Gift of pot? Marijuana businesses work in Michigan law's gray area

Detroit — Selling marijuana won’t be legal for another year in Michigan, but entrepreneurs are seeing green with a loophole in the new law.

Since recreational marijuana became legal Dec. 6, a few have made hundreds, even thousands, of dollars by selling overpriced inexpensive goods such as snacks, T-shirts and chocolates with a “gift” of marijuana. They agree their businesses operate in a gray area under state law, leaving law enforcement waiting for the Michigan Licensing and Regulatory Affairs Department to clarify the statute's language.

"It's a bit of a loophole," said Alex Leonowicz, leader of the Cannabis Industry Group at Royal Oak law firm Howard & Howard. "If you look at form over substance, it's right. Legally, can they do it? Yeah, but I think it flies in the face of the actual purpose of the law."

The law that legalized recreational marijuana, which voters approved with nearly 56 percent support in November, says a person is within the confines of the law “who…delivers without receiving any remuneration to a person who is at least 21 years of age not more than” 2½ ounces of cannabis, roughly equivalent to 140 half-gram joints.

That language allows for marijuana gifts. But it may have presented the opportunity for companies such as Washington, D.C.-based On High Road LLC to enter the market.

The company sells commercially purchased artwork with munchie bags and made its first deliveries in Michigan last week, after collecting online pre-orders. All purchases come with a free cannabis gift, said founder Brandon Anthony Williams, 34, who declined to comment on how many pre-orders he had.

Williams became interested in cannabis through his background in mental health and medical research. Finding it too expensive to start a dispensary, he launched his business last year in Boston and Washington, D.C., which have similar gift laws. But with overly saturated markets there, Williams said he is focusing on the Midwest and is hiring drivers for his business here.

Available for delivery and pickup in Ann Arbor and Detroit, the bags start at $55 for the purchase of a muffin and 8-ounce orange juice in the Westside Wake N Bake bag, fire hot fries with a water in the Red Wing Hot Box, or Sour Patch Kids with an 8-ounce lemonade in the Detroit Lions Cotton Mouth bag. All options come with a piece of art and one pre-rolled empty Raw cone — a hollow joint that can be packed with the included herb.

For $150, customers can select the “lit” option to receive extra “gifts.”

“It has everything you would need to enjoy cannabis,” Williams said of the bags.

Williams declined to specify how much cannabis comes with each purchase. He said the marijuana is “premium,” tested for pesticides and given to him in Michigan.

"On the site, whatever you pay for is what you are gifted," he said.

Medical marijuana procurement centers in Detroit sell marijuana for around $10-$15 per gram or $200-$350 per ounce.

Williams' company and those like it in other states have inspired others to launch their own businesses in Michigan.

Alex Poulos, a 22-year-old college student in Detroit, launched CannaMich, a business in the midst of applying to be a limited-liability company that delivers T-shirts within 15 miles of downtown. The shirts range from $80-$340 online and based on the price, come with 1 gram to 1 ounce of marijuana. Poulos said the cannabis is gifted to him by cultivators in Michigan and that it is not tested. Since Dec. 7, he says he's made more than $5,000 from more than 120 customers.

For $10-$15 in Ann Arbor, Smoke’s Chocolate, the brand under Cocoa Creations LLC, has sold one chocolate malt ball, one piece of white chocolate akin to a Hershey's Kiss or one salted caramel truffle online. The business made more than $1,700 in its first three days, $800 of which was earned in two hours on the last day after people got a whiff of his business. The company was on hiatus but relaunched again on Friday, this time with three delivery drivers instead of one.

Owner Marc Bernard, who said he is interested in selling cannabis-infused chocolates one day, hires marijuana medical card holders to deliver the chocolates, and they willingly and liberally gift the drug on their deliveries from their own stash. In return, he said he pays them a “steep rate.”

"We don't touch the cannabis at all," said the 30-year-old owner, who has worked in Oregon's recreational marijuana industry for three years. "It's entirely up to the drivers and at their discretion. All we do is sell chocolate."

Williams and Poulos said they consulted with lawyers, who told them their ventures were legal.

“It’s in the gray area,” Williams said. “I just think they want to make sure people aren’t obviously out here selling drugs on the street. I’m not worried. We’re not trying to ruffle any feathers with the law. We’re college-educated professionals looking to get into the business.”

And as far as remuneration — money paid for work or a service — Williams said, “You cannot value art at a certain price.”

Poulos said the only contingency of which his lawyer informed him was that he cannot advertise the cannabis gift, though CannaMich’s website does mention and include photos of the marijuana.

"...Our business is 100-percent legal," Poulos said. "Sometimes the customers are very sketched-out when we deliver, like they think it's a drug deal and you have to keep low and stuff like that.”

