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Five Stories That Matter in Michigan This Week – April 21, 2023

Michigan Repeals “Right-to-Work” Law

Governor Gretchen Whitmer signed into law legislation repealing the Freedom to Work law insofar as it applies to private-sector employees. The repealer will be effective as of March 30, 2024.

Why it Matters: When the new law takes effect, it will, for the first time since 2013, be legal for private-sector unions to negotiate and enforce “union security” requiring membership in, or financial support through “Beck Objector” fees, of those unions. Learn more from your Fraser Trebilcock attorney.

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Biden Administration Proposes Title IX Rule Change Prohibiting Schools from Categorically Banning Transgender Athletes from School Sports

The Biden administration proposed a significant change to Title IX regulations via a notice of proposed rulemaking, seeking to prohibit schools from categorically banning transgender athletes from participating in sports consistent with their gender identities. However, the proposal also provides flexibility for K-12 schools and universities to limit transgender student participation in cases where fairness in competition or sports-related injuries might be concerns.

Why it Matters: It’s important to note that this is a “proposed” rule, and therefore won’t take effect unless and until it becomes a final rule. However, K-12 school and higher education institutions leaders would be prudent to begin immediately preparing for the eventuality of the rule becoming final.

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May 2023 Business Education Series Program

During the May Business Education Series, Emmie Musser will discuss the challenges faced by businesses in building trust and transparency in a hybrid world, and explore strategies to overcome them including the importance of clear communication and regular updates, as well as the need to establish and maintain strong relationships.

Why it Matters: We will share practical, evidenced based tips on policies, workplace communication norms, and technology that can be used to help mitigate some of the biggest pain points of a hybrid work environment. Learn more.

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Proposed Legislation Introduced to Reduce Employment Age to 19 in Marijuana Industry

In March, HB 4322 was introduced to allow individuals who are 19 years of age or older to be employed by or volunteer for marijuana establishments.

Why it Matters: Currently, the age for employment in the marijuana industry is set to 21. This legislation proposes to reduce the age to 19, and allow them to manufacture, purchase, distribute and sell marijuana accessories if the individual is acting on behalf of a marijuana establishment.

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Income Tax Reduced for Tax Year 2023

For tax year 2023, the state income tax will be reduced to 4.05%, but will go back up to 4.25% the following year due to a 2015 statute that requires a reduction in the income tax when revenues to the General Fund exceed inflation plus economic growth.

Why it Matters: Individuals should see a slight increase to their take-home pay, but it will not last for long as the income tax rate will go back to 4.25% starting in tax year 2024.

Related Practice Groups and Professionals

Labor, Employment & Civil Rights | David Houston
Cannabis Law | Sean Gallagher
Business & Tax | Paul McCord

Five Stories that Matter in Michigan This Week – October 14, 2022

Lawsuit Challenges New Election Challenger/Poll Watcher Guidance

The Michigan GOP and the Republican National Committee filed a lawsuit seeking to rescind new instructions for election challengers and poll watchers issued by the Michigan Bureau of Elections. Among issues raised in the lawsuit is a new requirement having challengers obtain a credential using a form from the Michigan Secretary of State’s Office.

Why it Matters: There were many lawsuits filed in the wake of the 2020 election, and it’s likely that there will be many more arising from this November’s hotly contested races. Fraser Trebilcock’s election law team provides proactive guidance for political campaigns and causes, and representation in connection with election-law disputes.

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Student Loan Forgiveness Will Not Be Taxed

Earlier this month with legislative bipartisan support, it was announced that Michigan will not collect taxes as revenue on the federal student loan forgiveness or the state’s Public Service Loan Forgiveness program. Individuals who are eligible can receive up to $20,000 of their student loans forgiven.

Why it Matters: In August, Fraser Trebilcock reported on President Biden’s announcement on student loan forgiveness of up to $20,000. This latest news comes as a relief for those who are participating in the loan forgiveness program.

