REGULATORY IMPACT STATEMENT and COST-BENEFIT ANALYSIS (RISCBA)

Transcription

1 State Budget Office Office of Regulatory Reinvention 111 S. Capitol Avenue; 8th Floor, Romney Building Lansing, MI Phone: (517) FAX: (517) REGULATORY IMPACT STATEMENT and COST-BENEFIT ANALYSIS (RISCBA) PART 1: INTRODUCTION Under the Administrative Procedures Act (APA), 1969 PA 306, the agency that has the statutory authority to promulgate the rules must complete and submit this form electronically to the Office of Regulatory Reinvention (ORR) at no less than 28 days before the public hearing. 1. Agency Information Agency name: LARA - Bureau of Medical Marihuana Regulation Division/Bureau/Office: Facilities Licensing Division Name, title, phone number, and of person completing this form: Name of Departmental Regulatory Affairs Officer reviewing this form: BMMR Legal Section: Jennifer Piggott/ Department Analyst, Shaun Lampkins/ Department Analyst, Jacob Nevin/ Department Analyst; Contact info.: ; LARA-BMMR- Legal@michigan.gov Liz Arasim Department of Licensing and Regulatory Affairs 2. Rule Set Information ORR assigned rule set number: LR Title of proposed rule set: Medical Marihuana Facilities PART 2: KEY SECTIONS OF THE APA a Small business defined. Sec. 7a. Small business means a business concern incorporated or doing business in this state, including the affiliates of the business concern, which is independently owned and operated, and which employs fewer than 250 full-time employees or which has gross annual sales of less than $6,000, Reducing disproportionate economic impact of rule on small business; applicability of section and MCL (3). Sec. 40. (1) When an agency proposes to adopt a rule that will apply to a small business and the rule will have a disproportionate impact on small businesses because of the size of those businesses, the agency shall consider exempting small businesses and, if not exempted, the agency proposing to adopt the rule shall reduce the economic impact of the rule on small businesses by doing all of the following when it is lawful and feasible in meeting the objectives of the act authorizing the promulgation of the rule: (a) Identify and estimate the number of small businesses affected by the proposed rule and its probable effect on small businesses.

2 RISCBA Page 2 (b) Establish differing compliance or reporting requirements or timetables for small businesses under the rule after projecting the required reporting, record-keeping, and other administrative costs. (c) Consolidate, simplify, or eliminate the compliance and reporting requirements for small businesses under the rule and identify the skills necessary to comply with the reporting requirements. (d) Establish performance standards to replace design or operational standards required in the proposed rule. (2) The factors described in subsection (1)(a) to (d) shall be specifically addressed in the small business impact statement required under section 45. (3) In reducing the disproportionate economic impact on small business of a rule as provided in subsection (1), an agency shall use the following classifications of small business: (a) 0-9 full-time employees. (b) full-time employees. (c) full-time employees. (4) For purposes of subsection (3), an agency may include a small business with a greater number of full-time employees in a classification that applies to a business with fewer full-time employees. (5) This section and section 45(3) do not apply to a rule that is required by federal law and that an agency promulgates without imposing standards more stringent than those required by the federal law. MCL (3) Except for a rule promulgated under sections 33, 44, and 48, the agency shall prepare and include with the notice of transmittal a regulatory impact statement which shall contain specific information (information requested on the following pages). [Note: Additional questions have been added to these statutorily-required questions to satisfy the cost-benefit analysis requirements of Executive Order ]. MCL b Information to be posted on office of regulatory reinvention website. Sec. 45b. (1) The office of regulatory reinvention shall post the following on its website within 2 business days after transmittal pursuant to section 45: (a) The regulatory impact statement required under section 45(3). (b) Instructions on any existing administrative remedies or appeals available to the public. (c) Instructions regarding the method of complying with the rules, if available. (d) Any rules filed with the secretary of state and the effective date of those rules. (2) The office of regulatory reinvention shall facilitate linking the information posted under subsection (1) to the department or agency website. PART 3: AGENCY RESPONSE Please provide the required information using complete sentences. Do not answer any question with N/A or none. Comparison of Rule(s) to Federal/State/Association Standards: 1. Compare the proposed rule(s) to parallel federal rules or standards set by a state or national licensing agency or accreditation association, if any exist. There are no comparable federal rules or standards set by a state or national licensing agency. There are 30 states with medical marihuana laws in place, which cover a variety of topics or concerns specific to their licensing and regulatory structure. A. Are these rule(s) required by state law or federal mandate? The proposed rules are required by authority conferred on the department of licensing and regulatory affairs by section 206 of Medical Marihuana Facilities Licensing Act (MMFLA), 2016 PA 281, MCL The rules are not required by federal mandate.

