Vertical Integrating Your Cannabis Business? Why and How To

An important factor for your consideration is vertical integration for cannabis business.

You can do this by obtaining one (or more) types of licenses, such as a grower, processor and/or provisioning center.

Rather than limiting each business to only one license type, the State of Michigan allows—but doesn’t require—vertical integration for cannabis business.

Below, we outline what’s required to vertically integrate your cannabis business, why to consider this business model, and much more.

Interested in starting a vertically integrated cannabis business? Want to vertically integrate your existing cannabis business? Request a consultation now.

What is Vertical Integration for Cannabis Businesses?

Vertical integration allows a company to combine one or more of its business operations in the supply and/or distribution chain.

This means that a licensed business can both produce and sell their product to customers, rather than operating as a stand-alone facility.

This can be accomplished by either:

• acquiring two or more properties in the same or different municipality and obtaining one state operating license of a different type for each individual location; or
• operating in the same location as a grower, processor, and/or provisioning center.

Interested in starting a vertically integrated cannabis business? Want to vertically integrate your existing cannabis business? Request a consultation now.

Benefits of Vertical Integration for Cannabis Businesses

On the one hand, vertical integration for cannabis business is an efficient model.

It allows businesses to maximize profit margins, take advantage of more favorable tax deductions, lower overhead costs, and control inventory.

Additionally, vertical integration for cannabis businesses can tailor more to customers while also offering products at a lower price point.

This model also results in fewer facilities for state and local authorities to regulate and oversee.

Interested in starting a vertically integrated cannabis business? Want to vertically integrate your existing cannabis business? Request a consultation.

Downside to Vertical Integration

However, vertical integration arguably favors bigger businesses with deeper pockets.

This may create barriers to entry, since it costs a lot of money to apply for and obtain multiple licenses at both the state and local level.

This isn’t to mention the difficulty of simultaneously running multiple facilities.

Additionally, vertically integrated cannabis businesses are incentivized to sell their own products rather than buying from other licensed facilities.

This can result in fewer product options for customers.

However, the silver lining is that there’s always demand for a number of licensees that specialize in offering certain products.

Interested in starting a vertically integrated cannabis business? Want to vertically integrate your existing cannabis business? Request a consultation.

Co-Location/Stacking for Cannabis Businesses

Typically, vertically integrated cannabis businesses want to operate in the same location.

By now, Michigan municipalities are familiar with both the pros and cons of vertical integration of cannabis businesses.

While municipalities don’t have the authority to prevent vertically integrated cannabis businesses, they can restrict your ability to operate at the same location with stacked licenses.

This business model can be the most efficient and cost-effective way to operate, especially since a secure transporter isn’t required in order to transfer marijuana if everything is operated in the same location.

According to the Marijuana Regulatory Agency (MRA), operation at the same location (commonly referred to as co-location) is allowed for any licensee with any combination of marijuana licenses, as long as:

• The MRA has authorized the proposed operation at the same location.
• The operation at the same location is not in violation of any municipal ordinances or zoning regulations.

In other words, since municipalities can limit the number and type of facilities within its jurisdiction, they can prohibit co-location and stacking.

Interested in starting a vertically integrated cannabis business? Want to vertically integrate your existing cannabis business? Request a consultation now.

Municipalities Influence on Michigan’s Cannabis Industry

Since Michigan allows—but does not require—vertical integration, municipalities may—or may not—allow vertically integrated cannabis businesses in the same location.

Municipalities should be more willing to allow more co-location cannabis businesses for the main reasons below.

From the Licensees’ Perspective

With a greater number of retailers in existence, the independent growers and processors can sell their inventory to more locations rather than struggling to establish relationships.

From the Municipality’s Perspective

The decision to allow cannabis businesses only makes sense they’re set up to succeed and thrive in this industry.

If a municipality decides to prohibit stacking and co-location for cannabis businesses while other municipalities allow it, then they’re only going against their city’s potential revenue.

Ready to Explore Vertical Integration for Your Cannabis Business?

Overall, each municipality is unique and will take its own approach toward the decision on whether to opt-in.

If you’re interested in a municipality that hasn’t yet opted in, or has opted out, our proven cannabis attorneys can help you.

By thoroughly researching all of the issues—including vertical integration, co-location, and stacking—each municipality will make the best choice for the health, safety, and welfare of its residents and business owners.

Whether it’s getting initiatives on local ballots for the citizens to decide the fate of marijuana businesses, or lobbying, our team of experts has significant experience doing both successfully.

Interested in starting a vertically integrated cannabis business? Want to vertically integrate your existing cannabis business? Request a consultation now.