The First Step to Getting a Michigan Cannabis Business License: Prequalification
By Travis Copenhaver
Jul 29, 2022
Each state has its own way of going through the licensing process and Michigan is no different. Michigan cannabis licensing is broken up into three steps: prequalification, municipal approval, and state facility approval. The first major hurdle every licensee must go through is the prequalification process.
What is Prequalification and Why Do it First?
Prequalification, sometimes referred to as “Step 1,” is a state of Michigan background check to determine eligibility to hold a state cannabis license. Michigan’s Cannabis Regulatory Agency (CRA) accepts prequalification applications for any organization interested in obtaining a cannabis license. This means applicants can apply for prequalification before making final decisions on issues such as the type of license, number of licenses, or before selecting a location. While applicants can sometimes start with municipal approval, many municipalities require a prequalification letter from the state as a part of the local approval process. As such, most companies start with the prequalification process.
Where to Start?
The prequalification process starts with determining who is the “main applicant.” The main applicant is the entity or organization directly owning and operating the cannabis license. Next, the main applicant identifies its owners, managers, and associated stakeholders. Depending on the nature of these relationships, these stakeholders become “supplemental applicants.” In some cases, stakeholders’ spouses will become supplemental applicants as well. When the CRA investigates a main applicant’s background check, most of the CRA’s inquiries focus on whether the main applicant correctly identified all supplemental applicants.
Who is a Supplemental Applicant?
Two primary relationships define a supplemental applicant: ownership and control. The Michigan Administrative Rules determine who qualifies as a supplemental applicant but in general, the following are considered supplemental applicants:
Any person or entity holding a direct or indirect ownership interest of more than 10% in the main applicant
Managers and Managerial employees. This primarily depends on the main applicant’s corporate form. In general, a managerial employee is anyone that can control or direct the affairs of the cannabis business and/or can make policy concerning the cannabis business. Standard officer titles include president, vice president, treasurer, secretary, CEO, CFO, etc.
Spouses of identified supplemental applicants
After identifying all supplemental applicants, the main applicant and every supplemental applicant must submit and complete the appropriate background check application.
What Type of Information is Needed for Prequalification?
The background check applications are not complicated but can be time-consuming. It should be noted that depending on what type of license is sought, medical or adult use, different information is required to be disclosed. In general, the application for a medical license requires additional information not needed for an adult use license.
No matter which license type is applied for, the CRA will require all applicants to disclose:
Social security number (if applicable)
Date of birth (if applicable)
Federal Employee Identification Number (if applicable)
History of tax payments and delinquencies
Other cannabis business interests
Any additional licenses or permits the applicant holds (Ex. Law License, Concealed Weapons Permit, Insurance Sales License, etc.)
Various copies of documents are needed for these disclosures. The two things that every person who is an applicant needs to submit are a copy of a valid government ID (such as a driver’s license), and tax documents (namely W2s and 1099s from the most recent tax year). Deficiencies in initial applications are common and are usually easily remedied, but everyone should aim to overshare rather than under share when it comes to disclosures.
If you want to start a licensed cannabis business in Michigan, don’t hesitate to contact our team. We have a track record of success and can also provide a full suite of legal services—from corporate formation and real estate to compliance audits and more!