3 RISCBA Page 3 B. If these rule(s) exceed a federal standard, identify the federal standard or citation, describe why it is necessary that the proposed rule(s) exceed the federal standard or law, and specify the costs and benefits arising out of the deviation. The rules do not exceed a federal standard or law. 2. Compare the proposed rule(s) to standards in similarly situated states, based on geographic location, topography, natural resources, commonalities, or economic similarities. The effective date of 2016 PA 281 was December 20, The Department was to begin accepting applications within 365 days of the effective date (December 15, 2017). The Department is tasked with promulgating rules and emergency rules as necessary to implement, administer, and enforce the MMFLA. The rules must ensure the safety, security, and integrity of the operation of marihuana facilities in addition to the express rule requirements. When compared to other Great Lakes and surrounding states, Michigan s licensing and regulatory framework is similar to the other states programs. Michigan has one of the largest patient populations registered with its medical marihuana program in the country, which will presumptively create the consumer base for the facilities licensing division. The other states have a tenth of the patient population that Michigan has. The tax in Michigan is 3% of gross receipts of provisioning centers. The tax in Illinois is 7% at cultivators/dispensaries. Pennsylvania has a 5% excise tax on gross receipts of dispensaries. Minnesota has a $3.50 tax on each gram. Ohio does not have an excise tax on medical marihuana. While there may be neighboring states with higher taxes, the patient population market is far less than that of Michigan. The other programs also have similar licensing categories; however, Michigan is unique with a secure transporter license available. The proposed rules are consistent with the rules of those states where medical marihuana is regulated. A. If the rule(s) exceed standards in those states, explain why and specify the costs and benefits arising out of the deviation. Promulgation of rules related to the licensing and regulatory framework is required under statute. The rules do not exceed the scope of licensing requirements of other states where licensure is required. 3. Identify any laws, rules, and other legal requirements that may duplicate, overlap, or conflict with the proposed rule(s). There are local laws that will impact the facilities as set forth in zoning and municipal ordinances. Additionally, other state laws may impact facilities such as in the Bureau of Fire Safety, Bureau of Construction Codes, MIOSHA, DEQ and MDARD. But these will not duplicate, overlap or conflict with the proposed rules. There are no federal regulations for medical marihuana. A. Explain how the rule has been coordinated, to the extent practicable, with other federal, state, and local laws applicable to the same activity or subject matter. This section should include a discussion of the efforts undertaken by the agency to avoid or minimize duplication. A coordinated effort was taken with BFS and BCC in the building and fire safety rules that are being proposed. Moreover, there has been coordination with MSP for applicant background investigations and oversight of marihuana facilities. There has also been coordination with Treasury on the tax collection. Additionally, for food safety and pesticides proposed regulation there was discussion with MDARD. Conversation will continue with other state agencies, including the DEQ, as the program is being built. The proposed rules adopted by reference other laws if necessary, and to avoid duplication did not include rules that are already covered in other state laws that will have to be adhered to.