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Changes Could Be Coming for Sales Tax on Automobiles

Pending a final vote, Michigan drivers will save some money when they purchase a vehicle. Previously, car buyers would be taxed the state’s 6% sales tax on the list price, but now under the proposed bills, it would now tax the amount the buyer purchased it for.

Why it Matters: The legislation could be another change for automobile owners in Michigan. If the bills pass, the sales tax would now have to consider the manufacturer incentives that may be present for certain cars.

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State Fines and Suspends Detroit-based Medical Marijuana Business

The Cannabis Regulatory Agency has suspended for 30 days and fined $75,000 a Detroit-based medical marijuana business for improperly handling marijuana products by not having the required identification tracking numbers on the products.

Why it Matters: In the highly regulated medical and recreational marijuana industry, businesses can face high fines and lengthy suspensions for failing to abide by the rules set forth by the Cannabis Regulatory Agency. Marijuana businesses are required to follow video surveillance rules in Michigan.

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October 14 Deadline: Medicare Part D Notice of Creditable (or Non-Creditable) Coverage

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires entities who offer prescription drug coverage to notify Medicare Part D eligible individuals whether their prescription coverage is creditable coverage. These notices of either creditable or non-creditable coverage are due for distribution prior to October 15 of each year.

Why it Matters: Failure to provide notice can result in a late enrollment penalty to those persons who go 63 days or longer without creditable coverage. Learn more here.

Related Practice Groups and Professionals

Election Law | Garett Koger
Business & Tax | Paul McCord
Cannabis Law | Sean Gallagher
Employee Benefits | Robert Burgee

Michigan Law Imposes New Product Liability Insurance Requirements on Legal Cannabis Licensees

At the end of 2021, the Michigan legislature passed and Governor Whitmer signed into law a new cannabis liability insurance law that mandates proof of product liability insurance coverage for licensed cannabis businesses and new applicants. The new rules take effect March 30, 2022.

Michigan Senate Bill 461 (Public Act 160 of 2021) requires every licensee or applicant to file with the Michigan Marijuana Regulatory Authority (MRA): “[P]roof of financial responsibility for liability for bodily injury to lawful users resulting from the manufacture, distribution, transportation, or sale of adulterated marihuana or adulterated marihuana-infused product in an amount not less than $100,000.00 for each license.”

The statute defines “adulterated marihuana” as “a product sold as marihuana that contains any unintended substance or chemical or biological matter other than marihuana that causes adverse reaction after ingestion or consumption.”

Additional requirements include:

The insurance policy is issued by a licensed insurance company or licensed captive insurance company in Michigan.
The insurance policy does not include a provision relieving an insurer from liability for payment of any claim for which the insured may be held liable under the act.
Covers bodily injuries to a qualifying patient, including injuries that are caused by the intentional conduct of the licensee (but not if the licensee acted with the intent to harm).

In addition, a licensee must file an “attestation of compliance” with the requirements of the statute with the MRA, on a form approved by the MRA, which is signed by the officer of the licensed insurance company or licensed captive insurance company that issues the policy.

To the extent a licensee fails to maintain proof of financial responsibility as required under statute, the MRA will immediately suspend the licensee’s license until such proof is provided. A licensee also cannot cancel required liability insurance unless the licensee gives the MRA 30 days’ prior written notice and procures new proof of financial responsibility and delivers that proof to the MRA within 30 days after giving notice.

Given that this law takes effect on March 30, 2022, it is important for existing licensees and applicants to move fast in order to meet its requirements. For questions or assistance, please contact Paul Mallon or your Fraser Trebilcock attorney.

Paul C. Mallon, Jr. is Shareholder and Chair of Fraser Trebilcock’s cannabis law practice. You can reach him at pmallon@fraserlawfirm.com or (313) 965-9043.

