Marshall — Two years after Michigan’s first legal recreationalcannabis sale, state marijuana regulators say they are now focusing efforts on increasing social equity in the industry to prevent a monopoly of dispensary chains.
But financial hurdles, a lack of experience and a slow process of approving applicants still plague entrepreneurs in communities that the program aims to help, including cities like Detroit, Flint, Kalamazoo and Ypsilanti.
When Michigan voters legalized marijuana sales in 2018, the state was required to establish a program to provide education, assistance and pathways for entrepreneurs to successfully navigate the cannabis industry while improving communities where residents were previously disproportionally targeted for pot use. Applicants for the social equity program have to live in one of the disproportionately impacted communities for at least five years, or have a marijuana conviction or have been a caregiver between 2008 and 2017.
Since the program launched in 2019, the Michigan Marijuana Regulatory Agency has received 1,800 applications but granted just 90 licenses. An approved application means up to 60% off state licensing fees and access to virtual education sessions, legal advice and other resources.
Jeff Guyton is among the fewer than 1% of applicants to have received a license from the Michigan Marijuana Regulatory Agency. He recently received city approval for his plan to turn a dilapidated Ypsilanti landmark, the 99-year-old former Farm Bureau building, into a recreational dispensary.
Guyton, 48, started his application with the state’s program just over a year ago. While he said he was guided by state officials through the process, it wasn’t entirely what he needed to become operational.
“This is a dream,” Guyton said, adding that it wouldn’t have come to fruition without the capital partnership he made with Birmingham-based Quality Roots, giving up 49% ownership to run a franchise for the recreational marijuana company that has locations in Hamtramck and Battle Creek. Social equity applicants have to hold at least a 51% stake in a company’s ownership.
He believes the state’s program is essential because most applicants trying to break into the lucrative industry will face the same financial struggle, he said.
The project will cost $1.4 million to renovate the 3,000-square-foot retail space, another $6,000 for a city permit, and $25,000 to $40,000 for the state licensing fees that need to be renewed each year.
“I was really lucky. I haven’t had to put in any of my own capital,” said Guyton, who formerly worked as a medical marijuana caregiver. “There’s absolutely no way I could have done this on my own.”
The financial hurdles have led experts, including Anquenette Sarfoh, a board member of the Michigan Cannabis Industry Association, to question how the program should be refined in the future.
“It’s not going so great and it’s not the state’s fault. No state has done this right,” said Sarfoh, who was appointed to a workgroup that gathered 16 suggestions for the state marijuana agency to consider when crafting the social equity program. “Until we solve how to get access to capital into the hands of people most harmed by these laws … it’s going to be a tall order in any community, especially a community that is at a disadvantage.”
Michigan is one of 18 states, plus the District of Columbia, to legalize recreational marijuana, although it’s still against federal law. There are 36 states that allow medical use. Canada has also legalized marijuana for recreational use.
It’s a competitive industry. Michigan is the only of its neighboring states to commercialize the plant. From January to November, medical sales reached $448 million and recreational sales reached $1.17 billion, more than double of last year’s recreational sales.
Leveling playing field?
The Michigan Marijuana Regulatory Agency believes the program is leveling the playing field for entrepreneurs, said Andrew Brisbo, MRA executive director.
Social equity licensees receive thousands of dollars in state fee reductions, are connected with assistance through the application process, given educational opportunities and direct guidance with strategists for business operation. That doesn’t mean more can’t be done, Brisbo said.
The program is essential because “it’s a capital-intensive industry,” Brisbo said.
State licensing fees for growers range from $4,000 to $8,000, with an annual renewal fee of $3,000 to $5,000, although for large quantity growers, licenses increase to $40,000 with an annual renewal fee of $30,000 to $50,000. Retailers typically face a $25,000 initial licensing fee and $20,000 to $30,000 in annual renewal fees.
“Both in Michigan and other states, when tackling the topic of social equity and opportunities, owning and operating business, or those individuals who were impacted by the war on drugs or from those communities, are the same as they’ve always been: getting access to capital, navigating local approval processes, getting access to real estate … ,” Brisbo said. “Those are some of the challenges and real-world concerns that we’re trying to continue to find adequate solutions for.”
The MRA hosted four workgroups in 2019 and surveyed more than 700 industry members, users and caregivers to determine how best to craft the program, Brisbo said.
The program initially identified 19 communities in 2019, which over the last two years has expanded to 184 communities that were disproportionately impacted by marijuana convictions, and where 20% or more of the total population lives below the federal property level. However, many of those cities don’t have ordinances authorizing marijuana businesses or haven’t opted in to marijuana taxation.
“So we do have individual participants who qualify personally, who are taking advantage of the program but are looking elsewhere to actually operate,” Brisbo said.
The agency does not track how many of the 90 businesses that were awarded licenses have opened,said Michigan Department of Licensing and Regulatory spokesman David Harns. He declined to disclose to The Detroit News the names of applicants who received licenses, citing LARAprivacy rules.
The majority of the program’s licensees are people trying to start their own businesses, and it’s creating growth in minority business owners, Brisbo said. Of the 90 licenses the MRA has approved, 27 were for retailers while 50 are for growers. Other licenses include event organizers, processors and compliance facilities.
It has also launched the Joint Ventures Pathway Program, a networking opportunity for business owners interested in partnering together. The program was formed based on a recommendation made by the Racial Equity Advisory Workgroup earlier this year, and now has 100 members.