4 RISCBA Page 4 Purpose and Objectives of the Rule(s): 4. Identify the behavior and frequency of behavior that the proposed rule(s) are designed to alter. This is a new rule set that is required by the MMFLA which provides for the implementation of a program to commercially license marihuana facilities. The objective of the proposed rules is to fulfill the MMFLA requirement that the department implement, administer, and enforce the MMFLA. Section 206 of the MMFLA provides that the rules must ensure the safety, security, and integrity of the operation of marihuana facilities, and must include rules to do the following: Set appropriate standards for marihuana facilities and associated equipment. Subject to section 408, establish minimum levels of insurance that licensees must maintain. Establish operating regulations for each category of license to ensure the health, safety, and security of the public and the integrity of marihuana facility operations. Establish qualifications and restrictions for persons participating in or involved with operating marihuana facilities. Establish testing standards, procedures, and requirements for marihuana sold through provisioning centers. Provide for the levy and collection of fines for a violation of this act or rules. Prescribe use of the statewide monitoring system to track all marihuana transfers, as provided in the marihuana tracking act and this act, and provide for a funding mechanism to support the system. Establish quality control standards, procedures, and requirements for marihuana facilities. Establish chain of custody standards, procedures, and requirements for marihuana facilities. Establish standards, procedures, and requirements for waste product disposal and storage by marihuana facilities. Establish chemical storage standards, procedures, and requirements for marihuana facilities. Establish standards, procedures, and requirements for securely and safely transporting marihuana between marihuana facilities. Establish standards, procedures, and requirements for the storage of marihuana by marihuana facilities. Establish labeling and packaging standards, procedures, and requirements for marihuana sold or transferred through provisioning centers, including a prohibition on labeling or packaging that is intended to appeal to or has the effect of appealing to minors. Establish daily and monthly purchasing limits at provisioning centers for registered qualifying patients and registered primary caregivers to ensure compliance with the Michigan medical marihuana act. Establish marketing and advertising restrictions for marihuana products and marihuana facilities. Establish maximum tetrahydrocannabinol levels for marihuana-infused products sold or transferred through provisioning centers. Establish health standards to ensure the safe preparation of products containing marihuana that are intended for human consumption in a manner other than smoke inhalation. Establish restrictions on edible marihuana-infused products to prohibit shapes that would appeal to minors. A. Estimate the change in the frequency of the targeted behavior expected from the proposed rule(s). Promulgation of rules is required under statute. This will provide a licensing and regulatory framework for the medical marihuana industry. Licensed facilities must demonstrate continued compliance with the law and rules to maintain licensure. The targeted behavior of medical marihuana patients and caregivers may change as they utilize the commercial entities for access to medical marihuana products.

5 RISCBA Page 5 B. Describe the difference between current behavior/practice and desired behavior/practice. The market for medical marihuana was limited to the 2008 Initiated Law 1, establishing a patient/caregiver model. The MMFLA will now create commercial entities that are regulated by law and rules. Currently, there are no rules in place under the MMFLA. Therefore, the proposed rules are necessary to implement, administer, and enforce the MMFLA. C. What is the desired outcome? The desired outcome is rules that are necessary to implement, administer, and enforce the MMFLA, which entails a licensing and regulatory framework for a commercial industry. 5. Identify the harm resulting from the behavior that the proposed rule(s) are designed to alter and the likelihood that the harm will occur in the absence of the rule. In the absence of rules that are required by the MMFLA, there would be a lack of safety, security, and integrity of the operation of medical marihuana facilities. A. What is the rationale for changing the rule(s) instead of leaving them as currently written? There are currently no permanent rules in place for the MMFLA, these are the proposed rules that are required by the MMFLA that ensure safety, security, and integrity of the operation of medical marihuana facilities. 6. Describe how the proposed rule(s) protect the health, safety, and welfare of Michigan citizens while promoting a regulatory environment in Michigan that is the least burdensome alternative for those required to comply. Health, safety, and welfare is protected with proposed rules concerning security and surveillance of the facilities; safety test requirements; maximum THC levels; facility storage and preparation; etc. These areas will not only promote health, safety and welfare for the end user of the medical marihuana but also for the employees, contractors, and those who come into contact with a marihuana facility. The rules also contain labeling and storage regulation and ensure tracking of a marihuana product through the statewide monitoring system. These requirements are set forth in the MMFLA and are incorporated into the proposed rules. The proposed rules aim to protect health and safety of Michigan citizens and also promote the commercial licensing and regulatory framework in a way that is the least burdensome. The proposed rules have adopted by reference standards that are not uncommon in industry and copies are available at our Bureau for those required to comply. 7. Describe any rules in the affected rule set that are obsolete or unnecessary and can be rescinded. There is not a current rule set in place that is being amended. These are all newly proposed rules as required by the MMFLA and, therefore, no rules are being rescinded. Fiscal Impact on the Agency: Fiscal impact is an increase or decrease in expenditures from the current level of expenditures, i.e. hiring additional staff, higher contract costs, programming costs, changes in reimbursement rates, etc. over and above what is currently expended for that function. It does not include more intangible costs or benefits, such as opportunity costs, the value of time saved or lost, etc., unless those issues result in a measurable impact on expenditures. 8. Describe the fiscal impact on the agency (an estimate of the cost of rule imposition or potential savings). The proposed rules are not expected to have a fiscal impact on the agency. 9. Describe whether or not an agency appropriation has been made or a funding source provided for any expenditures associated with the proposed rule(s).

