State report: Medical marijuana a $10 million boost for budget
NO, DON'T LEGALIZE MJ YOU STUPID FUCK FEDS!
Growing like a weed: Michigan businesses sprout, flourish to supply marijuana users
By Matthew Gryczan
State report: Medical marijuana a $10 million boost for budget
Medical marijuana is turning out to be a windfall for Michigan state government.
A report issued last week by the Michigan Department of Licensing and Regulatory Affairs said nearly $10 million in revenue was collected from applicants ? more than double the cost of running the medical marijuana program.
The report covers the state's most recent budget year, which ended Sept. 30.
A medical marijuana application costs $100. Caregivers who grow marijuana for people also pay a fee.
The report shows the number of registered marijuana users was up 44 percent in Muskegon County last fall compared with the previous 12-month period. Kent and Ottawa counties' numbers were up at least 20 percent.
In Michigan's southwestern corner, the number of registered marijuana users was up 56 percent in Cass County and 37 percent in Berrien County.
Voters in 2008 approved marijuana for treatment of some health problems.
? Associated Press
Call it "cannabiz" ? a budding new industry for Michigan in the production and distribution of marijuana for medicinal and recreational use.
Both aboveboard and underground, a well-established business model exists for marijuana, complete with a means of production, channels of distribution and a marketplace that reacts quickly to business conditions.
So far, legal wrangling has kept a lid on the pent-up demand from an estimated 1 million users in the state. Legal hurdles appear to be more delays of the inevitable rather than showstoppers. But rulings such as the one passed down Friday by the Michigan Supreme Court, effectively outlawing dispensaries of medical marijuana, continue to styme the industry.
Public sentiment appears to favor more relaxed laws. In November, five metropolitan areas representing about 1.1 million people passed laws that in one form or another loosened the reins of marijuana use. More than 124,000 people in Michigan already carry cards for the medicinal use of cannabis, which Michigan voters approved by a significant majority in 2008.
MediSwipe Inc. ? a small, publicly traded company (OTCQB: MWIP) that provides digital identification cards for medical marijuana patients and ATM-like kiosks to handle cashless transactions at marijuana dispensaries ? relocated its headquarters from South Florida to Birmingham "based on recent and favorable state legislation regarding medical marijuana and dispensary laws" (Crain's, Feb. 4).
It remains to be seen how Friday's court decision will affect MediSwipe's business plans. Lawyers who specialize in medical marijuana laws say it probably will be up to the Legislature to define the limits of business transactions under the state's laws.
Local companies that make supplies for hydroponic growing and retail "hydro shops" report strong sales, especially in the wake of the elections in Grand Rapids, Detroit, Flint, Ypsilanti and Kalamazoo. Physician groups that specialize in certifying that patients have ailments qualifying for the Michigan Medical Marihuana Program registry cards are doing good business, usually charging about $150 per consultation.
Private equity and venture capital funds want in on the action, but it's risky even by their standards.
Todd Herrick (right), creator of Potter?s Gold potting soil, unloads a shipment with help from Anthony Cardosa, owner of two AAA Hydroponics ?hydro shops? in the Grand Rapids area. Herrick sells an average of more than 600 bags a month to shops that help customers set up marijuana growing operations.
West Michigan financiers "want to be on the bleeding edge of where this is going," said Joseph Voss, an attorney in the corporate practice of group/debt and equity financing in the Grand Rapids office of Clark Hill PLC.
"But we have to say to the nonaggressive money ? which is most of the money ? that it is really difficult to do this without the threat of seizure of all the assets for businesses that lean to the distribution side. It's 'Take stuff first and figure out the case later' in drug enforcement circles.
"The specter of a federal prosecution hangs over everybody, even those who are complying with the letter of the law in Michigan."
That hasn't stopped people from asking. Voss said he has fielded about 10 inquiries from private equity funds since November, double such inquiries from the entire year prior.
Having a green thumb
With a master's degree in soil science from the University of Vermont and a bachelor's in ornamental horticulture from the University of Wisconsin, Todd Herrick knows what pot plants need to grow.