Video Surveillance Rules for Marijuana Licensees in Michigan

Marijuana licensees in Michigan must adhere to statutory mandates established by the Michigan Regulation and Taxation of Marihuana Act and regulations promulgated by the Michigan Marijuana Regulatory Agency (“MRA”). One such requirement, as discussed in a recent MRA bulletin, is having a properly functioning surveillance system in place 24 hours a day, seven days a week, at all licensee locations.

Surveillance systems must be able to record the following areas:

Where marijuana products are weighed, packed, stored, loaded, and unloaded for transportation, prepared, or moved.
Entrances and exits.
Point of sale or retail areas.
Security and back offices including rooms where the surveillance system itself is stored.
Anywhere marijuana or marijuana products are destroyed.

Failure to comply with the following requirements may result in disciplinary action.

Immediate response with recording is required

According to the MRA, a functioning, compliant surveillance allows for proper oversight of regulated products and businesses, and helps to ensure the safety of licensees, the licensee’s employees, and the general public. The MRA may request that a licensee provide a video surveillance recording, and if it does the licensee must provide it immediately, or at a later time approved by the agency.

Video surveillance must be maintained and stored for designated periods of time

Licensees must maintain surveillance recordings for 30 days, but the MRA may request that licensees maintain them for a longer period of time. Licensees should have the proper storage devices to provide to the agency on hand and should maintain backup copies of requested surveillance footage. Failure to comply with requests for video recordings may subject licensees to disciplinary proceedings.

Equipment must be working properly and staff training is advisable

Video surveillance equipment must be working properly at all times with a minimum resolution of 720p. In addition, surveillance logs must be updated and accurate. The name of the employee or business owner responsible for monitoring the system must also be made available. The MRA recommends that a licensee designate at least one employee to be trained in using the video surveillance system so that licensees can comply with all requests for the preservation and production of video surveillance.

Suspending operations if surveillance system isn’t working

The MRA recommends that a licensee discontinue operations if its surveillance system isn’t working due to a power loss or otherwise. Any surveillance system must be equipped with a failure notification system that provides notification to the licensee of any interruption or failure of the video surveillance system or video surveillance system storage device. Again, operating without the required video surveillance coverage in place may subject the licensee to disciplinary action.

Final thoughts for licensees

Obtaining and maintaining a license to legally operate a business under the Michigan Regulation and Taxation of Marihuana Act requires a clear understanding of the rules and regulations, and continual operational vigilance by entrepreneurs and their employees. The detailed rules concerning video surveillance are just one example of the types of issues that must be addressed and adhered to. If you have any questions or require assistance as a licensee in Michigan, please contact Paul Mallon or your Fraser Trebilcock attorney.

Paul C. Mallon, Jr. is Shareholder and Chair of Fraser Trebilcock’s cannabis law practice. You can reach him at pmallon@fraserlawfirm.com or (313) 965-9043.

Judge Issues Preliminary Injunction Blocking Detroit from Issuing Recreational Marijuana Business Licenses; Says Licensing Program “Likely Unconstitutional”

Last November, the City of Detroit announced its rules for allowing licensed adult-use recreational marijuana sales, which included controversial provisions meant to give “social equity applicants” a competitive opportunity. Applicants are entitled to preferential treatment if they have lived in Detroit for:

15 of the last 30 years
13 of the last 30 years and are low-income
10 of the last 30 years and have a past marijuana-related criminal conviction, or
Have parents who have a prior controlled substance record and still live in the city

These rules gave rise to a lawsuit filed on March 2, 2021, in Wayne County Circuit Court, by a plaintiff who has been a Detroit resident for 11 of the past 30 years who intends to apply for an adult-use retail establishment license.

The lawsuit alleges that the “licensing scheme favors certain Detroit residents over other Michiganders based on the duration of their residency.” The plaintiff argues that the ordinance violates the U.S. Constitution’s commerce clause because it “discriminates against out-of-state residents and punishes people for moving between states.”

In April, U.S. District Judge Bernard Friedman issued a temporary restraining barring Detroit officials from receiving any more marijuana business applications.

