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Updates on Detroit’s Cannabis Industry: How to Obtain a License, and What New State and Federal Rules May Mean for D-Town’s Dispensaries


Two years ago, in a post titled “The Detroit Cannabis Industry – A Pathway to Social Equity?”, this blog examined the historical context and legislative hurdles which had, up to that point, prevented the opening of recreational cannabis dispensaries in Detroit. Two years later, we examine how the industry has since bloomed in the Motor City, the practical steps to obtaining a recreational cannabis license in Detroit as well as lingering obstacles for newcomers, and the potential implications of both the Cannabis Regulatory Agency’s proposed new administrative rules and the Drug Enforcement Agency’s (the “DEA’s[TD1] ”) proposed rescheduling of cannabis to a Schedule III controlled substance.

 A Budding Business

In August 2022, the City of Detroit announced its plan to award recreational marijuana licenses in three phases, reserving half of the available licenses in each phase for social equity applicants. A “social equity applicant” is defined under the law as a “qualified resident of Detroit or another community determined to be disproportionately impacted by the historical prohibition on marijuana.”

In December 2022, the city executed Phase One and awarded 33 recreational licenses to marijuana retailers, 20 of which were social equity applicants and 13 of which were non-equity applicants. Additionally, 16 of these retailers were Black-owned businesses.[1]

In November 2023, Detroit executed Phase Two and awarded 37 recreational licenses to a new round of applicants. 13 of these licensees were majority Black-owned, 5 were majority women-owned, and 21 were majority Detroiter-owned. 30 of the licenses were awarded to marijuana retailers, 15 of which were social equity applicants and 15 of which were non-equity. The city also awarded microbusiness licenses to 4 social equity applicants and 1 non-equity applicant, and consumption lounge licenses to 2 social equity applicants. A “microbusiness” refers to a small, vertically integrated marijuana business growing up to 150 plants and selling directly to consumers, while a “consumption lounge” is a commercial location where adults may consume cannabis products on site.[2]

For the fiscal year 2023, the Michigan Department of Treasury reported that more than $87 million in recreational marijuana fees and taxes were collected and distributed among 269 municipalities and counties under the Michigan Regulation and Taxation of Marijuana Act, to be used as each deemed fit to its needs. Each municipality and county received more than $59,000 for every licensed recreational retail store and microbusiness located within its jurisdiction.[3]

Detroit received the most significant distribution at $1,949,849.55, thanks to the 33 new recreational facilities which opened during Phase One of its licensing plan.[4] Since the city awarded even more new recreational licenses during Phase Two last year, Detroiters can likely expect a still larger tax distribution for their city at the end of this fiscal year. The blossoming of Black-owned recreational dispensaries in Detroit, and the tax revenues they are bringing back into the community under the state recreational marijuana statute, signal some hope of gradual economic recovery and rebuilding for those communities in Michigan which were most negatively impacted by the War on Drugs.

 Obtaining a License, and Obstacles to Expect

The City of Detroit provides a step-by-step guide to applying for a recreational marijuana license within its jurisdiction on its website, which can be found here. To obtain a license, a business must:

1)     Complete the Buildings, Safety, Engineering and Environmental Department (BSEED) Zoning and Building Permit Process to receive the necessary zoning and permits.

2)     Get prequalified by the State of Michigan by filling out the online application.

3)     Receive individual tax clearance from the city of Detroit for each member/stakeholder/officer of the entity, as well as business clearance for the entity itself, by applying online with the city treasury.

4)     Prepare all the necessary information and documents listed on the AU Grower, Processor, Transport, and Safety Compliance Application Checklist.

5)     Submit an application for an adult-use unlimited marijuana license.

While the hurdles to opening a recreational marijuana business in Detroit have been significantly reduced in recent years, eager entrepreneurs who wish to join the industry ought to be wary of obstacles they may expect to encounter.

