Do Michigan Dispensaries Need a Provisioning Center License?

Published Jul 26, 2017
Cross Posted on

The answer is maybe. The Michigan Marihuana Facilities Licensing Act, Public Act 281 of 2016 (“MMFLA”) creates a category for dispensaries called “provisioning centers”, which under the law is a licensed entity that purchases marijuana from a grower or processor and sells it to a patient or caregiver. Dispensaries, on the other hand, currently operate under the Michigan Medical Marihuana Act, Initiated Law 1 of 2008 (“MMMA”). While the MMFLA did modify the MMMA in certain respects, it did not replace it. Transfers from legal caregivers to their patients are still protected under the MMMA. Thus, a dispensary could technically operate under the MMMA and not obtain a provisioning center license. However, a provisioning center can legally sell to any Michigan patient or any Michigan caregiver, whereas caregiver centers can only legally sell to its own patients (even though many choose to ignore this restriction).


The main problem with this is that Michigan courts have found dispensaries to be illegal under the MMMA. In State of Michigan v. Brandon McQueen and Matthew Taylor, d/b/a Compassionate Apothecary, LLC, the Michigan Supreme Court ruled that the MMMA does not authorize or permit marijuana dispensaries and that dispensaries can be shut down under state nuisance laws. The court also found that the MMMA only offers immunity to transfers from a registered caregiver to the caregiver’s registered qualifying patient as listed in the state registry and does not offer immunity for transfers to anyone else.


Despite this decision, dispensaries operating under the MMMA are flourishing in cities and counties that have chosen to allow them. Several cities—most notably Detroit and Ann Arbor—have chosen to ignore the court ruling. However, this could no longer be the case for these cities. City officials and county prosecutors could decide that given the new legal framework, the rationale for looking the other way—that the dispensaries provide a service to patients—is no longer the case with the MMFLA allowing dispensaries licensed as provisioning centers. There is also the possibility that LARA addresses this issue in its upcoming MMFLA regulations due to come in early fall 2017 or in later regulations.


There may be another reason for dispensaries to obtain a provisioning center license. With many, if not most, dispensaries planning on obtaining a license and being subject to the new law—and all the costs, fees and taxes involved in complying with it—they may not be so accepting of neighboring caregiver centers. In other words, many of the people who advocated strongly for dispensaries under the MMMA could become their biggest opponents if they believe competitors operating without a license as “caregiver centers” have a competitive advantage. They could pressure cities to crackdown or even bar dispensaries operating as caregiver centers.


In short, while dispensaries may be able to operate as caregiver centers for the time being, doing so is fraught with risk. In contrast, the MMFLA provides explicit legal protections from prosecution for provisioning centers with a valid license.  It is therefore recommended that dispensary owners obtain a MMFLA provisioning center license.


Business Owner's Guide to the MMFLA

Published Jul 16, 2017

This Business Owner’s Guide to the Medical Marihuana Facilities Licensing Act (“MMFLA”) is a high-level summary of the Michigan Legislature Public Act 281 of 2016; pertaining to the descriptions, conflicts of interest and requirements for legally establishing and operating the five types of Medical Marijuana Businesses: Growers, Processors, Secure Transporters, Provisioning Centers and Safety Compliance Facilities.


Licenses and Activities Regulated by the MMFLA


The law requires the following five types of medical marijuana companies to obtain a license with Michigan’s Department of Licensing and Regulatory Affairs (“LARA”):


     (1) Growers:


  • Description:
    • A business entity that grows, dries and packages marijuana
    • 3 classes of grower licenses
      • Class A (500 plants)
      • Class B (1,000 plants)
      • Class C (1,500 plants)
    • Can only sell or transport marijuana using a licensed secure transporter
  • Conflict(s) of Interest: 

Click Here for the Full Business Owner's Guide to the Medical Marihuana Facilities Licensing Act

  What’s the Difference Between a Corporation and LLC?


      Published June 16, 2016


       This question often puzzles start up and small business owners. That’s because there are times when an entity is treated like a corporation by the IRS, but treated like an LLC by the state.   Why is this?  It’s because there are actually two different ways to answer this seemingly simple question. 


       When people ask this question, what they are usually referring to is how the company is organized under state law. In Michigan, a company can organize as a corporation, a limited liability company, or a “low-profit limited liability company” (sometimes referred to as an “L3C”). The entity type you choose will decide the default set of rules that apply to your company. Generally speaking, limited liability companies are given more flexibility in how they are managed, which makes them the ideal entity choice for most small and closely held businesses. Corporations, on the other hand, are governed by a more rigid set of default rules, which is ideal for companies with a mix of active and passive shareholders or companies that are looking to bring on additional investors in the future.


       Choosing to be governed as a limited liability company does not mean you have to be taxed as a pass through entity. Under what is commonly referred to as IRS “check the box” elections, an LLC can choose to be taxed as a c-corporation, an s-corporation, a partnership, or a sole proprietorship—all the business owner has to do is make sure they meet the IRS classification requirements and fill out the appropriate form. Thus, a business can be an LLC for state governance purposes, but a corporation for state and federal tax purposes.  Contact Mr. Roberts today to set up a free legal consultation.


Should Your Trust Hold Your Closely-Held Business Interests? 