On June 17, Judge Friedman again ruled in favor of the plaintiff by issuing a preliminary injunction halting Detroit’s recreational marijuana licensing program indefinitely.

The issuance of a preliminary injunction in the case is significant because the U.S. Supreme Court has set a high burden of proof for a plaintiff seeking an injunction. The Court identified a four-part balancing test in Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008), which requires plaintiff to demonstrate:

Likelihood of success on the merits
Likelihood of irreparable harm
The balance of both equities and hardships is in their favor; and
That a preliminary injunction would be in the public interest

In his order, Judge Friedman stated that Detroit’s licensing program is “likely unconstitutional.”

To learn more about the Detroit lawsuit, as well as other challenges to municipal licensing schemes related to recreational marijuana in Michigan, click here.

At Fraser Trebilcock we have a strong litigation department that has handled multiple lawsuits in the cannabis field and are able to assist you if you believe you are entitled to relief. If you have any questions or require assistance, please contact Paul Mallon or your Fraser Trebilcock attorney.

Paul C. Mallon, Jr. is Shareholder and Chair of Fraser Trebilcock’s cannabis law practice. You can reach him at pmallon@fraserlawfirm.com or (313) 965-9043.

Fraser Trebilcock attorney and former Michigan State Legislator Klint Kesto has nearly two decades of experience working in both the public and private sectors, including serving as Co-Chair of the CARES Task Force. You can reach him at kkesto@fraserlawfirm.com or 517.377.0868.

Michigan Marijuana Regulatory Agency Expands Eligibility for Adult-Use Licenses

Effective March 1, 2021, applicants for multiple classes of adult-use marijuana (i.e., recreational marijuana) licenses are no longer required to hold an active medical marijuana permit to be eligible.

The Michigan Marijuana Regulatory Agency announced that the eligibility requirement has been removed for five license types:

Marijuana retailer
Marijuana processor
Class B marijuana grower
Class C marijuana grower
Marijuana secure transporter

In short, as of March 1, 2021, more opportunities to become eligible for licenses became available to more competitors in Michigan fast-growing adult-use marijuana industry.

A Brief Summary of the Two-Step Application Process

The application process involves two steps. Step one is prequalification. The main applicant and any supplemental applicants must submit prequalification applications. Thereafter, background checks are conducted on the main applicant and all supplemental applicants.

The “main applicant” is the entity (e.g., limited liability company, corporation, partnership) or individual (sole proprietor) seeking to hold the marijuana establishment license. A $6,000 nonrefundable application fee is due during step one.

Once prequalification is obtained, a main applicant can move to step two and submit applications for all adult-use marijuana establishment state licenses it seeks to hold. At this time, the MRA will vet the proposed marijuana establishment.

The MRA’s vetting process includes business specifications, proof of financial responsibility, municipality information, and general employee information. Among other requirements, the establishment to be used for marijuana operations must pass an inspection by the MRA within 60 days of submission of a complete application.

In addition to comply with the MRA’s process, applicants will need to concurrently ensure compliance with any and all local regulations and permitting requirements relating to the operation of businesses within the unit of local government in which they seek to operate.

If you have any questions about the application processes—at the state and/or local level in Michigan—for either medical or adult-use marijuana, please contact Paul Mallon, Jr.

Paul C. Mallon, Jr. is Shareholder and Chair of Fraser Trebilcock’s cannabis law practice. You can reach him at pmallon@fraserlawfirm.com or (313) 965-9043.

Michigan Municipal Adult-Use Marijuana Licensing Processes Give Rise to Lawsuits

In December, 2019, Michigan authorized the sale of adult-use marijuana (i.e., recreational marijuana). Michigan municipalities are thus automatically deemed to permit adult-use businesses without restriction unless they pass ordinances restricting or prohibiting them within their jurisdictions.