Perhaps the biggest challenge facing small marijuana retail businesses in Detroit is the current oversupply of cannabis in Michigan. Recreational marijuana prices have plummeted to around $90 per ounce, or about one-fifth of what it was when first legalized, due to the aggressive proliferation of growers and dispensaries throughout the state. Although the social equity component of Detroit’s licensing plan may help entrepreneurs with less means enter the competitive market, they should still note that recreational marijuana retailers across the board are continuing to report slim profit margins for the time being.[5]

Although Michigan’s Cannabis Regulatory Agency[TD2]  (the “CRA”) sought input from the public in August 2022 for solutions to address the oversupply issue, including a moratorium on grow licenses, no state agency or legislative action has been taken yet.[6] A recent decision by the Michigan Court of Appeals in Michigan v. Julia Soto, however, has fixed a legal loophole which shielded unlicensed marijuana distributors from felony prosecution. The decision may have a positive impact on the legal cannabis market and raise wholesale prices across the state, since the abundance of black-market cannabis had previously contributed to price falls.[7]

 New Rules and What They Might Mean

The CRA has drafted new administrative rules which are currently under review by the Michigan Department of Licensing and Regulatory Affairs. Upon completion of official formatting, the new rules will be released for a 30-day public comment period.[8]

Although the proposed rules are not yet publicly available for review, among the biggest proposed changes announced by the CRA’s Executive Director are (1) the elimination of the requirement that recreational marijuana retail locations have a lobby,[9] and (2) the requirement that licensees connect their surveillance systems to a web-based platform which will allow the CRA to access a licensee’s real-time surveillance videos upon request.[10] While the elimination of the lobby requirement could potentially save newcoming retailers thousands of dollars, recreational licensees should be aware that the proposed rules may also mean heightened surveillance scrutiny from the CRA, and more pressure to remain consistently compliant with all regulations.

In May earlier this year, the U.S. Department of Justice (the “DOJ”) published a notice of proposed rulemaking to reclassify cannabis from a Schedule I controlled substance to Schedule III. While this rescheduling would not legalize cannabis at the federal level, it would classify it along with ketamine and testosterone as a drug with a currently accepted medical use and a relatively low potential for abuse.

For aspiring recreational marijuana small businesses, this reclassification may be a blessing. Currently, cannabis dispensaries across the country are not allowed deduct business expenses from their federal taxes under Section 280E of the Internal Revenue Code because they deal in a Schedule I substance. The rescheduling would thus save marijuana retailers thousands of dollars in excessive taxes.[11]

The rescheduling may also potentially affect the cannabis industry’s relationship with the banking industry. Because cannabis is still a Schedule I drug, most banks currently perceive marijuana businesses as too risky to be eligible for loans. However, the reclassification of cannabis as a Schedule III drug would bring it within the Food and Drug Administration’s oversight and place it under a more rigorous regulatory system, which may relieve or minimize banks’ concerns and even potentially allow marijuana retailers to access loans in the future.[12]

Despite the promise of the proposed rescheduling, there remain some legal hurdles that must be overcome before its benefits can be realized. Congress recently approved an amendment to a funding bill that would block the DOJ from spending federal funds to reschedule cannabis, posing significant delays for rescheduling efforts.[13]

The DEA also announced in August that it will hold an administrative hearing on the cannabis rescheduling proposal, and the hearing is currently set for December 2, 2024. If the incoming presidential administration opposes the reform, it may simply choose to change course. While Donald Trump expressed support for cannabis’s rescheduling during his recent presidential campaign, his policies during his first term as president suggest a lingering opposition to comprehensive federal cannabis reform.[14] Only time will tell how the new administration will choose to handle the issue.

The rescheduling of cannabis represents a landmark reform to federal drug policy, and the outcome will undoubtedly have profound and far-reaching implications for both Detroit marijuana businesses and similar operations across the country.

By Kang Lee

[1] Clarke, Kayla. “Detroit issues first recreational marijuana licenses to 33 businesses.” Click on Detroit, 22 Dec. 2022, https://www.clickondetroit.com/news/local/2022/12/22/detroit-issues-first-recreational-marijuana-licenses-to-33-businesses/. Accessed 27 Nov. 2024.

[2] Booth-Singleton, DeJanay. “Detroit awards second round of recreational cannabis licenses.” CBS News, 17 Nov. 2023, https://www.cbsnews.com/detroit/news/detroit-awards-second-round-of-recreational-cannabis-licenses/. Accessed 27 Nov. 2024.