       Published: March 21, 2016


       One question that is commonly asked by small business owners is whether they should hold shares of their business in a revocable (aka “living”) trust. Trusts allow business owners to pass on their ownership interests without involving the probate court. This can reduce the expenses related to appraising the interests and dividing it up among the owner’s heirs. Trusts also ensure the continuity of the business after the owner dies. If the business interests must instead pass through the probate court, the business will not have an owner until a personal representative is appointed by the court, which can take time.


        In addition, trusts allow a business owner to protect his or her business interest from the owner’s own beneficiaries. In other words, a business owner may not want an irresponsible, minor or disabled beneficiary to directly inherit or control the business.  A trust would allow the owner to appoint a trustee to control the business interests as well as prevent an irresponsible beneficiary from recklessly spending their inheritance.


        While there are many advantages to putting your business interests in a trust, there are certain complications to doing so, including:

  • When there is language in an operating agreement or buy-sell agreement limiting the transfer of ownership interests. Without language excepting transfers to self-settled trusts, the owner may need to obtain the consent of all of the other owners prior to transferring his or her interests into a revocable trust.


  • When there is “feuding spouses” and a joint revocable trust. For example, a business owner and the owner’s spouse may disagree on how the business should be run. If both the owner and the owner’s spouse are named as trustees, and the trust does not contain language specifying how decisions regarding the trust’s interest in the company should be made, any disagreement could potentially paralyze the ability of the trust, and by extension the company, to act.  This problem can be avoided by creating separate trusts for each spouse, or by adding language into a joint trust to clarify who controls which assets.


  • When the trust owns shares in a sub-chapter S corporation. Sub-chapter S corporations may only own certain types of trusts and may only have one class of shares, though the terms of the trust can be carefully crafted to get around these restrictions. Limited liability companies avoid this issue entirely.

       In certain situations, a family limited liability holding company may better protect an owner’s business interests and may provide certain tax advantages compared to a revocable trust. Revocable trusts also do not provide any meaningful creditor or asset protection by themselves, unlike LLCs and irrevocable trusts.  The next blog post will address the advantages and drawbacks of using family LLCs for estate planning and asset protection purposes. 


Is a Revocable Trust Right For You?


        Published February 10, 2016


        Revocable trusts (a.k.a. “living trusts”) are one of the most common estate planning tools used by Michigan lawyers.  A revocable trust is similar to a corporation or limited liability company in that it is a legal entity capable of holding some or all of your assets. You are also able to freely transfer assets in and out of the trust as you see fit, and you do not need to file a separate tax form for the trust. Like the name suggests, you can “revoke” or dissolve the trust anytime you’d like when you are alive. Upon your death, the trust becomes “irrevocable”, meaning it becomes a separate, taxable entity and can only be dissolved under the terms provided for in the trust document. The trust can then continue to hold your assets for the trust’s beneficiaries, or distribute all of your assets immediately upon your death.


        One of the main advantages of a revocable trust is that it avoids probate court, which can be both time consuming and expensive. Probate court can also be particularly stressful for your personal representative, especially if that person is not familiar with probate law. Trusts are considered “non-probate” assets, meaning any assets held by the trust do not go through the probate court system. However, if most if not all of your assets are “non-probate” assets, then this will not be of much benefit. For example, if your assets consist of a life insurance policy, payable on death (“POD”) bank account, and a car, a trust would provide little benefit as all of these assets are able to pass outside the Michigan probate system.  Alternatively, assets such as brokerage accounts (without a POD designation), most real estate interests, and business interests would pass through the probate system if not first placed in a trust.


        Another advantage of a revocable trust is that, unlike a will, it allows you to control your assets after your death. For example, parents with young children may not want to pass all of their wealth to their children or their children’s guardian immediately, but instead provide for incremental payments. Thus, parents of a ten year old child may want to provide money to reimburse the guardian’s expenses while the child is still under the age of 18, while using the remaining money to pay for the child’s college education. The parents of grown up children may want to only provide for payments when the child reaches a certain age—e.g. 30 years old—or achieves a certain goal—e.g. graduation from college or buying a home. Without a trust, your assets would be passed outright under the terms of your will, or if there is no will, under Michigan inheritance laws.


        Other advantages of having a trust are that it preserves your privacy because a revocable trust does not need to be filed with the court, meaning it is not a public record. It also allows for greater flexibility and control, which enables you to choose who controls the assets, how they are managed, and how and when the assets should be distributed. Finally, it is harder to contest a trust compared to a will, a trust is relatively easy to set up and maintain, and a trust can provide pre-nuptial protection in certain circumstances, which can be especially important for second and third marriages.  


        Contact Mr. Roberts today to schedule a free legal consultation, or attend a free Social Security and Estate Planning Seminar this February 23, 2016 @ 7:00 p.m. or this March 1, 2016 @ 7:00 p.m. to learn more about revocable trusts and other estate planning tools. 



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Scott F. Roberts, Esq. is available to represent individuals, companies, trusts, and non-profit entities throughout the Southeast Michigan area, including Ann Arbor, Berkley, Bloomfield, Birmingham, Canton, Dearborn, Detroit, Farmington Hills, Franklin, Ferndale, Livonia, Novi,  Pontiac, Port Huron, Rochester, Royal Oak, Southfield,  Sterling Heights, St. Clair Shores, Troy, West Bloomfield, Waterford, Warren, and all cities within Oakland County, Wayne County, Macomb County, Livingston County, Washtenaw County and Monroe County.

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