The Michigan Regulation and Taxation of Marihuana Act, or “MRTMA”, created a new license type for the Michigan recreational cannabis market—the microbusiness license. A microbusiness license allows the holder to grow up to 150 plants, process flower into marijuana products such as edibles and extracts, and sell direct to the consumer, all with one MRTMA license.
Before deciding to go forward with a cannabis microbusiness opportunity here in Michigan, we usually advise clients to first develop a business plan and well thought out the business model before investing significant time and capital into their project. One of the benefits of doing this is that it forces microbusiness applicants to put their ideas and strategies on paper, which helps you assess the feasibility of your microbusiness idea and think about the steps that you will need to take to execute on your business model.
We have previously written about one possible business model—the Cannabis Lounge, also sometimes referred to as the Amsterdam “coffee shop” business model. This article will instead look at other potential micro-business models that could be successful, including the microbusiness dispensary, “taste-and-tour” operations, as well as other niche business ideas that could thrive in certain markets. We will highlight the key issues with each microbusiness business model and what microbusiness owners will need to do to overcome them.
This business plan is exactly what you think it is—a microbusiness with a retail operation similar to a state licensed provisioning center or dispensary. There will be some key differences from licensed provisioning centers and marijuana retailers licensed under the MRTMA. One key difference is that you will be limited to growing 150 plants, which will need to supply your entire microbusiness dispensary. This includes not just flower but oil and other concentrates as well, which will take a significant amount of flower to produce. This means you will need more grow space and a much lower light per plant ratio than you would typically see in other cultivation facilities. The key will be to maximize your yield per plant to produce enough product to sell to your customers. The typical metric of two pounds per plant will likely not be enough to do everything you need to do.
Related to this is the fact that a microbusiness dispensary will need to be a fully self-contained operation. In other words, while it could sell ancillary products such as smoking accessories, it can only sell marijuana products that are produced by the microbusiness. That means that a microbusiness dispensary will likely struggle to provide the diversity of product that typical dispensaries in Michigan offer.
We estimate that by next year close to half the marijuana market in Michigan will be for processed marijuana products such as edibles, oils, wax, and tinctures. The challenge for microbusiness dispensaries, and microbusinesses more generally, will be providing these non-flower products to its customers. At a minimum, you will likely need to create your own edibles, oils, and wax. This will require a significant investment into equipment and fixtures, as well as investment into your production facility to comply with fire code and other building requirements.
Absent investing in processing space and equipment, one way around this would be to enter a microbusiness collective, which would essentially consist two or more microbusinesses operating out of the same property. The advantage to this is that there could be significant strength in numbers. Similar to how bars generally do better when there are other bars located nearby, we believe that microbusinesses could potentially do better when paired with other complementary microbusinesses.
For example, let’s assume there is a building with four different microbusinesses located within it. Two of those microbusinesses could sell flower—maybe one sells a few of the most popular strains and the other sells more unique, tailored strains such as high-CBD flower. The other two businesses could then focus on processing, with one potentially focusing on edibles—i.e. a green bakery, which could itself be successful as a standalone business—and the other on oils and wax. If this were the case, the microbusiness collective could sell all of the products that a dispensary could sell, overcoming one of the weaknesses of the microbusiness dispensary model. The microbusinesses would also be able to save money by sharing certain costs—e.g. advertising and marketing costs, certain personnel costs, and more.
Assuming you are able to overcome these hurdles, you will be in a position to compete with traditional dispensaries. One advantage you will have over traditional dispensaries is that your microbusiness can market itself as locally produced “craft” cannabis. All things being equal, most consumers prefer to shop local and support local businesses over larger conglomerates. This can be a significant advantage when it comes to marketing, advertising, and promotion, which can be further leveraged through local partnerships with businesses and organizations.