6 RISCBA Page 6 As set forth in the MMFLA, the department shall expend money from the marihuana regulatory fund, upon appropriation, only for implementing, administering, and enforcing the MMFLA. There has been appropriation made and therefore the funds appropriated, in part, will further the implementation and administration of the MMFLA, which will include the proposed rules. 10. Describe how the proposed rule(s) is necessary and suitable to accomplish its purpose, in relationship to the burden(s) it places on individuals. Burdens may include fiscal or administrative burdens, or duplicative acts. The MMFLA requires the promulgation of rules and emergency rules as necessary to implement, administer, and enforce the MMFLA. The rules must ensure the safety, security, and integrity of the operation of marihuana facilities. Any burdens would be in place as required by the MMFLA. The application/licensing process requires documentation, fingerprinting, etc. That will be at a financial and administrative cost. There are rules required for the use of a statewide monitoring system which will place a burden on the individual but is statutorily required. A. Despite the identified burden(s), identify how the requirements in the rule(s) are still needed and reasonable compared to the burdens. The rules must ensure the safety, security, and integrity of the operation of marihuana facilities. Any burden is reasonable in the proposed rules as it complies with the statutory requirement for its consideration. Impact on Other State or Local Governmental Units: 11. Estimate any increase or decrease in revenues to other state or local governmental units (i.e. cities, counties, school districts) as a result of the rule. Estimate the cost increases or reductions for such other state or local governmental units as a result of the rule. Include the cost of equipment, supplies, labor, and increased administrative costs in both the initial imposition of the rule and any ongoing monitoring. There are no anticipated increases or decreases in revenues or costs to other state or local government units as a result of the proposed rules. Any local or state change to revenue may occur via the statutory provisions as it concerns how the funds, fees, or taxes are allocated or expended. The Department is required to set an application fee pursuant to the MMFLA and has set the fee at $6,000 to offset the background investigations, administration of the licensing application, etc. The other statutory imposed fee is the annual regulatory assessment set forth in section 603 of the MMFLA which will be deposited in the marihuana regulatory fund. A. Estimate the cost increases or reductions for other state or local governmental units (i.e. cities, counties, school districts) as a result of the rule. Include the cost of equipment, supplies, labor, and increased administrative costs in both the initial imposition of the rule and any ongoing monitoring. There are no anticipated increases or decreases in revenues or costs to other state or local government units as a result of the proposed rules. Any local or state impact may occur via the statutory provisions as it concerns how the funds, fees, or taxes are allocated or expended. 12. Discuss any program, service, duty or responsibility imposed upon any city, county, town, village, or school district by the rule(s). The marihuana facilities will be required to comply with local building codes and permit requirements to ensure the safety and integrity of the marihuana facility as set forth in the proposed rules concerning inspections and building safety. A. Describe any actions that governmental units must take to be in compliance with the rule(s). This section should include items such as record keeping and reporting requirements or changing operational practices. There are no anticipated actions that a governmental unit must take to comply with these

7 RISCBA Page 7 proposed rules. 13. Describe whether or not an appropriation to state or local governmental units has been made or a funding source provided for any additional expenditures associated with the proposed rule(s). No appropriations have been made to any governmental units because of these rules. No additional expenditures are anticipated or intended with the proposed rules. Rural Impact: 14. In general, what impact will the rule(s) have on rural areas? The proposed rules are not expected to impact rural areas in as much as the rules apply to all marihuana facilities regardless of location. A. Describe the types of public or private interests in rural areas that will be affected by the rule(s). The proposed rules are not expected to effect public or private interests in rural areas. Environmental Impact: 15. Do the proposed rule(s) have any impact on the environment? If yes, please explain. The proposed rules impact the environment in that the MMFLA authorized that rules be promulgated to establish standards, procedures, and requirements for waste product disposal and storage by marihuana facilities. Marihuana destruction and waste management are addressed in the proposed rules and could have an impact on the environment. Consultation will continue with the Department of Environmental Quality and review of other medical marihuana state policies in addressing the rule requirement. Small Business Impact Statement: 16. Describe whether and how the agency considered exempting small businesses from the proposed rule(s). The licensing and regulatory framework created by the MMFLA and the corollary proposed rules may create a framework for small businesses. For instance, there is a variety of applicants (individuals, entities, etc.) that are seeking licensure. The proposed rules are designed so that all commercial entities including small businesses, are successful. 