‘Gray market’ marijuana businesses sprout in Michigan
Updated: Aug 28, 2019
With legalized marijuana in Michigan but nowhere to buy it, a gray market for weed is taking hold.
Buying chocolates comes with a gift of marijuana in Ann Arbor.
And buying used books in Ypsilanti also comes with a perk — a gift of weed — that promises delivery anywhere in the state.
“Right now they’re filling a need that because people have no idea where to obtain cannabis,” said Matt Abel, a lawyer at Cannabis Counsel in Detroit and one of the proponents behind Proposal 1. “We just can’t roll out this commercial market soon enough.”
The industry is waiting for announcements from the Department of Licensing and Regulatory Affairs as to how and when the rules will be written to govern commercial adult-use marijuana businesses. Government officials are also coming up with rules surrounding hemp and its popular derivative, CBD oil.
For now, entrepreneurs are taking advantage of high demand and no rules as they launch marijuana “gifts,” private social clubs and CBD oil-infused drinks.
“It’s probably a short-term issue,” said Josh Hovey, who was the spokesman for the marijuana legalization campaign in Michigan and now serves as the spokesman for the new Michigan Cannabis Industry Association. “As the market becomes established, there won’t really be a real reason for those businesses.”
Without a retail market, gifts of marijuana are the only way to obtain it in Michigan, under the new voter-approved Michigan Regulation and Taxation of Marihuana Act. Selling marijuana without a state license remains illegal.
Enter the business that promises to gift marijuana along with the sale of artwork.
Barton Morris, a lawyer at Cannabis Legal Group in Royal Oak who was among those promoting the legalization campaign, said many of the new business schemes are “definitely illegal.”
“If you’re selling a T-shirt and giving marijuana as a gift, when they’re part of the same transaction, there’s no legality for that,” Morris said. “Because they’re not selling the T-shirt without the marijuana. The transaction speaks for itself.”
However, Morris said there could be legal merit to scenarios where tickets are sold to an event where attendees could be provided cannabis.
“I think it just depends on the circumstances,” Morris said.
Abel questioned the business model of the newly launched “gifting” businesses, as he struggled to see how they could turn a profit as the cost of the item being sold would have to be true to its market value, and not also cover the cost of the marijuana gift.
Abel said he could argue the legality of the gifting transactions both ways — which to him, means it’s a question that would have to be decided in court. Morris agreed.
“That’s a question of fact for a jury,” Abel said. “This will likely be left up to county prosecutors to pursue.”
Morris said law enforcement will likely leave these kinds of business alone — for now.
“Eventually people will complain, especially once the licensed industry launches,” Morris said. “That is generally what inspires law enforcement activity.”
In Flint, a banquet hall is trying to start a social club for adults 21 and over to enjoy snacks and marijuana. Local officials have warned any attempt would have to be approved by a local zoning board.
State officials aren’t giving guidance on the issue right now.
“We are reviewing the provisions of the MRTMA (Michigan Regulation and Taxation of Marihuana Act) as we begin to work toward implementing the facility regulatory program,” said David Harns, a spokesman for the Department of Licensing and Regulatory Affairs.
The state’s new adult-use marijuana law will allow for temporary licenses for private social clubs where people can smoke marijuana, Morris said. Those rules haven’t been written yet.
Yet there are clubs that are already launching across the state.
On the Michigan-Wisconsin border in Menominee, a private club — Hush Lounge — is looking to start in an apartment above a tattoo business, according to media reports. For a fee, people can join the club and smoke marijuana with other members.
In Kalamazoo, a brewery is starting a private social club for marijuana consumption.
“It’s not going to be a pot den,” said Mark Rupert, owner of Rupert’s Brew House.“We’re not trying to turn it into a smoker’s bonfire of weed. We want people to respect what we’re doing.”
Morris said private marijuana clubs can’t violate local laws for use of a facility — and would have to take steps to ensure events are truly private and not open to the public. However, Harns warned that any public license holders that close their doors for a private event may face issues with the Michigan Liquor Control Commission.
Cannabis smoke is not subject to Michigan’s Smoke-Free Air Law, which prohibits indoor cigarette smoking, Abel said.
A lack of regulations for CBD — cannabidiol, a derivative of hemp and cannabis that has less than 0.3 percent THC — has also resulted in gray market for CBD-infused drinks that are appearing on menus in coffee shops and restaurants across the state.
While hemp is also legal now in Michigan, state officials haven’t decided how CBD products will be regulated.
It’s causing confusion.
In Holland, a coffee shop offered to add 15 mg of CBD to any coffee or tea for $2 in early January, according to a media report. The county health department ordered them to take CBD off their menu because while the substance is legal, there are no rules governing its consumption.
— Amy Biolchini is the marijuana beat reporter for MLive. Contact her with questions, tips or comments at *protected email*. Read more from MLive about recreational marijuana.