This is part 1 of 10 of Revision Legal’s guide to setting up a Medical Marijuana business in the State of Michigan.

This article provides an overview of issues you will need to address for medical marijuana business formation.

Michigan’s Medical Marijuana Facilities Licensing Act (MMFLA) sets a licensing framework for the growing, processing, transporting, testing, and selling of marijuana. With this Act, Applicants for licenses can now form corporations and limited liability companies (LLC) to hold these licenses.

Forming an LLC is relatively easy. Forming them correctly and understanding how they work? — that is more difficult.

Limited Liability – Keep It

The main benefit of forming a corporate entity is obtaining limited liability. What this means is the business, rather than its shareholders or members or you, are liable for the corporate debts. With incorporation, you protect personal assets from business liabilities.

However, it is possible to lose this protection. Specifically, a creditor could “pierce the corporate veil.” As a result your personal assets could be in danger if you do not understand the basics of how limited liability works.

The most important thing to remember is that incorporation should not be abused. For example, if you use your business as a sham or a fraudulent operation, then you can lose your protections. This can happen when business owners mix personal and business funds, fail to keep sufficient records, or become limited by operating funds.

Internal Organization – Do It

Your new Medical Marijuana business needs rules of operation as part of its formation.

Typically, these rules are put together as an operating agreement (for an LLC) or bylaws and a shareholders agreement (for a corporation). These documents set internal policy and procedure for several important issues. Examples of these issues include voting rights, the impact of someone’s death, and the priority of distributions or dividends.

Especially relevant is when your Medical Marijuana business has more than one owner, then these types of organizational documents are highly recommended.

Documentation – Be Diligent

You must take steps to record the important decisions. Do this at the time of your medical marijuana business formation as well as keep accurate paperwork during your day-to-day operations.

These steps can be as simple as setting periodic reminders to review the internal documents of your organization and run audits on how your business is running.

The operation and organization of your business is your responsibility. Nobody else is going to do this for you. But if you follow these steps and are careful in your record keeping and diligent in legal protections then this type of business will be an asset for years. It will also make your business more attractive and trustworthy to customers and investors.

Michigan’s Marijuana Licensing Framework

Michigan now operates under the Michigan Regulation and Taxation of Marijuana Act (MRTMA), which voters approved in 2018, and the MMFLA for the medical side of the market. The Cannabis Regulatory Agency (CRA) — formerly the Marijuana Regulatory Agency — administers licensing for both adult-use and medical marijuana facilities in Michigan. The CRA issues licenses for growers at various scales, processors, retailers, microbusinesses, safety compliance facilities (testing labs), transporters, and secure transporters.

Each license type carries its own application requirements, facility requirements, and operating standards. Applicants must pass a rigorous background check, demonstrate financial viability, satisfy local zoning and municipality approval requirements, and comply with the CRA’s detailed security and inventory tracking requirements. Michigan requires all cannabis businesses to use the Metrc track-and-trace system to account for every plant and product from seed to sale.

The licensing application process is demanding. Incomplete or inaccurate applications are rejected or placed on hold. Working with legal counsel who understands the CRA’s requirements and the nuances of the application process can significantly improve the likelihood of approval and reduce delays.

The Banking and Financial Problem

One of the most significant practical challenges facing Michigan marijuana businesses is access to banking. Because marijuana remains a Schedule I controlled substance under the federal Controlled Substances Act, 21 U.S.C. § 811, most federally insured banks and credit unions will not provide banking services to cannabis businesses. This creates an operational problem: marijuana businesses often operate on a cash-heavy basis, which creates security risks and accounting complications.

A limited number of state-chartered credit unions and community banks in Michigan do serve the cannabis industry, though typically at higher fees and with more stringent compliance requirements than standard business banking. Cannabis businesses should budget for these higher costs and work with accountants and attorneys who understand both the business and compliance dimensions of cannabis financial management.

Federal legislation that would resolve the cannabis banking problem — including the SAFE Banking Act — has been introduced in multiple sessions of Congress but has not yet been enacted. The legal landscape may evolve, and cannabis business owners should stay informed through counsel who monitors federal developments.

Tax Considerations: The Section 280E Problem

Federal tax law imposes a uniquely punishing burden on cannabis businesses through Internal Revenue Code Section 280E. Under 26 U.S.C. § 280E, businesses that traffic in controlled substances under federal law — which includes marijuana regardless of state legality — cannot deduct ordinary and necessary business expenses from their federal taxable income. This means that a marijuana retailer cannot deduct rent, payroll, utilities, advertising, or most other normal business expenses.

The only relief available is through the Cost of Goods Sold (COGS) deduction, which is not subject to Section 280E. Structuring the business and its accounting practices to maximize allowable COGS deductions is a critical tax strategy for Michigan marijuana businesses. This requires careful guidance from a CPA with cannabis industry experience and legal counsel who understands the interaction between state and federal tax law.

Intellectual Property for Cannabis Businesses

Michigan marijuana businesses should not overlook intellectual property protection. Brand names, logos, strain names, and proprietary processes can all be valuable assets. However, federal trademark registration is complicated by the fact that the USPTO will not register marks for goods or services that are illegal under federal law — meaning a dispensary cannot register a trademark for marijuana products with the USPTO.

Michigan state trademark registration is available for marks used in intrastate commerce. State registrations provide meaningful protection within Michigan’s borders and establish priority of use. Additionally, federal trademark registration may be available for ancillary goods and services — such as branded apparel, accessories, or delivery services — that are lawful under federal law.

Cannabis businesses should also protect their proprietary cultivation methods, formulas, and processes as trade secrets under Michigan’s Uniform Trade Secrets Act, M.C.L. § 445.1901 et seq. Nondisclosure and confidentiality agreements with employees and partners are essential.

Conclusion – Medical Marijuana Business Formation – Do It Right

Forming a legally defined entity is always an important first step for any business. If you are going to do it, do it right. The regulatory, tax, banking, and intellectual property challenges unique to the cannabis industry make professional legal and accounting guidance not optional but essential.

Revision Legal offers a complete package to help with your Medical Marijuana business formation. Contact us today with the form on this page to schedule a consultation.