17. If small businesses are not exempt, describe (a) how the agency reduced the economic impact of the proposed rule(s) on small businesses, including a detailed recitation of the efforts of the agency to comply with the mandate to reduce the disproportionate impact of the rule(s) upon small businesses as described below, per MCL (1)(a)-(d), or (b) the reasons such a reduction was not lawful or feasible. Section 603 of the MMFLA caps the regulatory assessment for a class A grower license to $10,000. Additionally, the proposed rules take into consideration the MMFLA s distinction on the various licenses when establishing the capitalization requirements. Due to the 5 license types created by the MMFLA, the proposed rules are intended to broadly impact the safety, security, and integrity of the operation of marihuana facilities and not target specifically small businesses or negatively impact them exclusively. A. Identify and estimate the number of small businesses affected by the proposed rule(s) and the probable effect on small business. As of FY 2017, there are 269,553 patients and 43,183 caregivers in Michigan under 2008 Initiated Law 1. These are individuals that shape the industry and may in fact enter as business owners. Class A and B growers make up about 6% of the applicant population for anticipated licenses. The proposed rules are structured broadly and not intended to negatively impact the small business as they are formulated to affect all license types. This can be seen by the varying capitalization requirements across license type.

8 RISCBA Page 8 B. Describe how the agency established differing compliance or reporting requirements or timetables for small businesses under the rule after projecting the required reporting, record-keeping, and other administrative costs. The agency did not establish separate compliance or reporting requirements for small businesses. The proposed rules will apply to all applicants and licensees across the 5 license categories, as applicable. The rules were drafted to be the least burdensome on all affected applicants and licensees. C. Describe how the agency consolidated or simplified the compliance and reporting requirements for small businesses and identify the skills necessary to comply with the reporting requirements. The agency did not consolidate or simplify compliance and reporting requirements for small businesses with the proposed rules. D. Describe how the agency established performance standards to replace design or operation standards required by the proposed rule(s). The agency did not establish performance standards to replace design or operation standards required by these rules. 18. Identify any disproportionate impact the proposed rule(s) may have on small businesses because of their size or geographic location. The proposed rules affect applicants and/or licensees rather than specifically small businesses. Therefore, there is no disproportionate effect on a small business because of its size or geographic location. 19. Identify the nature of any report and the estimated cost of its preparation by small businesses required to comply with the proposed rule(s). The requirements of the proposed rules apply to all applicants and licensees and therefore there is no separate cost to small businesses. The impact of complying with the proposed rules could in theory be felt more for a small business but the rules are not intended to negatively impact small businesses. For instance, the requirements for a CPA-attested financial statement could be costly for any applicant including small businesses. 20. Analyze the costs of compliance for all small businesses affected by the proposed rule(s), including costs of equipment, supplies, labor, and increased administrative costs. There will be no increased costs of compliance for a small business concerning the costs of equipment, supplies, or administrative costs. 21. Identify the nature and estimated cost of any legal, consulting, or accounting services that small businesses would incur in complying with the proposed rule(s). In complying with the proposed rules, all applicants or licensees may incur legal, consulting, or accounting services. The proposed rules do not single out small business. However, certain legal, consulting, or accounting services may be more impactful on a small business. An example of this could be the CPA-attested financial statements. 22. Estimate the ability of small businesses to absorb the costs without suffering economic harm and without adversely affecting competition in the marketplace. There are no expected costs to a small business that will cause economic harm to a small business or the marketplace as a result of the proposed rules. 23. Estimate the cost, if any, to the agency of administering or enforcing a rule that exempts or sets lesser standards for compliance by small businesses.