He has put years of training and horticulture experience to use developing Potter's Gold, a premium, custom-blended soil well-suited for customers who visit West Michigan hydro shops to set up marijuana growing operations. After launching the product in March, Herrick sells an average of more than 600 bags a month to about 16 shops throughout the area. He hopes to boost sales by reaching stores on the eastern side of Michigan.
"Grow stores are popping up all over the place, and there's opportunity for people like myself who have more of a specialized product to offer to the market segment," said Herrick, a Grand Haven native whose primary job is consulting on soil science through his firm, Hort Services LLC.
"I decided to launch this knowing full well that there was a great deal of uncertainty in this green industry sector. There aren't any leaves or buds on the bag ? I wanted to make sure that I could cross over to their traditional garden center market if I needed to."
But rising sales and feedback from growers of medical marijuana confirmed Herrick's belief that the market was ready for a locally produced, high-quality soil.
Herrick sources and checks the ingredients, blends the soil and packages the product in Hudsonville in bags holding 1.5 cubic feet. "The business has gotten so large, I can't do it by myself anymore, so my wife and my son help when it comes to bagging the product," he said.
Herrick does much of his own distribution of the soil, which can cost $15 to $20 per bag ? more expensive than ordinary potting soil sold in home improvement centers but midpriced for specialty soils.
After AAA Hydroponics in Grand Rapids opened a second store in October, pot-growing products flew off the shelves to the degree that the store supplanted its November sales target. By mid-December, November?s sales had been exceeded.
Potter's Gold is far from the only Michigan-made product that pot growers buy, said Anthony Cardosa, owner of AAA Hydroponics, which recently opened a second location to go along with the first one in Grand Rapids.
"The market has exponentially grown just in the last two years," said Cardosa, a Grand Rapids native who opened his first grow shop in 2010. "But this is something that's been going on inside of Michigan for years. It's no news that a lot of genetics (seeds and plant cuttings) come from Michigan. We know how to grow things here."
AAA Hydroponics does not sell genetics but does supply Michigan-made products including Potter's Gold; hormones that promote asexual propagation or "cloning" of plants, made by Hydrodynamics International Inc. in Lansing; natural fertilizers; and pesticides.
Certainly, business has been good for Cardosa, who said he took courses in hydroponics and gardening right after Michigan passed the medical marijuana law in 2008. He opened his second store in suburban Grand Rapids in October with the hopes of hitting a sales target, only to double it by November. By mid-December, he already had surpassed November's sales.
About three-fourths of his customers are interested in growing marijuana. It costs less than $2,500 to get a basic outfit of lights, air-moving equipment and supplies to grow 12 plants at one time indoors ? the maximum allowed by law for a patient certified to use medical marijuana. Michigan permits a person certified to be a caregiver to grow 72 plants at one time ? 12 plants for the caregiver as a patient and five other patients who may not want to grow their own.
A popular website, growstore finder.com, lists more than 225 hydro shops throughout the state, from Mr. Grow-It-All in Holland to Hydro Giant in Detroit.
One needn't look farther than the Maximum Yield Indoor Gardening Expo, held in June at the Suburban Collection Showplace in Novi, to get a sense of the scope of the industry.
"Michigan Jim," writing for BigBuds ? billed as the "World's #1 Medical Marijuana Website" ? estimated that hundreds of visitors attended the show, where dozens of vendors displayed the latest in hydroponic gardening, with an emphasis on pot growing.
What's in your wallet?
Along with selling hydroponic supplies, another relatively safe haven for profit is certification of medical marijuana patients so they can receive registry cards.
"Those are the places that I see where you can currently ? safely ? make money without the uncertainty of which way the legislation is going to be interpreted," said Clark Hill's Voss. "The physician (service) is probably the safest way to make money right now in medical marijuana. There's no question under the legislative framework of the patient-doctor relationship."
Websites in Michigan advertise a number of physicians' offices that specialize in assessing patients for medical marijuana cards. Some offer a money-back guarantee for patients who aren't accepted for the Michigan medical marijuana card registry.
