Why your MMFLA application will be denied

Now that the Medical Marihuana Licensing Board has started reviewing applications and issuing decisions, it is extremely important for every applicant to learn exactly how the Department of Licensing and Regulatory Affairs (“LARA”) and the Board are reviewing each application and the various reasons why the Board may grant or deny an application.

So far, most of the Board’s attention has been focused on (1) the extent that an individual’s criminal should justify denying an applicant, (2) potential red flags in an applicant’s financials, bank accounts, and tax returns; (3) the importance of accurately and correctly filling out the required disclosures and responding truthfully and transparently to any deficiencies identified in the application.

However, there are differences between the criteria that will result in an automatic disqualification and other potential reasons why the Board may, but is not required to, deny a particular application.

Automatic Disqualifications

Under the Medical Marihuana Facilities Licensing Act (“MMFLA”), there are certain criteria that will automatically disqualify an applicant from obtaining a license:

  • Felony convictions within the past 10 years;
  • Misdemeanor convictions (or equivalent local ordinance violations) involving a controlled substance, dishonesty, theft, or fraud within the past 5 years;
  • Knowingly submitting an application that contains false information;
  • Failure to demonstrate the ability to maintain adequate premises liability and casualty insurance;
  • Holding elective office or a position on the Board or within a local, state, or federal governmental unit or regulatory body;
  • Failure to comply with Section 205(1) of the MMFLA (applying for a facility in a municipality that has not officially opted in); and
  • Failure to meet other criteria established by the State.

Beyond the automatically disqualifying factors listed above, there are several different reasons listed in the MMFLA that allow the Board to deny your application:

  • Integrity, moral character, and reputation;
  • Personal and business probity;
  • Financial ability and experience;
  • Responsibility or means to operate or maintain a marihuana facility;
  • Financial ability to purchase and maintain adequate liability and casualty insurance;
  • Sources and total amount of capitalization to operate and maintain the proposed marihuana facility;
  • Overall criminal history (felony or misdemeanor), which includes any and all arrests, charges, convictions, and incarcerations;
  • Bankruptcy proceedings within the past 7 years;
  • Tax delinquency issues at the local, state, or federal level for 1 or more years;
  • History of non-compliance with any regulatory requirements;
  • Involvement in civil litigation involving business practices at the time of application; and
  • Whether other standards in the Emergency Rules are satisfied.

Emergency Rules Denial

Rule 12 of the Emergency Rules contains additional reasons why the Board may deny an application:

  • The marihuana facility plan does not fully comply with the MMFLA or the Emergency Rules;
  • The proposed marihuana facility is substantially different from the facility plan;
  • The Department is unable to access the facility for pre-licensure inspection or were denied access;
  • Material misrepresentations on the application;
  • Failure to correct deficiencies in an application;
  • Failure to satisfy the confirmation of compliance by a municipality (Attestation I on Step 2 of the application); and
  • Operating without a license or without authorization for temporary operation.

What You Can Do to Ensure a Successful Approval

As the Board continues reviewing applications, deliberating during its public meetings, and issuing decisions, there will be more data and precedent to rely on during the application process. For now, here are a few key considerations to ensure that your application has the highest probability of being approved:

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1. Submit a Complete Application with All Supporting Documentation

LARA and the Board are slowly—but surely—processing, reviewing, and issuing decisions on the hundreds of applications that have been submitted since December 15, 2017. To help streamline the process, every applicant should think twice about rushing to submit an application. Cutting corners by failing to disclose all the required information and neglecting to include every single attachment necessary in the application will only cause further delay.

LARA has been issuing deficiency letters to applicants, and the more deficient an application the more time it will take to gather all the information and documents requested in order to properly respond to those deficiencies. Additionally, an applicant’s failure to disclose information at the initial submission stage may raise questions in the mind of the Board regarding whether an individual knowingly submitted an application that contains false information or a material misrepresentation, even after there has been an opportunity to respond and the all deficiencies have been fully cured.

 2. Go Above and Beyond the Application Requirements and Provide Explanations when Necessary

The disclosures and attachments required for the state application under the law and rules are the bare minimum as far as what should be included in an application. The more information that LARA and the Board know about each applicant, the greater the likelihood that a qualifying applicant will be approved. Context is key, especially for applicants that may be concerned about certain issues from the past.

If there are any questions or concerns that LARA or the Board may have about an application, it is important to be proactive when submitting the application and provide a full explanation regarding the incident or issue rather than responding to requests for further information after the fact. The Board will be considering every applicant’s integrity, character, reputation, business probity, and experience, and including a resume or narrative that addresses those key components may make the difference between obtaining an approval versus a denial.

3. Plan Out and Document Every Detail of your Facility and its Standard Operating Procedures

At this early stage in the application process, there are a greater number of applicants who are waiting for pre-qualification from the Board while seeking local approval from a municipality or searching for the right location. For those reasons, the primary focus of the Board at its previous public meetings has been on Step 1 pre-qualifications. However, as more and more applicants submit their Step 2 facility license applications and the Board is tasked with whether to grant or deny a state operating license, there will be greater scrutiny in terms of how the facility is planned and whether an applicant’s standard operating procedures comply with all the laws and regulations. LARA will also be conducting several pre-licensure inspections of each facility to determine whether the facility plan matches the actual facility.

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Since an application can be denied if the facility plan does not fully comply with the laws and rules, every aspect of the facility plan and standard operating procedures should be carefully thought out and reviewed to determine whether they are in full compliance with all regulations.

The Board also has the authority to deny an application if the facility is substantially different from the facility plan. It will be equally important for every applicant to follow through with the facility plan exactly as it is described in the submitted application.

When preparing for Step 2 and the facility license application, every applicant should also be mindful of the compliance costs associated with the information contained in a facility plan. Depending on an applicant’s financial ability, there may be budget constraints that may arise at the beginning or in the future that could be too costly to maintain. For example, a facility plan that proposes five hundred security cameras may not be feasible if it would be unreasonable or impractical to operate at that capacity. Every applicant should carefully consider how to best craft the facility plan to avoid these issues to the maximum extent possible.

Final Thoughts

In closing, the application process for a state operating license should be not be taken lightly. It makes more sense to be cautious, proactive, and fully transparent rather than reactive and on the defensive regarding all the application disclosures and attachments. Considering all of the time, money, and resources that will be spent by each and every applicant in hopes of obtaining a facility license, it is better to be safe than sorry by including more than just the bare minimum that is required by the State in order to ensure that you are in the best position to succeed in obtaining a license.

Nickolas Galendez (11 Posts)

Nickolas Galendez is an associate attorney with the Cannabis Legal Group. Since joining the State Bar of Michigan in 2015, Nickolas has practiced medical marijuana law under the Michigan Medical Marihuana Act and the Medical Marihuana Facilities Licensing Act. For over two years, Nickolas has gained significant experience related to preparing and filing applications for local and state licenses; property, land use, and zoning issues; as well as education and advocacy efforts. Nickolas graduated in 2010 from the University of Michigan, Ann Arbor, with a Bachelor of Arts in Sport Management. In 2015, Nick earned his law degree from Michigan State University College of Law where he was a member of the Michigan State Law Review and published an article on civil procedure and personal jurisdiction in the Dartmouth Law Journal. During law school, Nick developed his legal research and writing skills while working as an extern for the Michigan Court of Appeals Research Division, the Honorable Mark T. Boonstra of the Michigan Court of Appeals, and the Honorable Bridget Mary McCormack of the Michigan Supreme Court.

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