Rise in Michigan Cannabis Regulatory Agency Enforcement Actions Signals Importance of Operational Compliance
By Krissy Atterholt
Mar 30, 2023
Each month, the Michigan Cannabis Regulatory Agency provides Disciplinary Action Reports (DAR) detailing the formal administrative complaints and disciplinary actions against adult-use and medical marihuana licensees. The reports contain the name of the licensee the action was taken against, the record number of that licensee, the date the disciplinary action was issued, the penalty imposed, and the nature, type, and category of administrative rule violation. The CRA has posted DARs on its website for actions taken since March 2022. Notably, there has been a significant increase in enforcement actions since the appointment of Interim Director Brian Hanna in September 2022.
Of the released DARs available on the CRA website, there were roughly 242 total disciplinary actions (some disciplinary actions listed multiple bases for action). These disciplinary actions stemmed from 13 different bases for action, including AFS non-compliance, failure to report material changes—legal entity, failure to report material changes—physical location/operations, general operational issues, Metrc non-compliance, miscellaneous reporting issues, non-compliant handling and production, non-compliant sales, non-compliant waste disposal, non-compliant transfer between marijuana business, packaging and advertising, sampling and testing, and surveillance/security. Non-compliance with the Bureau of Fire Services (BFS) requirements and miscellaneous employee issues are two other possible bases for action listed on the CRA’s general list for the basis of action, including general descriptions of the categories.
Annual Financial Statement (AFS) non-compliance was the leading reason for CRA disciplinary actions and was the basis for over 40% of disciplinary proceedings. The next largest categories were sampling and testing at 16.5%, Metrc non-compliance at just over 9%, and non-compliant transfers between marijuana businesses at 7.3%. To round that out, 5.9% of disciplinary actions resulted from packaging and advertising administrative rule violations, 4.8% from general operational issues, and 3.7% from surveillance and security infractions. The “other” category is made up of violations based on failure to report material changes—legal entity, failure to report material changes—physical location/operations, miscellaneous reporting issues, non-compliant sales, non-compliant waste disposal, and non-compliant handling and production.
The majority of formal complaints did not lead to penalties. In fact, according to the 2022-2023 DARs made available, roughly 63% of formal administrative complaints were withdrawn by the CRA. However, the next leading penalty imposed was a fine, which occurred in a third of the disciplinary actions. The vast majority of fines listed in the reports did not include a monetary value, but of the very few that did, the fines ranged from $8,000 to $10,000. Less than two percent of disciplinary actions resulted in a summary suspension and the same was true for pre-complaint COS fines imposed. The least common outcome was CRA withdrawing the first superseding formal complaint, of which there was only one documented instance.
There has been a rise in CRA enforcement, which has been a priority of Michigan Cannabis Regulatory Agency Interim Director Brian Hanna since his appointment in September 2022. Prior to Hanna’s appointment, Michigan marihuana entities experienced an average of 5.33 disciplinary actions per month. The month of July was an outlier that resulted in a total of zero disciplinary actions reported for the entire month. CRA enforcement numbers take a turn one month after Hanna’s appointment, reaching a peak of 80 disciplinary actions in October 2022. Enforcement actions then steadily increased through the end of 2022 and into 2023, with an average of 28.25 disciplinary actions per month from November 2022 through February 2023.
Michigan adult-use and medical marihuana entities have been witnessing an increase in enforcement since mid-2022 and will likely see enforcement rates continue somewhere around 28.5 disciplinary actions per month, should the end of 2022 into 2023 average continue. There is no way to predict next month’s enforcement, but marihuana entities operating in Michigan can certainly be proactive in protecting their own interests by remaining diligent in all regulatory compliance matters.
If you’d like guidance on how your company can stay out of CRA’s disciplinary proceedings and operate compliantly, please contact Vicente LLP’s Michigan office and stay tuned for an upcoming compliance-focused webinar from our Michigan team.