The legalization of adult-use marijuana has resulted in the establishment of procedures for businesses to become licensed to sell in accordance with local regulations and restrictions on the number and types of businesses that qualify. These procedures and restrictions apply in addition to the Michigan Marihuana Facilities Licensing Act (MMFLA) and Michigan Regulation and Taxation of Marihuana Act (MRTMA).

Under MRTMA, a municipality is authorized to limit the number of marijuana establishment licenses. If a municipality does impose limitations, and the limit prevents the state from issuing a state license to all applicants, then “the municipality shall decide among competing applications by a competitive process intended to select applicants who are best suited to operate in compliance with [MRTMA] within the municipality.” MRTMA permits restrictions that go beyond limiting the number of licenses allowed within an area as long as such restrictions are not “unreasonably impracticable.” To avoid being unreasonably impracticable restrictions must not “subject licensees to unreasonable risk or require such a high investment of money, time, or any other resource or asset that a reasonably prudent businessperson would not operate the marihuana establishment.”

The process of establishing criteria for businesses seeking marijuana licenses, and reviewing business applications for licenses, is complex. There is a lot of money at stake. And unsurprisingly, in many municipalities across Michigan, the licensing process has led to significant and costly litigation.

In November, 2020, the City of Detroit announced its rules for allowing licensed adult-use marijuana sales, which included controversial provisions meant to give “social equity applicants” a competitive opportunity. Applicants are entitled to preferential treatment if they have lived in Detroit for:

15 of the last 30 years
13 of the last 30 years and are low-income
10 of the last 30 years and have a past marijuana-related criminal conviction, or
Have parents who have a prior controlled substance record and still live in the city

Detroit is not the first (and almost certainly won’t be the last) municipality to have its licensing process challenged.

In November, 2020, Traverse City was ordered by a judge to refuse to accept applications for adult-use marijuana retail and microbusiness establishments in light of pending lawsuits. One of the primary issues being litigated in the Traverse City lawsuits is whether existing medical marijuana retailers have the automatic right to sell recreational marijuana as well.

In December, 2020, the Oakland County Circuit Court issued a preliminary injunction in a case brought against the City of Berkley, enjoining Berkley from issuing licenses to marijuana establishments pursuant to the MMFLA or MRTMA. The court enjoined Berkley based on the likelihood that its process for scoring and awarding licenses violates the requirements of MRTMA.

The process of establishing rules and reviewing license applications for adult-use marijuana will remain a contentious one. Given that adult-use sales in Michigan totaled nearly $440 million in the first full year of the program, there is a lot to be won (or lost) in the process.

For assistance in the application process, or any other issues related to operating a marijuana business in Michigan, please contact your Fraser Trebilcock attorney.

Medical Marijuana: State of Michigan Outlines New Procedures and Requirements for Medical Marijuana Facility Licensing

In less than a week, the state of Michigan will start accepting medical marijuana license applications. The Department of Licensing and Regulatory Affairs (LARA) released emergency rules on Monday, December 4, 2017, outlining procedures and requirements for potential licensees. The emergency rules are effective for at least the next six months, and could be extended for another six months as LARA continues the promulgation process for permanent rules.

Many of the items addressed in the rules have already been discussed by the Bureau of Medical Marihuana Regulation (BMMR) during licensing board meetings occurring earlier this year. Nevertheless, and by way of background, last year the state enacted its Medical Marijuana Facilities Licensing Act (MMFLA) to regulate dispensaries and clarify the legality of edible products in Michigan. The law allows licensed dispensaries to operate in communities that choose to allow them. Growers, processers, testing facilities, and transporters are also subject licensure and regulation under the act.

While the MMFLA took effect last year – December 20, 2016 — it included a built-in delay in implementation of 360 days to enable the state to establish the licensing system required by the Act. A person cannot apply to the state for a license of any kind under the MMFLA until Friday, December 15, 2017. And, no one can apply to the state for a license of any kind under the MMFLA unless the municipality where the person is located adopts an ordinance authorizing that type of facility.

