from attorneys, patients and marijuana businesses as a way to inform the drafting of the emergency rules.

Once the emergency rules are adopted, they’ll remain in effect for six months (and can be renewed for up to six more months) before permanent marijuana rules must be adopted.  Once the permanent rules are drafted, there will be an additional period for comment so that the rules are thoroughly vetted in a public forum.

Michigan also plans to consolidate its rules governing licensees for recreational and medical marijuana businesses to eliminate confusion where the recreational and medical rules may differ or conflict. States like Nevada have maintained two sets of rules, which has proven difficult for regulators to enforce and businesses to navigate.

Michigan is also pioneering a new data-sharing platform to allow banks and credit unions to perform enhanced due diligence on marijuana businesses that apply for accounts with them.  Federal regulations make it difficult, if not impossible, for marijuana-related businesses to obtain even basic banking services. Since selling marijuana is still a federal crime and federal law says financial institutions can be held liable if touch money obtained through illegal actions, banks tend to stay far away from marijuana businesses. Even if a bank is interested in providing services, the U.S. Treasury Department requires banks to continually verify that marijuana businesses are properly licensed and that every transaction the businesses conduct is legitimate.  Banks must file ongoing reports detailing these marijuana-related transactions.  Thus, the risk and compliance costs of servicing a marijuana account are far higher than the earnings needed to make it worthwhile for the banks.

The Michigan data-sharing platform, however, could change this dynamic by allowing banks to gain access to the state’s track-and-trace database that is going to monitor and contain data on every marijuana transaction. It will also provide banks access to all of the application materials businesses submitted in order to receive a state marijuana license, which could help allow banks to meet their reporting requirements to the U.S. Treasury Department without the need to gather additional forensic accounting data on their own.  If the platform proves successful, it could serve as a model for other states and help solve the marijuana banking crisis.

It’s encouraging to see a state innovating in the marijuana space and running ahead of schedule.  These efforts are exceptional among regulators, although most states still have room to improve their marijuana programs.