In order to maximize your profits, you will also want to become familiar with Section 280E of the IRS Code and how it can effect how you run your cannabis retail operation. Usually referred to simply as “280E”, this provision says that marijuana facilities cannot claim its normal operating expenses as a business deduction, the only exception being Cost of Goods Sold. Generally speaking, this means that costs associated with your cultivation and processing operations will be tax deductible, but the costs associated with your retail operations will not be.
We’ve had several clients approach us with this business model and we believe that this has the potential to be a successful microbusiness model. We do have to caution our clients, however, that the legality of microbusinesses delivery products is currently unclear. Until the MRTMA rules come out this June or July, we will not know for certain whether this will be allowed under Michigan’s recreational marijuana statute. Even if allowed, we don’t know what restrictions the newly-created Marijuana Regulatory Agency—or MRA—will place on delivery for microbusinesses.
While we don’t know exactly what rules will apply to microbusiness delivery businesses, we can look to the rules in place for provisioning centers to deliver under the MMFLA. The MMFLA rules do allow for delivery, however, they limit how much marijuana product that a delivery driver can have on hand. They also restrict the amount of customers that each delivery driver can service before returning back to the provisioning center, restrict delivery drivers from making pit stops to pick up food or use the bathroom, as well as impose record requirements. The rules also require provisioning centers who want to provide a delivery service to develop a home delivery procedure, which is subject to agency inspection and examination.
In sum, it is too early to tell whether the microbusiness delivery model will be authorized by the MRTMA rules, or if it is, how cumbersome the rules regulating deliveries will be. Once the MRTMA rules come out this summer, we will write an update article that will explore how the rules will affect various microbusiness business plans. To make sure you get it—join our email list and get updates each time we post a new article!
Microbusiness Restaurant or Bakery
Marijuana edibles are an increasingly popular way for people to consume marijuana. They tend to be most popular among casual users who are reluctant to light up due to the smell or general aversion to smoking. Focusing on edible food products presents opportunities for potential microbusiness owners, especially those who have experience working in or owning restaurants or catering companies.
Operating a microbusiness restaurant, bakery, or “grab-n-go” food service does subject you to a whole new set of laws and rules. Whenever food is prepared for public consumption, companies are subject to Michigan laws regulating food preparation and sales. Michigan does have a Cottage Food Law. This exception to the state’s food laws will likely not be useful to microbusinesses as it only applies to food produced in a domestic residence, and the state will likely not allow microbusinesses to operate from a domestic residence.
Putting that aside, the laws and regulations that apply to fixed retail food establishments will be another hurdle you will need to overcome. Michigan requires that a place in which food or drink is prepared for direct consumption obtain a food service establishment license with the local health department.
Assuming you obtain your food service license, your microbusiness bakery or restaurant will want to carve out a niche not otherwise occupied by pre-existing dispensaries or MRTMA retail establishments. That means you will need to sell more than the gummies that practically every dispensary in the state sells. For microbusiness restaurants, this will be easy as the items on your menu will almost necessarily be different than the typical edibles sold on dispensaries. For microbusiness bakeries, you will want to make sure you sell products that these dispensaries do not—whether that be “special” birthday cakes, specialty items like macaroons, or novelty items like uniquely shaped chocolates—the key will be differentiating your microbusiness business plan and products from the edible marijuana products already sold at dispensaries.
Have you ever been to a winery tour or brewery tour? Well, why not also have a cannabis tour! This concept is sometimes referred to as the “taste-and-tour” or “Cannabis tasting business” and is pretty much the same as a winery or brewery tour—customers take a tour of your facility, where you talk about all of the craft cultivation techniques you utilize and how amazing your cannabis is, and then they end their tour in a tasting room where they can try out your product.
These businesses will likely do well in touristy areas as well as in or near larger cities. In California, most Cannabis tour companies are located in Los Angeles, San Francisco, San Diego, and Humboldt County. Here in Michigan, marijuana microbusiness tours could potentially thrive in Metro Detroit, Grand Rapids, and Traverse City, as well as in slightly less well trafficked areas like South Haven, Bay City or areas close to the Indiana, Illinois or Ohio Border.
