Michigan’s Cannabis Industry Grapples with New Regulations Surrounding Caregiver Products
Photo courtesy of Common Citizen

Michigan’s Cannabis Industry Grapples with New Regulations Surrounding Caregiver Products

Last month, the state abruptly cut off adult-use dispensaries’ supply of caregiver cannabis, which could interrupt the overall supply chain until licensed cultivators and processors can meet consumer demand.

May 7, 2020

When it comes to Michigan’s cannabis supply chain, Allison Ireton, co-owner of Ann Arbor’s Bloom City Club dispensary, says supply has represented either a feast or famine as the rules governing the regulated marketplace evolve.

At the heart of the issue are the state’s regulations surrounding caregiver-sourced cannabis. Ireton says the rules regarding caregivers have changed several times already since Bloom received its state license in 2018, and last month, regulators abruptly tweaked them again.

On April 8, the Michigan Marijuana Regulatory Agency (MRA) issued an advisory bulletin saying that the state’s adult-use cannabis retailers can no longer purchase products produced by caregivers, who have been cultivating cannabis for patients since Michigan legalized medical cannabis in 2008.

Under the new regulations, only medical dispensaries can continue sourcing cannabis from caregivers.

This is a sudden shift from a plan that MRA outlined in a March 1 bulletin, which immediately barred licensed dispensaries from purchasing cannabis concentrates, vape cartridges and other infused products from the state’s caregivers, but which allowed retailers to continue sourcing flower from caregivers until Oct. 1.

RELATED: Michigan Will Phase Out Caregiver-Sourced Cannabis

Now, under the MRA’s updated guidance, only medical retailers may continue purchasing cannabis flower from caregivers until that date.

“When Bloom first got licensed in 2018, you could still access caregiver product,” Ireton tells Cannabis Business Times. “It didn’t have to be tested through the system, and you could basically get whatever products you wanted, whenever you wanted, and pricing was pretty stable.”

And while Ireton says the market must eventually coalesce around its licensed cannabis operators, she says the series of rule changes has been jarring for the state’s supply chain.

“I get that there has to be a transition, but it just seems like every time they do transition from allowing caregiver products, … you go from being able to have everything you need for your customers to having nothing,” she says. “There’s not this gradual easing off. I think we’ve probably seen that three times now since 2018.”

Michael Elias, CEO of Common Citizen, says that while unexpected, the latest regulatory update will help ensure that cannabis products in the state are tested, safe and regulated before hitting dispensary shelves, which will help the industry mature.

“The growing marijuana industry needs regular tracking, reporting, reliable data collection and strong transparency measures to help it succeed,” he tells Cannabis Business Times. “Strong enforcement is absolutely necessary to ensure bad actors who refuse to follow the rules cannot undermine the reputation of legitimate operators.”

Cannabis businesses should familiarize themselves with their growing customer base, especially in the newly launched adult-use market, and find ways to serve them without stockpiling inventory, Elias adds.

“The MRA order assures a safe, regulated and fair marketplace for the sale of safe, high-quality cannabis products, which moves the Michigan cannabis industry closer to being a fully regulated system,” he says. “A regulated, fair marketplace that ensures patient and product safety will benefit current and future cannabis growers, producers and retailers.”

Still, the April 8 announcement took many cannabis operators by surprise, Ireton says, as many had already adjusted to the rule changes announced on March 1.

“MRA had a phase-out plan that everybody was aware of, and we were like, ‘OK, that’s great. We have several months of notice,’” she says. “There was a written plan and it detailed very specifically how much you’re allowed to take in during these periods and how you can get it into the market. Then, April 8 … just caught a lot of people by surprise because it was completely unexpected.”

While Bloom has yet to experience the full downstream effect of the latest regulatory update, Ireton says that many of the dispensary’s vape manufacturers will not have an adequate supply of adult-use cartridges any time soon because they are focused on stockpiling cannabis oil from caregivers to serve the medical market, and that oil cannot be transitioned to the adult-use market under the state’s regulations.

“For a lot of vape cartridge manufacturers, they’re basically out of business as far as adult-use products go until probably the end of summer harvest, when people will have lots of flower that is cheap enough to be extracted into oil,” Ireton says. “My concern from a customer standpoint is, if there are no adult-use vape cartridges available in Michigan, they’ll just go back to the black market, where all of those … vape cartridges were causing lung problems.”

Common Citizen faces similar concerns.

“We have seen some delays in availability of certain edibles and vape carts at our Flint location, but our flower remains in high demand,” Elias says.

Vape cartridges account for 15% to 20% of Bloom’s total sales, Ireton says, and it is difficult for the dispensary’s staff to explain to patients and customers why certain products are no longer available, especially when the MRA’s reasoning behind the April 8 announcement remains unclear.

Matthew Abel, attorney for Cannabis Counsel P.L.C. and executive director Michigan’s chapter of NORML, speculates that cannabis could be coming from out-of-state sources, prompting a crackdown from the MRA.

“Where a caregiver’s only supposed to have 72 plants, there have been, I think, thousands of pounds coming in through the caregiver portal,” Abel tells Cannabis Business Times. “It’s kind of an open secret that a lot of that is from out of state, or at least it’s generally acknowledged that a lot of this is not really caregiver product.”

In addition to potential supply shortages, Abel says the most recent rule change could also drive Michigan’s cannabis prices back up, at least until the fall harvest.

Bloom is no stranger to supply issues, however, and as it has in the past, the dispensary will now try to direct its patients and customers to new product categories that are more readily available.

“We try to turn people on to other products and the medicinal benefits of, say, a tincture or an edible or vaporizing flower,” Ireton says. “Flower is not going to be as hard to come by as something like a vape cartridge, so you just try to educate people to move to a different product.”

On the cultivation side of the market, Abel advises growers to produce as much cannabis as possible, and to be careful with capital during this uncertain time.

“This is a time to expand the number of plants, to grab as large a foothold as possible and not be overextended,” he says. “Don’t have a lot of loans outstanding, where down the road, some people aren’t going to be able to afford to pay their bills. They have to be careful about that."