[3] Leix, Ron. “Treasury: Adult-Use Marijuana Payments Being Distributed to Michigan Municipalities and Counties; More Than $87 Million Going to 269 Municipalities and Counties.” Michigan Department of Treasury, 29 Feb. 2024, https://www.michigan.gov/treasury/news/2024/02/29/adult-use-marijuana-payments-being-distributed-to-michigan-municipalities-and-counties. Accessed 27 Nov. 2024.

[4] “Adult-Use Marijuana Payments Based on Marijuana Revenues Collect in Fiscal Year 2023.” Michigan Department of Treasury, 28 Feb. 2024, https://www.michigan.gov/treasury/-/media/Project/Websites/treasury/Uncategorized/2024/Adult-Use-Marijuana/FY-2023-Adult-Use-Marijuana-Payments-2-28-24.pdf?rev=8ce42c82d49d4e7fae0eb6b659101fcf&hash=54ADFAA05BEAE9D8C2D88CF0E34FB84E. Accessed 27 Nov. 2024.

[5] Ellis, Mike. “Michigan’s marijuana outlook: Cheaper pot, higher sales, $87M in taxes to cities and counties.” Lansing State Journal, 19 Apr. 2024, https://www.lansingstatejournal.com/story/news/local/2024/04/19/michigan-pot-industry-cheap-prices-higher-sales-tax-revenue/73373776007/. Accessed 27 Nov. 2024.

[6] “Marijuana growing moratorium?: Supply and demand could lead to changes in Michigan.” WXYZ Detroit, 25 Aug. 2022, https://www.wxyz.com/news/marijuana-in-michigan/marijuana-growing-moratorium-supply-and-demand-could-lead-to-changes-in-michigan. Accessed 27 Nov. 2024.

[7] Walsh, Dustin. “Court ruling deals blow to Michigan’s illicit weed market.” Crain’s Detroit Business, 9 Oct. 2024, https://www.crainsdetroit.com/cannabis/court-ruling-deals-blow-illicit-weed-market. Accessed 27 Nov. 2024.

[8] “Michigan Cannabis Regulations Previewed: Key Proposed Industry Changes Discussed at NECANN Convention.” Honigman LLP, 23 Sept. 2024, https://www.honigman.com/alert-2697. Accessed 27 Nov. 2024.

[9] McLeod, Clint. “Michigan cannabis regulation official presents proposed new rules to industry professionals.” WLUC, 23 Apr. 2024, https://www.uppermichiganssource.com/2024/04/23/michigan-cannabis-regulation-official-presents-proposed-new-rules-industry-professionals/. Accessed 27 Nov. 2024.

[11] Trombley, Joshua. “Cannabis Reclassification: Litigation Impact.” Clark Hill PLC, 6 May 2024, https://www.clarkhill.com/news-events/news/cannabis-reclassification-litigation-impact/. Accessed 27 Nov. 2024.

[12] Ravitz, James et al. “DOJ Proposes to Reschedule Marijuana (Cannabis) to Schedule III.” McDermott Will & Emery, 29 May 2024, https://www.mwe.com/insights/doj-proposes-to-reschedule-marijuana-cannabis-to-schedule-iii/. Accessed 27 Nov. 2024.

[13] Malyshev, Alex and Sarah Ganley. “Update on the DEA’s efforts to reschedule cannabis: what you need to know.” Reuters, 11 Sept. 2024, https://www.reuters.com/legal/litigation/update-deas-efforts-reschedule-cannabis-what-you-need-know-2024-09-11/. Accessed 27 Nov. 2024.

[14] Sabaghi, Dario. “What Can We Expect From Trump on Cannabis Reform?” Forbes, 18 Nov. 2024, https://www.forbes.com/sites/dariosabaghi/2024/11/18/what-can-we-expect-from-trump-on-cannabis-reform/. Accessed 27 Nov. 2024.

 [TD1]Please be sure to spell out acronyms such as the DEA, the FDA, etc. since people may not know what they mean.

 [TD2]Is this a state of Michigan agency?  If so, then clarify this.

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