The Medical Marihuana Facilities Licensing Act (“MMFLA”) creates a regulatory and license structure for medical marijuana growers, processors, provisioning centers, transporters and safety testers. Below we briefly examine what it will cost an applicant to apply for a license, and certain ongoing fees and costs for a licensee.
Application Fee to LARA
The licensing process will be administered by a Board created within the Michigan Department of Licensing and Regulatory Affairs (“LARA”). An application for a license must be accompanied by a non-refundable application fee “. . . to defray the costs associated with the background investigation conducted by the [B]oard.” While the MMFLA does not set the amount of this fee, the application fees charged by LARA’s Liquor Control Commission for a new liquor license can exceed several hundred dollars, plus the costs of fingerprints and criminal records. The nonrefundable marijuana facilities application fee could easily exceed $1,000, and the law explicitly allows additional fees to be charged to the applicant if the actual investigation costs more than the fee provides.
Annual Fee to Locality
Any license applicant will need their city, village or township to have adopted an ordinance to authorize the type of facility the applicant desires. The ordinance may provide for an annual, nonrefundable fee of not more than $5,000 per license. The fee is assessable against a “licensee,” so until the State of Michigan has in fact issued the license, there can be no assessment of the fee.
Annual Assessment to LARA
License holders must also pay an annual regulatory assessment, which is intended to cover LARA’s costs to implement, administer and enforce the MMFLA. The statute does not establish the amount of the assessment, except that the annual regulatory assessment for a Class A grower (500 plants) shall not exceed $10,000, suggesting that other licenses could cost more. Ultimately, LARA will have data to more precisely establish its costs to administer the MMFLA, as well as the number of licensees under the act. Until then, however, potential licensees should be certain they have the financial resources to pay this assessment.
In summary, a license applicant should expect to pay a nonrefundable application fee of at least hundreds of dollars. If their application is granted, the licensee may pay thousands of dollars in annual fees to their locality and to LARA. The precise amounts will begin to be developed and revealed probably in the next six to twelve months.
Provisioning Center Retail Sales Tax, General Sales Tax, and Soft Costs
The MMFLA establishes a 3% tax on a provisioning center’s gross retail receipts. Unlike traditional sales tax imposed on the buyer of goods, this tax is “. . . on each provisioning center.” Nothing in the law restricts this tax to medical marijuana sales, and there is no prohibition on a provisioning center selling other types of products. Because sales of non-marijuana merchandise can sometimes be advantageous under Internal Revenue Code section 280E, a provisioning center licensee will want to consult its tax professional to determine whether to limit sales to medical marijuana.
Will the retail sale of medical marijuana be subject to Michigan’s 6% sales tax? While medical marijuna is called “medical’ it is unlikely that the medicine exemption from sales tax will apply. It requires that medicine has to be prescribed by a physician. So for now, a provisioning center should plan to collect and remit sales tax on its sales. Other licensees in the production, processing, and testing chain should also be alert that sales or use taxes may be required on their activities.
Soft costs of a licensed business can be varied. For example, seed to sale tracking will be an integral part of every licensee’s business activity, and licensees may be required to contribute fees, and/or purchase software or hardware, to participate in the system. In addition, periodic audits may well occur with an audit fee. If the licensee is an employer, employee background checks will be required of some employees, at a possible cost of several hundred dollars per employee. And, as the MMFLA is implemented, it’s probable that many other softs costs of a licensee will become apparent.
Follow our upcoming blogs for more analysis of the MMFLA and related laws.