Proposed Michigan Regulations Would Deny Cannabis Licenses to Businesses That Don’t Pay Their Vendors

In a new set of proposed rules, the Michigan Cannabis Regulatory Agency (CRA) is looking to deny cannabis licenses to businesses that don’t pay their vendors.

The proposed rules would “allow the CRA to deny a license or license renewal based on civil judgements/court orders resulting from unpaid debt for work, services, products, or equipment provided solely in the cannabis industry.”

To accomplish this, regulators would add a field to the licensing application to collect related information, according to the proposed regulations.

The new rule is to “help ensure that licensees are paying bills and will address a concern that has been raised by many in the industry,” according to the proposal.

The proposed rules will undergo public hearings this summer and permanent regulations would likely take effect early next year, Crain’s Detroit reported.

Price compression in the industry has put a strain on operators, leaving many bills past due or completely unpaid.

As Cannabis Business Times previously reported, in December 2022, the average retail price for an ounce of adult-use cannabis flower in Michigan dropped to $91, representing an all-time low for the state’s market. That figure is a 51% decrease compared to $185 per ounce in December 2021 and a 74% decrease compared to $351 per ounce in December 2020.

The state’s businesses have started taking legal action in the wake of past-due payments; earlier this year, Trucenta LLC, a vertically integrated operator in Troy, sued TAS Asset Holdings LLC, a cannabis processor, over more than $250,000 in unpaid bills, according to Crain’s.

In addition, Skymint, a Lansing-based cultivator, is in a court-ordered receivership for its nonpayment on more than $120 million in loans, the news outlet reported.

In addition to the rule on licensing denials based on nonpayment to vendors, the CRA proposed more than 90 other regulatory changes, including requirements that licensees provide proof of insurance 60 days after initial licensure and at renewal; report harvest schedules in the statewide monitoring system; and test flower for standard terpene profiles.

The issue of unpaid bills is not unique to Michigan’s cannabis market. For example, Lex Corwin, founder of California-based Stone Road Farms, told Cannabis Business Times in February that only 8% of Stone Road’s customers pay immediately upon receiving the brand’s products.

“It’s these retailers realizing that they basically just have an unlimited credit card to just rack up tons and tons of products from all the brands,” Corwin said.

To help solve this issue in California, lawmakers are considering legislation, Assembly Bill 766, that would establish regulations on cannabis sales made on credit. Specifically, A.B. 766 would create a “credit law” with maximum terms by which licensees can sell and would give regulators oversight of the transactions to ensure vendors pay suppliers in a timely manner.

A May 18 hearing on the bill was postponed in the Appropriations Committee.

California’s cannabis industry has also taken matters into its own hands through the formal launch of Financial Stability for California Cannabis (FSCC), a coalition of operators and brands seeking to raise awareness and offer solutions to the credit issues threatening the stability of the cannabis market.

“Collections and outstanding debt related to unpaid invoices are key challenges facing cannabis operators of all types across the state, from cultivators to manufacturers, vertical brands to wholesalers, and everyone in between,” Vince Ning, co-founder and co-CEO of Nabis, said in a public statement. “Advocacy for solutions is largely an issue siloed to individual operators or specific sectors of the supply chain, which is why we are proud to be an instrumental part of the mission of the FSCC to demonstrate a more holistic, collective representation of the severity of the debt crisis across all levels of the supply chain, and work toward a more financially stable cannabis market.”

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