If you want to own a cannabis business in Michigan, there are a few things it helps to know about the application process.
There are 3 main parts to the application process. The state prequalification application phase, the municipal application/certificate of occupancy phase, and the state facility application phase. The applications must be completed in this order.
This is the first part of a three part series covering each step of the application process.
The application for prequalification can be done before you have a building or know what location you’re interested in. However, keep in mind that prequalification expires after 2 years, at which point you have to reapply for prequalification and pay the application fee again. The prequalification fee at the moment is $3,000. To apply for prequalification, assuming one is not applying as a sole proprietor, forming a new company is the easiest way to go.
Step I: Prequalification
Before the real work of opening your business even begins, you must meet certain basic requirements, including submitting to a tax and criminal background check. If you are applying for a license as a business rather than as an individual, there are even more steps prior to prequalification. However, there are many benefits to operating your cannabis business through an LLC or other business entity. We help our clients form the best corporate structure for their needs, and we tailor their governing documents (e.g. bylaws; operating agreements) to reflect the desired relationship between and roles of the owners of the company.
A business entity applying for a license will also need a federal employer identification number (FEIN), which is something an accountant can help you obtain. The FEIN is required for, among other things, the treasury attestation, which needs to be completed by the entity and all supplemental applicants. This attestation is also signed by the Michigan Treasury department, and affirms that the entity and supplemental applicants do not have any delinquent taxes owed. Any person responsible for exercising control over the company is considered a supplemental applicant, even if they hold only a minimal percentage of ownership. This means they have to do a supplemental application, and so does their spouse - even if the spouse is not involved with the company.
There are different requirements regarding who has to be disclosed in the application and who has to do a supplemental application based on whether an adult-use or medical facility license is being sought, and based on the structure of the entity. For instance, with an adult-use application, an individual owning less than 2.5% - and their spouse - does not have to do a supplemental application or even be disclosed in the state application (the municipal application may still require disclosure) SO LONG AS they do not have the ability to control and direct the affairs of or have the ability to make policy concerning the business.
With a medical facility application, a CPA has to provide an attestation stating that the entity is properly capitalized. At least 25% of the capitalization has to be liquid, while the rest can be non-liquid such as property equity. Property equity can be demonstrated with 2 times the state equalized value, a broker opinion letter, or an appraisal - minus any mortgage on the property. Liquid capital must be evidenced by bank statements, both submitted to the CPA and the state. The most expensive license is a class C grow, which requires $500,000 capitalization. The state used to require that, when multiple licenses were sought, the combined capitalization amount be demonstrated. They have changed their policy so that now only the amount of the highest license being sought needs to be demonstrated.
Once you have completed your prequalification, it is time to choose your location and move on the Step II. Stay tuned for the next entry in this series later this week! To learn more about the Prequalification process, or starting your own cannabis business please reach out to us at (734) 926-8669 and set up your consultation today.