Each month, the MRA has educational social equity meetings, all of which are preserved in an online library.
“I think the long-term goal is to see the demographics of ownership in this industry accurately reflect the demographics of the state, and to see positive impacts in those communities we’ve identified as the most impacted by marijuana prohibition,” said Brisbo, adding that Michigan is setting the example for other states as social equity is not a principal of early adopters of marijuana legalization like Washington, Colorado, Alaska and Oregon.
Guyton said long-term partners already in the business are going to be required for success.
“With social equity, you almost have to have a partner … which isn’t a bad thing. You’re getting their knowledge, experience, legal advice and everything you need,” he said.
Quality Roots owner Aric Klar said in addition to the 51% ownership stake, they’re supporting Guyton with $1 million for inventory and help with marketing, legal assistance and operational systems that they’ve established at their other locations. Guyton’s Ypsilanti store is expected to open in summer 2022.
“The issue is the state’s not helping the municipalities understand how they can embed and how they can best benefit from social equity,” Klar said. “This industry is the Wild West. We can’t expect that the state or every city has this figured out. … We believe this is the right route in becoming a good-faith partner to help drive social equity.”
The Michigan Cannabis Industry Association’s Sarfoh,who got into the medical marijuana business in 2015 after being diagnosed with multiple sclerosis, said the program will eventually need to be re-evaluated to determine how help can be provided in ways that aren’t direct ownership. She suggested scholarships be given to students whose parents were incarcerated for drug offenses, and finding unique ways to restore communities by social acquisition.
“There are other ways to check the boxes of social equity by looking at the communities that we’ve hollowed out because we incarcerated a lot of the men in those communities and what they need,” Sarfoh said. “I think that until you solve the problem of getting millions of dollars in the hands of social equity candidates, until you find investors willing to take that chance, they’re not going to see traditional social equity in the way that everybody sees it as people of color actually taking ownership.”
It has led large corporations to take social equity into their own hands.
Common Citizen, one of the state’s fastest-growing marijuana companies, recently announced its social equity platform with the launch of its “Principle” product line, vowing all net proceeds from the strain will go back into the communities they serve. Common Citizen grows at a hybrid greenhouse in Marshall and sells at its flagship store in Flint and to dispensaries around the state.
“The Principle project helps us educate the common citizen about the many wellness benefits of cannabis, and helps achieve our goal of eliminating stigma around its production, distribution and consumption,” said Common Citizen CEO Michael Elias.
They also hired a Detroiter, Jess Jackson, as their director of social equity relations. Jackson is known as the co-founder of Copper House Detroit, a bud and breakfast, on the city’s northwest side.
“Discrimination of Black and Brown communities is not something that’s specific to prohibition; this is a systemic issue in the U.S., and cannabis is a viable industry with an opportunity to correct that,” said Jackson, who studied social stratification at the University of Michigan. “The Principle line is exciting to me because it’s a measured approach — not just going to communities and giving dollars. We’re going to do a lot of assessment, listening, and I’m proud that we can help humanity with a product.”
Meanwhile, companies likeTroy-based Gage are accepting applications of aspiring cannabis businesses to receive up to a $50,000 grant with public relations and marketing support. The Canadian company expanded to Michigan once the plant was legalized and have opened 10 retail locations. Since December 2019, Gage has had three social equity recipients, including one cannabis research company.
It’s their way of bridging the gap to help small businesses get into the industry when traditional loans from banks are not an option, said Sydney Bowden, Gage’s community coordinator.
“Before 2019, cannabis was a taboo topic, but especially now in Michigan, more people are getting into the industry, and we wanted to be able to crack an opportunity for individuals or groups who may have been disproportionately affected by the war on drugs,” Bowden said. “Giving them that financial, PR, marketing support, we’re basically just hoping to allow them to elevate what they’re already working on, or even just launch their business.”
Uncertainty in Detroit
Although the state’s largest city opted in to marijuana taxation, it has yet to certify a recreational dispensary as Mayor Mike Duggan and City Council members want to prioritize longtime residents who also hold at least 51% ownership in a controversial planthat is tied up in federal court.
A federal judge ruled in June that the city’s marijuana ordinance gave “likely unconstitutional” advantages to Legacy Detroiters and temporarily blocked the city from processing applications for recreational marijuana licenses. Duggan told The News in September that they’re analyzing legal options to challenge the ruling.
“It’s a shame that one of the original provisioning centers is in Detroit and see your market share go to Hamtramck, Southfield and Hazel Park, and you have businesses like Lantern that deliver,” Sarfoh said. “It’s a daunting task for even people who have decades of experience, especially because it’s a brand new industry and the rules change every day.”
“One thing City Council and I are unified on is that more than 90% of the medical marijuana shops were operating to people who live outside the city. We are not going to open up recreation and have this happen again and have this industry for generations exclude Detroit,” Duggan said. “So, when we open, it will be opened in a process to make sure Detroiters get their fair share.”
Members of the city’s cannabis community gathered earlier this month at the Durfee Innovation Society Building, where about 80 residents spoke on how the city could create a pathway for opportunity through licensing, expungements and reentry.
“Most of us have gone through all the struggle and the hardship when it comes to this cannabis industry,” said Kimberly Scott, founder of Detroit’s medical marijuana provisioning center, Chronic City, in Detroit’s northeast side. “We would like to be the next leaders to help bring forth those that are coming on board … make their lives easier.”
Detroit News multimedia journalist Hernz Laguerre Jr. contributed.