Today, the State of Michigan officially declared a “shelter in place” order in order to contain the spread of COVID-19, also known as the “coronavirus.” The order asks residents to avoid all nonessential travel and requires all individuals to stay home or at their place of residence, with certain exceptions. This order will have a substantial effect on business activity in the State of Michigan, including Michigan’s cannabis industry. The order lasts until April 13, 2020, but it could remain in place longer than that date.
Despite rumors that Michigan’s order would mirror Ohio’s shelter in place order, which specifically exempted the cannabis industry, Michigan’s order has no specific exemption for cannabis businesses. As a matter of fact, the order is silent on the marijuana industry specifically. However, the order does exempt “agriculture” as well as workers in “health care and public health.” From this language, it appears that the State of Michigan only recognizes medical marijuana as essential for residents, though it does contain an important exception for cannabis businesses that would allow “workers who are necessary to conduct minimum basic operations…and whose in person presence is strictly necessary to allow the business or operation to maintain the value of inventory…”
That means that if adult-use establishments have to shut down, they may be able to continue with skeleton operations with “workers who are necessary to conduct minimum basic operations” to protect critical inventory and equipment. Companies will need to make the determination of which workers are necessary “in writing…by electronic message, public website, or other appropriate means.” Such designations may be made orally until March 31, 2020. This exception would likely protect MRTMA cultivation facilities by allowing a skeleton crew of workers to maintain the plants and protect the business’s “inventory.”
It is also not entirely clear what this means for caregivers with cultivation facilities outside of their residences. It would appear that they fall into the “health care” exception to the shelter in place order, but further clarification will be needed by the State of Michigan to confirm this interpretation. Similarly, they could also claim that they need at least one person to visit the caregiver area in order to maintain the value of inventory under the “minimum basic operations” exception.
In addition, under previously released guidance, MMFLA provisioning centers are encouraged to implement curbside pickup, meaning customers do not need to actually enter the store but can instead have an employee come out to the customers car. They are also strongly encouraged to focus on delivery in place of retail sales. In recognition of the need to close down most retail outlets, the state’s Marijuana Regulatory Agency is fast-tracking delivery plan approvals for companies. As an example, one of our provisioning center clients at our cannabis business law firm received approval of their delivery plan within 24 hours, whereas it usually takes a week for such approval.
Compared to other industries such as hospitality and most retail sectors, who are struggling with the effects of the coronavirus on their businesses, Michigan’s cannabis industry will not be as hard hit. But that does not mean that Michigan’s cannabis industry won’t feel any effects from the coronavirus. MRTMA licensees will need to put their operations on hold with the possible exception of cultivation, and start up projects that have yet to receive a state MMFLA or MRTMA license will likely see their timetables pushed back due to delays in construction as well as municipal approvals. We have already seen municipal deadlines for cannabis applications get pushed back, as well as city council and planning commission meetings be postponed. This will likely increase as the shelter in place order takes effect. Additionally, for those cannabis companies unlucky enough to be involved in litigation, most court deadlines will also be pushed back and motion hearings postponed.
Funding for projects and working capital to maintain operations during the shutdown may also become harder to come by as investment capital dries up. While the federal government is working on relief for small businesses, including extending more SBA loans to them, Michigan marijuana companies are ineligible for SBA loans. As a matter of fact, according to one SBA lender I was working with in 2019, SBA won’t even lend to a business where the business owner also owns a cannabis business.
In sum, COVID-19 will have a drastic impact of Michigan’s economy, and the state’s shelter in place order will further grind the state’s economy to a halt. Recreational cannabis businesses outside of cultivation will need to shut down, though MMFLA licensees will not be as effected by the order as other businesses. Certain cannabis projects will also be delayed, in some cases indefinitely due to the owners need to concentrate on their other business, the inability to raise investment capital, or simply because the owner’s lost so much money in the stock market they no longer have the funds for the project. Nonetheless, Michigan’s cannabis industry will survive this order, though there may be tough times ahead.
We will be publishing updates as it becomes clear how the State of Michigan and MRA is interpreting this order with respect to the cannabis industry.