9 RISCBA Page 9 The proposed rules apply to all applicants and licensees, regardless of size or geographic location. Therefore, exempting or setting lesser compliance standards for small businesses could create a potential threat to health and safety of the state of Michigan. 24. Identify the impact on the public interest of exempting or setting lesser standards of compliance for small businesses. The proposed rules apply to all applicants and licensees, regardless of size or geographic location. Therefore, exempting or setting lesser compliance standards for small businesses could create a potential threat to health and safety of the state of Michigan. 25. Describe whether and how the agency has involved small businesses in the development of the proposed rule(s). The department worked with the Medical Marihuana Licensing Board in the development of the proposed rules. Workgroups were also conducted that were comprised with varying levels of business owners, from small or large businesses and members of the public and they made recommendation to the Board. Small businesses were not exclusively included or excluded by the very nature of being a small business. A. If small businesses were involved in the development of the rule(s), please identify the business(es). Small business was involved in the development of rules only in as much as making recommendation during the workgroups to the Medical Marihuana Licensing Board and not specifically to the department on specifics concerning the proposed rules. Cost-Benefit Analysis of Rules (independent of statutory impact): 26. Estimate the actual statewide compliance costs of the rule amendments on businesses or groups. The MMFLA requires that the department promulgate rules to ensure the safety, security, and integrity of the operation of marihuana facilities. The statute also requires licensees to comply with standards and requirements for marihuana facilities. There are costs associated with the statutory requirements implemented through the proposed rules. This is a new program so the actual costs have not been determined. The capitalization requirements are based on an estimated calculation of the cost of compliance with the MMFLA and the rules. A. Identify the businesses or groups who will be directly affected by, bear the cost of, or directly benefit from the proposed rule(s). The rules apply to applicants and licensees. There could be additional businesses or groups affected by, bear the cost of, or directly benefit from the MMFLA and proposed rules. Examples may be CPAs, lab equipment companies, surveillance equipment companies, third party integrators, and point of sale companies. B. What additional costs will be imposed on businesses and other groups as a result of these proposed rules (i.e. new equipment, supplies, labor, accounting, or recordkeeping)? Identify the types and number of businesses and groups. Be sure to quantify how each entity will be affected. No additional cost will be imposed on businesses or other groups. Only applicants and licensees are affected by the proposed rules. 27. Estimate the actual statewide compliance costs of the proposed rule(s) on individuals (regulated individuals or the public). Include the costs of education, training, application fees, examination fees, license fees, new equipment, supplies, labor, accounting, or recordkeeping. The MMFLA requires that the license application fee be provided for in rules. The rules set a license application fee at $6,000. There is a statutory based regulatory assessment that is imposed annually on certain licensees pursuant to section 603 of the MMFLA.

10 RISCBA Page 10 A. How many and what category of individuals will be affected by the rules? As of FY 2017, there are 269,553 registered qualifying patients and 43,183 registered primary caregivers that may be affected by the proposed rules which create pursuant to the MMFLA a commercially licensed industry that was not otherwise available with the exception of marihuana facilities that were temporarily operating with municipal approval. According to department records, there are 215 applicants for state operating licenses who applied to that effect. The 215 applicant facilities will be required to be licensed and either comply with the new regulatory program, inclusive of the requirements in the rules, and obtain licensure, or cease operation. B. What qualitative and quantitative impact does the proposed change in rule(s) have on these individuals? As required by the MMFLA the proposed rules must ensure the safety, security, and integrity of the operation of marihuana facilities. This newly licensed and regulated industry could also have an impact on the cost of the medical marihuana that is being purchased. 28. Quantify any cost reductions to businesses, individuals, groups of individuals, or governmental units as a result of the proposed rule(s). The proposed rules affect applicants and licensees. A cost reduction that could apply is at the application fee if the applicant is applying for numerous licenses. (The regulatory assessment will not be reduced however). 29. Estimate the primary and direct benefits and any secondary or indirect benefits of the proposed rule(s). Provide both quantitative and qualitative information, as well as your assumptions. The MMFLA requires the following topics to be addressed with promulgation of rules and emergency rules as necessary to implement, administer, and enforce the MMFLA. Specifically, section 206 of the MMFLA provides that the rules ensure the safety, security, and integrity of the operation of marihuana facilities, and must include rules to do the following: (a) Set appropriate standards for marihuana facilities and associated equipment. Establishing appropriate standards holds licensees accountable to meet these specific standards. Noncompliance of such standards could result in injury, or sickness to an employee or consumer. (b) Subject to section 408, establish minimum levels of insurance that licensees must maintain. By carrying insurance, licensees are protected