Michigan Cannabis Physicians Group ? with locations in Detroit, Sterling Heights, Flint, Kalamazoo, Grand Rapids, Ann Arbor and East Lansing ? states on its website that patients fill out forms, provide valid identification, have their blood pressure taken, then have a 10-minute interview with a physician.
"After the interview is completed, you will be given your recommendation and the packet to mail off to the state to get your official medical marijuana card," the site says. "That's all there is to it!"
The center generally charges a $150 fee, while the state generally charges $100 to file an application.
To be eligible for a card, patients "must suffer from a debilitating medical condition," such as severe and chronic pain, severe nausea, severe or persistent muscle spasms, seizures or Crohn's disease, according to the Michigan Department of Licensing and Regulatory Affairs.
Robert "Dr. Bob" Townsend has logged nearly 5,000 miles on his GMC Yukon since January, crisscrossing the state in visits to 24 offices to certify patients seeking medical marijuana cards, management of chronic pain or suboxone therapy for narcotics addiction. Last year he put nearly 50,000 miles on his vehicle traveling to 17 storefront locations in Upper Peninsula communities and cities served by Denali Healthcare in Portage, which has offices in Sturgis, Cutlerville, Coldwater, Kentwood, Albion, Holland, Grandville and Jenison.
"I discovered the medical benefits of marijuana in 2007 when I was doing suboxone therapy for narcotics addiction," said Townsend, who holds a bachelor's degree in biological sciences from Michigan State University and a medical degree from the Southeastern College of Osteopathic Medicine in North Miami Beach, Fla.
"I began to notice that as I was weaning people off of narcotic pain medications, those that were using marijuana illegally, and then with medical marijuana cards after 2008, weaned very, very well."
After seeing thousands of patients over the past five years, Townsend has concluded that marijuana has a deserved place in a doctor's black bag.
"I discovered that people were coming off using handfuls of Vicodin a month ? high doses of Vicodin every day ? strictly through the use of medical marijuana," said Townsend, who termed himself one of the biggest advocates for it in the state ? but never has used it.
"It's very good for the treatment of Crohn's disease, excellent for nausea, very useful for treatment of glaucoma and Parkinson's disease," he said. "I've seen it stop a seizure in front of me."
Of the approximately 30,000 active doctors in Michigan, only about 1,900 have written a single medical marijuana certification, Townsend said. When analyzed further a year ago, 55 doctors in Michigan wrote 70 percent of the certifications, with Townsend being in that group.
The Department of Licensing and Regulatory Affairs reported on its website about 124,000 active registered, qualified patients and about 26,000 active registered primary caregivers as of November. Of the 344,000 original and renewal applications received since April 2009, about 31,000 were denied, most because of an incomplete application or missing documentation.
As a percentage of people who have obtained medical marijuana cards to the general population, Michigan trails Colorado, Washington, Oregon and California. About 2.1 percent of Colorado's residents have medical marijuana cards, compared with about 1.2 percent in Michigan.
Townsend said he rejects patients who don't have medical records from their primary physicians or who suffer from conditions that don't fall within the criteria of state law. But he favors expanding the list to include conditions such as Parkinson's disease. He testified in late January before the Michigan Medical Marihuana Review Panel to add post-traumatic stress syndrome to the state's list of debilitating medical conditions.
While he was generally pleased with the package of bills passed last year regulating medical marijuana that take effect in April, Townsend said he was troubled by new restrictions on telemedicine regarding consultative visits for patients. Physicians have been allowed to use Internet tools such as Skype to interview patients who have been seen by their primary physicians and have medical records to determine eligibility for the MMMP program.
"There's no real physical exam for a number of the approved conditions," Townsend said. "How can you do a physical exam for seizures? There isn't one unless a patient has a seizure right in front of you. "
According to a study published in 2007 by the federal Substance Abuse and Mental Health Services Administration, nearly 1 million people in Michigan illegally use marijuana at least once a year, and more than half use it once a month.
