The Law Offices of  Barton Morris

The Cannabis Regulatory Agency have always required that commercial facility licensees report material changes like a change of ownership, processing equipment, or any change that impacts building fire and safety. They understandably want to be kept apprised of things that will affect licensure and building safety. In November of 2023 the CRA introduced new reporting forms and with them, new guidance regarding reporting responsibilities. Michigan’s cannabis regulation authority now demands reporting that some say is too broad and perhaps does not make sense. The following are areas of concern for licensees:

Reporting of New, Amended, and Terminated Agreements

The CRA wants a report when any facility enters into, terminates or changes any agreement. This would include an agreement with vendors like using a new waste disposal company. It would include agreements with vendors that do not have anything to do with the plant, like sales and marketing agreements. Now the CRA is requiring reporting if a facility enters into a supplier or employee agreement. Joint venture agreements would also qualify. The list of potential agreements is lengthy and certainly questionable. Why should they see every agreement and what are they planning to do with them? If a grow licensee agrees to supply product to a retailer or processor, what business is it of theirs? More importantly, what does it have to do with their role of maintaining the safety and security of the industry? The answer is, nothing. They are being too intrusive, perhaps thinking that some of these agreements may impact licensee disclosure requirements.

Reporting of the Denial of a Municipal License

If a licensee enters into a competitive license application process, any denial would now have to be reported. The failure to win a municipal license does not necessarily mean a licensee is not suitable for a state license. Yet the CRA is demanding to know in all circumstances. This reporting requirement is too broad. From the context of the reporting instructions, it seems they may be concerned with a pending step two application, which may be understandable. But their reporting requirement requires any negative municipal license decision which does not seek the information necessary to govern unqualified licensees.

Reporting of Any Change to Insurance Policy Changes

Every license renewal application requires reporting of the company’s insurance policy. Now the CRA is demanding a report every time there is a change to the policy. If there was a new carrier, the increasing or decreasing policy limits, or adding or decreasing items to be insured, all would now require reporting. This does not make any sense, as long as the insurance continued to satisfy the minimum requirements. Perhaps the CRA does not trust licensees, or their lawyers, to make their own coverage decisions?

Reporting a New Tax Delinquency or Liability

Now the CRA is requiring the reporting of any tax liability. This would include income tax, property tax, excise tax or sales tax. And this is regardless of its delinquency. This is entirely over broad.

Reporting Another for Violating the Administrative Rules

The CRA is requiring licensees to be tattle-tails by reporting other owners or employees of violations. This can be problematic for many reasons. First, who decides if a violation has occurred? What if one is only suspected? What if a licensee is not aware of what constitutes a violation? The CRA may argue that a licensee has a responsibility to know the rules but that is not a requirement. Perhaps the facility has hired someone, like a compliance manager, or an attorney, to assist with the rules. For instance, if an owner, whose job is not to oversee inventory management were to see a Metrc violation, they may not understand it yet have the responsibility to report it? The failure to report would also be a violation of the rules.

Further, reporting violations to the CRA may be seen as an act that is contrary to their fiduciary obligations to the company. For example, if a licensee witnesses plants that have not been Metrc tagged and instead of reporting the violation, he/she fixes the problem and regains compliance. Reporting that circumstance could be seen as not in the best interest of the company and subject the licensee to

penalties from a violation of the company’s operating agreement. There are whistleblower laws that protect against this type of consequences but everything is subject to multiple levels of interpretation and question.

Further Instructions

The new facility and establishment reporting has to be accompanied by supporting documentation. The submissions are now delivered through ACA.

Industry Pushback and Comment

The State Bar of Michigan’s Cannabis Law Section, of which I am currently the Chair-Elect, has submitted a comprehensive response and comment to the new reporting requirements specifying many of the issues discussed above. CRA leadership has acknowledged this communication and has promised to respond in a timely manner. Everyone agrees that these issues are important and clarification is necessary for industry stakeholders.