'The intent of the law'

Other Metro Detroit cannabis lawyers were less certain about the legality behind these businesses.

“My opinion is that they are not legal, and I would not be surprised if they are prosecuted,” said Barton Morris, principal attorney of Royal Oak’s Cannabis Legal Group. “It completely avoids the intent of the law, which is for one somebody to give it to another. It’s the same thing with alcohol: If I’m making beer in my basement and say here’s a six-pack and charge them for the container in which they are being sold, that’s not a legitimate transaction. There is an exchange of money and an exchange of marijuana.”

He said he wouldn't recommend anyone buy from these companies either.

Josh Hovey, spokesman for the Coalition to Regulate Marijuana Like Alcohol, a group that advocated for recreational marijuana in Michigan, said these businesses likely will fizzle out once adult-use licensed businesses are up and running with tested, legal product.

"These types of businesses are walking a fine line when it comes to the gifting language of the proposal," he said in an email. "I guess they believe the opportunity to be first to the market is worth the legal risk."

Matthew Abel, a senior partner at Detroit-based Cannabis Counsel, said the ventures are an unintended consequence of the law, though they may be allowed.

"We have not yet seen any challenges in the courts to that," he said. "We certainly did and do want to allow people to give it away, but until there's another way for the average adult to obtain it, this will flourish. I think it will naturally reduce as stores open. Consumers are going to prefer tested, branded products even if they cost a little bit more, but we're many months away from that happening."

But it doesn't have to be that way, Abel said, noting that with Gov. Gretchen Whitmer taking office, her administration could implement emergency rules to address situations like this.

In an emailed statement, Whitmer's transition team said it has been reviewing the issue.

“The governor-elect has said she wants to take a thoughtful approach, with all of the facts, before making any decisions after January 1," the statement said. "This is something that is a new charge for state government, that crosses multiple departments and that will require a thoughtful, inclusive strategy moving forward.”

Wayne County Sheriff Benny Napoleon said the department has not yet received a complaint about the dealings.

"I personally believe the law is clear: that you cannot distribute marijuana without a proper license," Napoleon said. "I believe that that's no different than someone opening up a store and saying you can buy a T-shirt and then gifting alcohol with it. I think that would probably be illegal."

Should an issue arise, Napoleon said the department would work with the Wayne County Prosecutor's Office. Assistant Prosecutor Maria Miller directed inquiries on the subject to the Prosecuting Attorneys Association of Michigan.

According to the association, prosecutors around the state are waiting for clarification on the law, though even without a rule, people who pursue this business model could face an investigation and criminal prosecution.

"The activity as described appears not to fit the spirit of the law," D.J. Hilson, the association's president, said in an email. "We as an organization would encourage LARA to review this type of business and promulgate rules accordingly."

The Michigan Licensing and Regulatory Affairs Department declined to comment. It has until Dec. 6, 2019, before it must begin accepting applications for adult-use marijuana establishments.

For those who do wish to receive a state license to operate a marijuana business, attorney Leonowicz recommended they stay away from these types of ventures, as those who previously tried to obtain a head start on the commercial marijuana business have faced greater scrutiny while obtaining their license from the state's Medical Marihuana Licensing Board.

"These are not easy things to get through," Leonowicz said. "The board is going to look unfavorably on this. If you are looking to go into this industry on a commercial basis, this is not something you should be doing."

'Open people's minds'

Organized events with marijuana samples have taken place since legalization, as well. Chef Gigi Diaz, trade show High Times' 2017 cannabis chef of the year, held an event earlier last month featuring cannabis-infused dish tastings, a cooking demonstration and a gallery from local photographer Erin Short, which shared the stories of members of the medical cannabis community and how they use their medication.

Diaz, founder of the cannabis group Sophisticated Smokers' Society in Detroit, said for the “cannabis curious,” edibles may provide a better introduction over smoking.

"It's a good way to get the benefits of cannabis as opposed to smoking it," she said. "We're trying to open people's minds to the many ways people can use."

Approximately 70 people attended the event, which was made available to the public with tickets sold on Eventbrite. Diaz said she accepted “donations” starting at $35 to cover costs.

“It’s a pop-up event,” Diaz said. “We’re not distributing or selling. It’s just a showcase for the different forms of consumption.”

The event was held in the same building as the Cannabis Counsel’s office. Abel, who did not attend the event, said legality for events like these is based on the fine details. While he said free cannabis samples should not be advertised anywhere, including online, marijuana is legal for people to give away.

For that reason, Morris said events like Diaz’s have a stronger legal standing than businesses selling products with gifts of marijuana.

"There's some type of transaction in excess and above the marijuana," Morris said. "During this party that somebody paid to get into, they have the ability to accept gifts. But the person is paying to get into the party, not for the marijuana."

bnoble@detroitnews.com