against the cost of compensation claims made by consumers, arising due to defective marihuana products causing harm to consumers. (c) Establish operating regulations for each category of license to ensure the health, safety, and security of the public and the integrity of marihuana facility operations. Enacting regulations hold licensees accountable to meet these specific regulations. Noncompliance of such regulations could result in injury, sickness, or death to an employee or consumer. (d) Establish qualifications and restrictions for persons participating in or involved with operating marihuana facilities. This is important in order to protect the integrity of the marihuana industry. (e) Establish testing standards, procedures, and requirements for marihuana sold through provisioning centers. By establishing testing standards, procedures, and requirements for marihuana sold through provisioning centers, licensees and consumers will have knowledge that they re selling and purchasing product that has been tested for safety under the proposed rules. (f) Provide for the levy and collection of fines for a violation of this act or rules. Establishing fines for rule violations holds licensees accountable for their wrongdoings, so that future violations may be prevented. (g) Prescribe use of the statewide monitoring system to track all marihuana transfers, as provided in the marihuana tracking act and this act and provide for a funding mechanism to support the system. By tracking all marihuana transfers, an industry is more accountable and expedites a recall in the event of contamination or otherwise deficient product. A statewide monitoring system allows licensees to be more organized.

11 RISCBA Page 11 (h) Establish quality control standards, procedures, and requirements for marihuana facilities. This is important so that licensees will know their marihuana product is safe and free of contaminants. (i) Establish chain of custody standards, procedures, and requirements for marihuana facilities. In the event of violation of rules or a defective product, a quickly ready chain of custody is imperative in keeping patients safe and licensees in compliance. (j) Establish standards, procedures, and requirements for waste product disposal and storage by marihuana facilities. Establishing waste product standards can help eliminate hazardous marihuana waste from polluting, which could have destructive results on the environment. (k) Establish chemical storage standards, procedures, and requirements for marihuana facilities. This is important in order to prevent dangerous and hazardous chemicals from escaping and causing harm/injury to marihuana facilities, employees and consumers. (l) Establish standards, procedures, and requirements for securely and safely transporting marihuana between marihuana facilities. Secure transporters, by exclusively transporting and not working in any other area of the industry, cannot as easily develop conflicts of interest which result in licensees focused on safely transporting marihuana product between other licensees. (m) Establish standards, procedures, and requirements for the storage of marihuana by marihuana facilities. Establishing marihuana storage standards, procedures, and requirements helps protect a marihuana product from mold infestation, humidity, and exposure to light. These storage standards, procedures, and requirements can also prevent odors from permeating into the air. (n) Establish labeling and packaging standards, procedures, and requirements for marihuana sold or transferred through provisioning centers, including a prohibition on labeling or packaging that is intended to appeal to or has the effect of appealing to minors. By restricting labels from appealing to minors, it prevents accidental access to marihuana by minors and preserving the dignity of the industry by treating marihuana as medicine. (o) Establish daily and monthly purchasing limits at provisioning centers for registered qualifying patients and registered primary caregivers to ensure compliance with the Michigan medical marihuana act. The proposed rules will implement the daily and monthly purchasing limits as required by the MMFLA. (p) Establish marketing and advertising restrictions for marihuana products and marihuana facilities. Restricting advertising to only patients preserves the industry as a medicine and distances it from recreational use. (q) Establish maximum tetrahydrocannabinol levels for marihuana-infused products sold or transferred through provisioning centers. Establishing the maximum THC levels as required by the MMFLA, will promote patient awareness of the THC levels to address the portions or dosing of the medicine. (r) Establish health standards to ensure the safe preparation of products containing marihuana that are intended for human consumption in a manner other than smoke inhalation. Generally, marihuana products consumed in a manner other than inhalation are either ingested or absorbed through the skin. Consumption of such marihuana products must be prepared safely as to avoid injury, infection, or death. (s) Establish restrictions on edible marihuana-infused products to prohibit shapes that would appeal to minors. By restricting the shape of edible marihuana-infused products from appealing to minors, it prevents accidental ingestion of marihuana by minors and preserving the integrity of the industry by treating marihuana as medicine. Additionally, the proposed rules provide for safety and the integrity of the operations as follows: Security: The proposed rules require safe storage and separation of marihuana product from the public which protects the patients at provisioning centers. Safety: The proposed rules require rigorous and accurate testing which results in a safer product for patients. The proposed rules prohibit unsafe methods of processing marihuana which keeps processors safe. The proposed rules require facilities to maintain their premises in line with building and fire safety codes which protects the patients, operators, and general public.