What’s great about this business model is that the tour is essentially just a sales pitch as to why they should buy marijuana from you. There are not many situations where you have the chance to talk to a captive audience as to why your product is better than your competitors without paying boatloads of money for advertising and marketing. As a matter of fact, they may even pay you to take the tour, meaning the customer is literally paying you to promote your own brand.
One potential hurdle for this concept is the regulatory and sanitary issues that may arise from customers walking around your facility. You can bet many will try to touch your plants if they are able to, so you will probably want to make sure your customers aren’t allowed too close. There is also the possibility that there could be regulatory restrictions on who is allowed into limited access cultivation areas. Under Michigan’s medical marijuana statute, guests are allowed in a limited access area of a cannabis facility as long as they are accompanied by an employee of the facility. However, there is the possibility that a more stringent rule will apply to recreational marijuana licensees and their customers.
The success of your Cannabis taste-and-tour microbusiness will depend in part on your ability to provide a quality product and experience as well as your ability to differentiate your products and brands from competitors. Here, I wouldn’t be afraid to offer niche strains and experiment with new strains in-house. In order to differentiate your cannabis business, you actually have to be different. Offering your own unique strains and harder to find offerings may draw in more customers, even if they mostly purchase the tried-and-true strains they are familiar with.
Ancillary Microbusiness Business Models
There are many businesses that could simply utilize the microbusiness as an add-on to an already established business. For example, “painting with a twist”—i.e. an art studio that allows its patrons to drink wine while they paint—could become “Puff Puff Paint.” A “barcade”—i.e. a arcade that has a bar attached to it—could become an “MJ Arcade.” Basically, any business that sells alcohol as part of their business model could sell marijuana instead. While the legality of these models may depend on each municipality’s MRTMA ordinances, these business models could do just as well or even better with marijuana as they do with alcohol.
There are also a number of business models that are not traditionally associated with alcohol that could still do well. Relaxation spas seem like they would be a good fit for a marijuana add-on, as would yoga studios. However, these are certainly not the only two business models could be successful. The possibilities are only limited by your own imagination. We’ve had clients approach us with new ideas that we never originally thought of but could do very well in certain Michigan cities and townships. The key will be to know your market and your target demographic and conduct market research to see if there is sufficient consumer demand or interest for your business model. Keep in mind you don’t have to make all of your money on marijuana sales—marijuana could simply be a way to get people through the door to spend money on other products or services.
Interested in starting your own Marijuana Microbusiness here in Michigan?
Get started by scheduling a consultation with the leading expert in Marijuana Microbusinesses, Scott F. Roberts!
Mr. Roberts is a tried and true business and real estate lawyer with experience representing businesses both within and outside the cannabis industry. Mr. Roberts spoke on Marijuana Microbusinesses at October’s CannabisAid conference in Detroit, the Cannabis Industrial Marketplace Expo in Frankenmuth, Michigan in February 2019, and the 420 Canna Expo in April, 2019. Mr. Roberts will also be speaking on Michigan Microbusinesses at CannaCon this June in Detroit.
Mr. Roberts has represented small to medium-sized businesses and start-ups throughout his entire career, including representing many of the ancillary businesses in which a microbusiness would make a perfect addition—e.g. event venues, restaurants, escape rooms, and more! Since the passage of the MMFLA, Mr. Roberts has focused his growing law practice on representing Michigan Cannabis and CBD companies. His combination of small business, real estate, and cannabis law experience, as well as real world business experience, makes him the perfect cannabis business lawyer and consultant for your Marijuana Microbusiness start-up!
Mr. Roberts is the founder and managing member of Scott F. Roberts Law, PLC, a Detroit-based business law firm. Mr. Roberts has spent his entire career representing businesses and helping them comply with municipal, local and state regulations.
Feel free to contact us for more information.