Michigan Cannabis Inventory Shortage Forces Regulators Hand

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Slow Retailer License Approval Process Results in Michigan Regulators Changes
Requirements for Product Sourcing 

Michigan regulators have announced that they would once again seek to
change allowances regarding inventory produced by registered caregivers, while
also permitting applicants that have not yet received their state licenses, but
have met other criteria, to reopen and do business with licensed operations.

At the beginning of this year, Michigan regulators compelled roughly 70
dispensaries – called “provisioning centers” in state rules – to shut down.
Those dispensaries had submitted applications for a state license and had been
running under temporary authorization for much of 2018. However, the slow pace
of the state’s Medical Marihuana Licensing Board (MMLB) in issuing permits
meant that only about 50 dispensaries out of several hundred applicants
received state licenses last year and were eligible to continue operating when
2019 began.

Prior to imposing and enforcing the December 31, 2018 licensing
deadline, the Michigan Department of Licensing and Regulatory Affairs (LARA) recommended
that dispensaries be allowed to
sell product obtained from registered caregivers through the end of January, as
long as it was tested according to new requirements. As a result of LARA’s
recommendation, licensed cultivators were technically allowed to obtain product
from caregivers through the end of February, but again must have it tested
prior to transferring it wholesale.

Despite these allowances, reports from MLive
and the Detroit News
describe bare shelves at some
dispensaries, while others that have licenses have shut down voluntarily for
lack of inventory. According to the reports, dispensary owners have been
balking at high asking prices, choosing instead to close their doors until more
product is available at better rates. Whether cultivators have taken advantage
of the allowance to bring caregiver product into the regulated market is
unknown, but the high costs of meeting new compliance requirements, obtaining a
license, and getting up and running mean that many may not have large amounts
of excess cash on hand to engage in such deals.

In response to the situation, LARA issued a notice, stating that it will recommend
to the MMLB that it adopt a new resolution designed to increase patient access
and available inventory. LARA’s recommendations will allow the roughly 70
dispensaries that were operating under temporary authorization last year to
reopen through the end of March.

Additionally, dispensaries will in the same period be permitted to
obtain product from registered caregivers and from unlicensed facilities under
temporary authorization. Prior to LARA’s new motion, dispensaries have since
the start of this year been restricted to obtaining product only from licensed
cultivators, many of whom are still working to get up and running fully.
Furthermore, dispensaries will be able to sell product purchased from
caregivers and temporarily operating businesses without having it tested
according to requirements now in effect, if patients are willing to sign a
consent form.

Finally, cultivators and processors will also be allowed to purchase
inventory from caregivers and temporarily operating facilities through the end
of March but may only transfer products that have met all of the state’s new
testing requirements. Notably, LARA has already issued four
recalls
this year of product that has
either failed testing, or entered commerce without undergoing required screenings. If product is unable to
meet stringent testing requirements, then available supply could be crimped
even more than it reportedly is already.

It should also be pointed out that with so few dispensaries open to
serve the state’s roughly 300,000 patients, it is likely that many do not have
convenient access to a licensed storefront, even if the 70 businesses compelled
to shut down at the start of the year do reopen. Prior to local and state
regulators attempting to reign in the state’s long standing informal medical
market, hundreds of dispensaries operated across the state; in Detroit alone
there were nearly 300, more than twice the number of currently licensed
dispensaries and those just authorized to reopen temporarily combined. The
contraction of dispensaries in Michigan, whether licensed or not, has likely
pushed a significant number of patients to obtain product from caregivers or
other unlicensed sources, reducing demand in the regulated market.

The MMLB adopted LARA’s recommendations at its meeting on Thursday,
January 16th, according to MLive. Whether the new measures put forward by LARA will ameliorate the
issues plaguing Michigan’s nascent regulated
cannabis market remains to be
seen.

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