12 RISCBA Page 12 Information: The rules require labeling of product which is to the benefit of patients, so they may purchase marihuana products knowing how it will affect them. 30. Explain how the proposed rule(s) will impact business growth and job creation (or elimination) in Michigan. The licensing and regulatory framework that is created will establish a commercial supply and distribution mechanism for medical marihuana. The 5 license categories create new businesses in the industry that otherwise was not licensed or regulated and will impact business growth and job creation specifically for those interacting with the licensed marihuana facility. 31. Identify any individuals or businesses who will be disproportionately affected by the rules as a result of their industrial sector, segment of the public, business size, or geographic location. The proposed rules specifically focus on the medical marihuana industrial sector as they implement aspects of the regulatory framework as required by the MMFLA. The operation of these facilities impacts the medical marihuana patient segment of the public through increased access to medical marihuana that has been tracked, tested, and labeled to ensure safety for patients. There is not expected to be a disproportionate effect due to business size or geographic location. 32. Identify the sources the agency relied upon in compiling the regulatory impact statement, including the methodology utilized in determining the existence and extent of the impact of a proposed rule(s) and a cost-benefit analysis of the proposed rule(s). A primary source for the fiscal impact of the proposed rules was the Legislative Analysis done by the House Fiscal Agency and Senate Fiscal Agency, MICIL coalition, and LARA-BMMR reports such as Medical Marihuana Act Statistical Report with Program Information and Financial Data Registry Program and Medical Marihuana Facilities Licensing and Tracking Programs. A link to the BMMR reports is as follows: Sources from other states are the following: Illinois: Minnesota: Ohio: Pennsylvania: cal-marijuana-tax.aspx#.wuqebeurrb0 OTHER: <House Fiscal Agency and Senate/Department Reports/LAB coalition>

13 RISCBA Page 13 A. How were estimates made, and what were your assumptions? Include internal and external sources, published reports, information provided by associations or organizations, etc., which demonstrate a need for the proposed rule(s). There were no estimates made because the rules impact an individual licensee or registrant as well as applicant for licensure or registration. No estimate could consider the setting where an individual may use his or her license or registration. Because the rules only impact an individual, and impact all in the same way, the assumptions made was that no additional cost or benefit would result from the proposed rules. Alternatives to Regulation: 33. Identify any reasonable alternatives to the proposed rule(s) that would achieve the same or similar goals. Include any statutory amendments that may be necessary to achieve such alternatives. The rules are required by the MMFLA; there is no reasonable alternative to the proposed rules. A. In enumerating your alternatives, include any statutory amendments that may be necessary to achieve such alternatives. The rulemaking provision of MCL would have to remove the required rulemaking provisions in order for any such alternative to occur. 34. Discuss the feasibility of establishing a regulatory program similar to that in the proposed rule(s) that would operate through private market-based mechanisms. Include a discussion of private market-based systems utilized by other states. The rules are required by the MMFLA; private market-based systems cannot serve as an alternative. 35. Discuss all significant alternatives the agency considered during rule development and why they were not incorporated into the rule(s). This section should include ideas considered both during internal discussions and discussions with stakeholders, affected parties, or advisory groups. Since the rules are specifically required by the MMFLA, there are no alternatives to the proposed rules that the agency could consider. They are necessary to ensure the safety, security, and integrity of the operation of marihuana facilities. Additional Information: 36. As required by MCL b(1)(c), describe any instructions on complying with the rule(s), if applicable. There are no additional instructions for complying with the proposed rules To be completed by the ORR Date RISCBA received: Date RISCBA approved: 8/13/18 Date of disapproval: Explanation: PART 4: REVIEW BY THE ORR