Applying for a Medical Marijuana Facilities License

First and foremost under the newly released emergency rules, those seeking a license under the MMFLA will be able to submit applications on December 15, 2017. Applicants will have to pay a $6,000 fee per license application and undergo extensive background checks for anyone who has ownership interest. The background checks will include submitting fingerprints and a handwriting exemplar to the state.

The rules require licensee to meet certain capitalization requirements. The requirements range from $150,000 to $500,000. A retail operation — called a provisioning center – carries a $300,000 capitalization requirement, which must be proven through attested financial statements.

Only 25 percent of the capital required needs to be in liquid assets, cash or cash equivalents – easily converted to cash. Up to 15 ounces of usable marijuana or 72 marijuana plants may be used toward the capitalization requirements.

LARA has broad authority to deny a license. A licensee can be denied if an applicant fails to comply with the rules or if the applicant is operating a facility after December 15 without a license. That said, facilities that are operating in a municipality that has licensed them can operate after December 15, may be permitted to continue operations, but must submit documentation showing the local municipality allowed them to operate. The rules provide no mechanism to appeal an adverse licensing decision, or to contest the imposition of fines and penalties.

Currently operating facilities with municipal licensure must apply for a state license no later than February 15, 2018. If those facilities do not have a state license by June 15, 2018, their operation will be considered unlicensed activity and could be referred to law enforcement. Although the rules do not address the situation were licensure is not met by June 15 due to government delay.

Details on Licensing

Licenses will be up for renewal annually. Applicants and licensees will be required to report a variety of information to LARA, including changes of location, contact information, members, managers and adverse reactions to a medical marijuana product. Theft or other criminal activity on the premises will have to be reported to the department within 24 hours of occurrence.

LARA has sweeping authority to inspect, examine and audit records of the licensee and enter the facility without notice to inspect. The department is allowed to charge civil fines of up to $5,000 for an individual and $10,000 or an amount equal to daily gross receipts against a licensee for violations. Given the number and various requirements regarding inventory control and the specifications for the physical facility itself, the risk of fines and penalties is no insubstantial.

During the first 30 days a state-operating license is issued to a licensee, marijuana products will need be entered into a statewide monitoring system and inventory will need to be tagged and packaged.

Class C grower licenses, which would allow 1,500 plants, for example, may be stacked under the rules. And licensed growers, processors and provisioning centers will be permitted to operate at the same location.

Security Requirements for Marijuana Facilities

Applicants will be required to submit security plans. Facilities will be required to maintain an alarm system and a 24-hour video surveillance system. Licensed-facilities will also have to maintain visitor logs.

Advertising Stipulations for Marijuana Facilities

Licensees will not be permitted to advertise any marijuana products in a way that is visible to the general public. However, that does not apply to advertisements that are not about a specific product.

Products also will be prohibited from being marketed toward minors, and edible products cannot be associated with cartoons or other things that would appeal to minors. Edible products also cannot be easily confused with commercially sold candy.

Federal Regulation of Marijuana Facilities

Of course, while specified medical use of marijuana is permitted under state law, its use is still illegal under federal law, and we don’t know for sure what the federal government will do in the future with regard to these specified uses. The status quo is that federal attention is diverted away from uses that are “authorized” by and operated in compliance with state laws. Attorney General Jeff Sessions, however, has made his view clear: “Good people don’t smoke marijuana.” On the other hand, the industry seems to be growing at a pace that exceeds the federal government’s ability (time and resources) to do much about it.

Fraser Trebilcock understands the regulatory aspects of the marijuana industry along with the legal risks. Our attorneys are available to advise you on issues related to state law and compliance.

Fraser Trebilcock attorney Michael P. Donnelly has years of experience handling matters ranging from major insurance fraud to intellectual property disputes. He formerly served three years as the President of Fraser Trebilcock and is currently the Managing Partner of the Detroit office. He can be contacted at 313.965.4968 or mdonnelly@fraserlawfirm.com.

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

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