Doing business in the shadows
Michigan's medical marijuana laws have spurred demand for other support services for marijuana growers and users, such as shops selling "consumption devices," criminal defense attorneys who specialize in drug laws, and laboratories that test for concentration levels of tetrahydrocannabinol and the presence of pesticides or fungicides. Tetrahydrocannabinol ? more commonly known as THC ? is the primary intoxicant in marijuana.
Voss said the market may be ripe for other services that don't touch marijuana directly, such as specialists who make house calls to set up hydroponics equipment for do-it-yourself marijuana growers and community banks that finance caregiver operations for which equipment alone can exceed $20,000.
MediSwipe entered the financing sector when bank card companies stopped servicing dispensaries.
But any commercial operation involved with obtaining money to distribute marijuana to patients quickly gets into the dicey area, Voss said. "For a commercial lender type to do some type of financing, however, you have to show the source of repayment if you are doing any financial analysis," he said.
That becomes difficult when state law is fuzzy about the point where accepting "reasonable compensation for services" turns into selling marijuana for a profit.
The blurred legal questions haven't stunted the growth of dispensaries that essentially act as brokers for growers and users. One popular website, PotLocator.com, lists more than 215 medical marijuana dispensaries in Michigan.
"Being a dispensary is a scary business," said Cardosa of AAA Hydroponics. "Your inventory is at risk all the time. If you have five patients and yourself, you are only allowed to have 15 ounces at any time in your possession. But a dispensary obviously carries more than 15 ounces. Quite literally, they (law enforcement agencies) can walk inside and take everything."
The city of Ann Arbor has had dispensaries for medical marijuana for years, and voters in Kalamazoo passed a charter amendment in November that tried to regulate dispensaries for medical marijuana.
Some experts think that murky legal question of whether dispensaries are legal was lifted Friday when the Supreme Court affirmed an appeals court finding that Michigan's 2008 medical marijuana law does not allow people to sell pot to each other, even if they're among the tens of thousands who have state-issued marijuana cards, according to an Associated Press report.
Although it has been a risky endeavor, entrepreneurs have pushed the envelope of commerce in an area where public sentiment has changed markedly over the past decade. Delivery services such as Michigan A-Grade have sprouted up all over the state, and it's clear that distribution will continue either aboveboard or underground.
According to the website THCfinder.com, Michigan A-Grade bills itself as "the only marketplace that combines West Michigan's finest farmers, local caregivers and patients, eliminating the need for dispensaries."
A group, West Michigan Medical Marijuana Caregivers, functions as "a network and delivery service for qualifying patients," serving Kent, Kalamazoo, Montcalm, Muskegon, Mecosta and Newaygo counties. Minimum donations are required and mileage charges may apply.
In the future, the group plans on "making healthy clones and seedlings available to members, holding grow-your-own classes, personal grow coaching, discounts on grow room equipment/nutes (nutrients) and an Internet forum for members."
Said Clark Hill's Voss: "I get the sense there's a lot going on that most of us have no idea what's happening. It is kind of like the Wild West out there."
Early adopters and bleeding-edge entrepreneurs may gain proprietary knowledge, market share and early branding. But they also risk sudden changes in the business landscape because of court rulings, law enforcement directives ? even Internal Revenue Service rules.
"The federal side of this makes me think this is a conversation that's going to take place over several years ? not election cycles," Voss said. For instance, entrepreneurs likely can't take write-offs on their costs for tax purposes for starting a larger-scale growing operation.
"The law is pretty clear that there's no legalization of a commercial transaction ? cash for weed," Voss said. "And if that's happening, we need to tell you straight away that every penny that happens as a drug dealer needs to be declared as miscellaneous income on a tax return, with a large degree of certainty guaranteeing an audit, which then requires audit representation."
Regardless of the legal wrangling, it probably is as hard to pare back the pot industry in Michigan as it is to eradicate the vigorous weed itself.
"The genie has been out of the bottle for lots and lots of years," Cardosa said. "All the way around, it is a lucrative business for Michigan ? and it is already here."