Lessons Learned From California Transition to MMMA to MMFLA

Last week, I read about the cannabis industry in California. The State of California had previously established a “transition period” for a limited time where businesses could sell certain products that (1) had not been tested according to new regulations, (2) did not meet strict packaging and labeling requirements, and (3) did not satisfy potency limits. However, after July 1 of this year, companies were forced to comply with all of the new statutory and regulatory requirements. Voicing their concern about the deadline’s impact on existing facilities and consumers, the industry and other interested parties wanted more time before the new rules and regulations became effective, but the deadline was not extended. Here’s what happened:

The market was disrupted.

  • Supply shortages
  • Increase in prices

The changes created a bottleneck.

  • More growers sending product to be tested
  • Not enough testing labs fully operational
  • Existing testing labs overloaded with product to be tested
  • Manufacturers of other cannabis products experiencing additional delays
  • Uncertain and longer wait times for product to reach the shelves

The deadline, new rules, and regulatory framework itself had a negative impact on the industry (at least in the short term).

  • Existing facilities forced to destroy product or shut down operations
  • Consumers faced with fewer product options, limited locations, and higher prices

Sound familiar? If not, just wait. This might be exactly how Michigan’s emerging medical marijuana industry will look if the September 15, 2018, deadline for temporary operating facilities is not extended to a later date where there are enough licensed facilities to sustain the market for patients and allow the industry to run smoothly.

The deadline and its impact on existing facilities in Michigan could be disastrous for everyone involved, but it will have the biggest impact on patients. The primary justification for allowing temporary operation was to maintain patients’ continued access to medical marijuana during the transition to the new licensing and regulatory framework.

Extending the deadline is the best (and probably only) option available if the State of Michigan wants a smooth transition period without disrupting the market and creating obstacles for patients. Even if the deadline were extended for another 30 days (or more) past September 15, it remains unclear exactly when there will be “enough” licensed facilities up and running to sustain demand in the short term and allow the market to grow.

Overall, it’s a complicated issue and only time will tell how Michigan will respond to this difficult decision.

Why Did LARA allow Temporary Operation?

In September 2017, before the Emergency Rules were adopted, LARA announced that it planned on forcing existing facilities to shut down by December 15. In a News Release, LARA explained:

The department’s intent for the emergency rules is to consider any operation of a facility – that would otherwise need to be licensed under the MMFLA – as a potential impediment to licensure if continued after December 15, 2017. LARA will begin accepting license applications for all facilities on that date. This applies to all facilities defined under MMFLA. This approach will allow existing operations to wind down while also giving adequate time for patients to establish connections to caregivers to help ensure continuity of access.

This resulted in a significant amount of outrage and backlash from the public, primarily due to concerns about interfering with patients’ access to medical marijuana.

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LARA eventually changed course in early November and issued a News Release on how the Emergency Rules would allow the existing facilities “to continue to operate with local approval without impacting the applicant’s eligibility for licensure.” The explanation for allowing temporary operation in the Advisory Bulletin released the following day was “to help ensure the continued protection of medical marihuana patients.”

Rule 19 of the Emergency Rules released in December 2017 officially allowed existing facilities to continue operating under limited circumstances. And at their own risk. There was an application deadline on February 15, 2018, and another deadline on June 15, 2018, to either (1) obtain a license, (2) shut down, or (3) continue operating and risk disciplinary action and potential criminal charges for unlicensed activity.

In response, LARA issued yet another News Release in May 2018 and extended the Emergency Rules. The updated version of Rule 19 changed the deadline to September 15, 2018, for existing facilities that submitted the state application on time and are making a good-faith effort to become licensed and fully compliant. The reason for the extended deadline was to ensure the MMFLA was implemented properly and to allow for a thorough review of each applicant. Additionally, this decision was made in order to maintain patients’ continued access to medicine.

What’s Happening Now with Temporary Operation?

As the September 15, 2018, deadline approaches, there are certain realities that have set in:

  • The application process is extensive, but growing pains are expected.
  • It requires a significant amount of time and effort for Applicants to prepare, LARA to review, and the Board to approve or deny each application, but the application process has been a learning experience for everyone involved given the new law and changing administrative rules.
  • The application process is taking longer than anticipated
  • There are currently only sixteen (16) licensed facilities throughout the entire state, which cannot possibly serve the entire patient population in Michigan.

There is a lot of uncertainty right now. And there have been more demands for LARA to act by extending the deadline for temporary operation, including from a group Michigan politicians advocating in support of the extension for the sake of patients, small businesses, and job creations.

Should the Deadline be Extended?

It’s a difficult question to answer given Michigan’s history with medical marijuana, but it’s important to remember the primary reason for the MMMA and MMFLA: the patients.

In hindsight, the caregiver-patient model created by the Michigan Medical Marihuana Act (“MMMA”) in 2008 did not fully address the needs of patients. The reality is that a patient may need a variety of strains and different forms of medical marijuana based on his or her medical condition(s). It’s unreasonable to expect an individual patient or his or her single caregiver to be able to provide a wide variety of medical marijuana products necessary to satisfy that need.

The State of Michigan finally acknowledged that reality in September 2016 by adopting the MMFLA to provide patients with better access to safer and high-quality medical marijuana products that are grown, tested, and sold by state-licensed facilities. However, things evolved faster than the laws were changed. There had already been a response to the lack of legislative action to fix the broken system. Certain municipalities responded by establishing local licensing requirements for facilities with the patients’ needs in mind. And an essential service was provided to patients which allowed for reasonable access to different sources and types of medical marijuana.

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What Michigan Could Learn from California’s Deadline Decision

With the best interests of patients in mind, Michigan could learn from what happened in California and how the deadline affected the industry and consumers there.

In California, the decision not to extend the deadline for existing facilities to comply with new regulations has had negative consequences. There is a low supply of product that satisfies the testing and packaging/labeling requirements, and consumers are faced with higher prices and fewer options. More facilities need to be licensed, but there are delays in the application process. And businesses had to destroy certain products, or worse, shut down.

If the temporary operation deadline in Michigan is not extended, then it is likely that patients will suffer with higher prices, fewer options, and limited access to medical marijuana that complies with all statutory and regulatory requirements. There are only sixteen (16) licensed facilities in Michigan, and not all are operational since more facilities need to be licensed before the industry can reasonably be expected to run smoothly from a logistical and business perspective. However, there are delays in the application process, and there is only one more opportunity on September 10 for the Board to issue licenses before the deadline. Unless there is an extension, all existing facilities with local approval that have not obtained a license by September 15 will have to shut down or risk engaging in unlicensed activity.

Conclusion

When the permanent Administrative Rules become effective in December 2018, it is likely that all existing facilities that do not have a license by that time will have to close down. Until then, it is unclear exactly how many facilities will be licensed before the deadline passed and this transition period officially ends. Another uncertainty is precisely how many facilities need to be licensed for the market to be viable.

Hopefully the decision on whether to extend the deadline and judgment call on the number of licensed facilities at the end of the transition period will strike a delicate balance between two complicated issues: (1) achieving the spirit and purpose of the MMMA and MMFLA by establishing a system that satisfies every patient’s needs for medical marijuana and (2) the State of Michigan’s need to establish, license, and regulate its new and emerging medical marijuana industry.

Nickolas Galendez (16 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.


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