By: Scott F. Roberts
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What’s a “True Party of Interest” under the Medical Marihuana Facilities Licensing Act?
The State of Michigan prevents people with certain criminal convictions (and also seemingly their spouses) from owning or even working at a marijuana facility under the MMFLA. This means that many of the most knowledgeable caregivers and growers are prohibited from working at or owning a facility due to a minor possession charge from years ago. Not only that, instead of just prohibiting these people from being an owner, employee, or manager, they are also cannot be a “true party of interest”.
Unfortunately for Michigan Medical Marijuana Business Attorneys, the State does not explicitly define “true party of interest.” However, the statute is helpful in that it defines what a “true party of interest” is not. It explicitly states that an arms-length rental agreement that does not vary with revenue or profit would not be covered, nor would an employee who receives a fixed wage. The statute also provides a non-exhaustive list of who must provide additional information under the true parties of interest provision: the spouse of owners, anyone who receives a percentage of sales or profits, corporate officers, and officers’ spouses. If this was exhaustive, then there would be clear loopholes to get around the ownership provision—but it is not.
Given the lack of a specific definition, a little context may help shed light on what the State really means by this phrase. Prior to practicing as a Marijuana Business Lawyer, I was a Healthcare Business Attorney. Similar to the MMFLA, the State also restricts who is able to own a medical practice. To get around these restrictions, corporate healthcare lawyers used what we like to call the “MSO model”, or “Management Services Organization” model, which is where a healthcare practice puts its businesses assets—the building, equipment, even the employees—in a separate management company or companies. These management companies were then paid a fee, oftentimes as a percentage of overall revenue, to both “manage” the practice and to “rent” the building, equipment, and employees. This allowed investors who owned all or part of the MSO to share in the revenue of the practice without violating the State’s ownership restrictions. Looking to the statute, it would appear that the “true party of interest” provision was added to the statute to prevent medical marijuana business attorneys from using similar tricks.
With this context in mind, it seems apparent what the state means by “true party of interest”—is someone who shares in the profits similar to an owner. It is likely the state left this term purposefully vague to prevent business attorneys from finding loopholes in the language.
So, does this mean that if you have a conviction covered by the statute—e.g. felony possession—you cannot work or own any business in the state’s rapidly growing Medical Marijuana Industry? Well, not exactly. If you have a prohibited conviction, you cannot own or have any disguised interest in the facility, that much is clear. The state has indicated that it will “peel back all the layers of the onion” to determine who really profits from a facility. You can, however, rent property to a facility—as long as the rent is fixed and doesn’t vary with profit or revenue. You can also get a special “waiver”—i.e. written permission from the State’s Marihuana Board—to work at a medical marijuana facility. There is also nothing to stop you from acting as a lender and loaning money to these facilities as part of an arms-length transaction.
Finally, if you’ve developed specific skills, all is not lost. You can actually own a medical marijuana company, just not a licensed facility. As long as you are paid on a fixed fee contract, you would currently be able to put your skills to work as a vendor / independent contractor. This means that if your skill is setting up the best irrigation systems, or growing in general, you can always start your own company that sets up irrigation systems or even consults with existing grow facilities. Thus, you may not be able to own or even be an employee of a grow facility, but you can still make a living putting the skills you have developed over the years to use.
Mr. Roberts is the founder and managing member of Scott Roberts Law, a Detroit-based Cannabis Business Law Firm founded in 2014. Scott has spent his entire career representing businesses and helping them comply with municipal, state and local regulations, as well as assisting on transactional corporate and real estate matters. Scott is an accomplished attorney, author and public speaker, having spoke at CannaCon, Cannabis Industrial Marketplace, CannabisAid, and 420 Canna Expo, to name a few. He has also taught Continuing Legal Education on Marijuana business matters, meaning other attorneys see him speak to learn about the nuances of cannabis business law.