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Energy & Environmental Regulations in Michigan’s Cannabis Industry

  

Saulius K. MikalonisPublished in Michigan Environmental Law Journal, Spring 2020, Vol. 37, No. 2, Issue 107 [view full issue].
Cite: 37 Mich Env Law J 2 (2020)

by Saulius K. Mikalonis, Senior Attorney, Plunkett Clooney; Leader of Environmental, Energy, and Resources Law, and Cannabis Law Industry Groups

"Humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs."[1]

Sustainability is changing how governments and corporations respond to their operations to maintain profitability and operational ability while considering impacts to environmental and societal interests. Virtually every major corporation in the world has some form of sustainability initiative that considers their operations’ effects on the triple bottom line: people, profits, and planet. For example, Ford Motor Company recently issued its 2018/2019 Sustainability Report, representing its 20th year of issuing such a report, which outlines the company-wide efforts and progress towards its sustainability goals.[2] Given that the global legal cannabis market is estimated to be $73.6 billion by 2027,[3] those in that industry will likely face the same pressures to make their businesses more environmentally and socially sound.

Incentives to become more sustainable come in many forms. There are voluntary efforts by concerned businesses. For example, there are organizations that cannabis businesses can join and from whom they can obtain certifications that distinguish them from their competitors as “sustainable” businesses. For the purposes of illustration, this includes organizations like the Cannabis Conservancy[4] or Clean Green.[5]

For those who need more persuasion, state and local governments may mandate more sustainable operations, either as part of the licensing process or as a result of ongoing enforcement efforts.

The focus of this article is current governmental requirements that either incentivize or require cannabis businesses to become or remain more sustainable. As Michigan’s cannabis industry is relatively new, the discussion will include examples of what is occurring in other jurisdictions in addition to what specific requirements may presently exist in this state. Finally, while it will touch upon social aspects of sustainability, most of the focus will be on environmental requirements.

Impacts of Cannabis Businesses on Energy, Water, and Resource Use

Michigan has established legal regimes for medical[6] and recreational[7] use of cannabis. Regulators recognized pretty quickly that this new industry would pose challenges similar to any other industry and commissioned a white paper to outline some of the environmental impacts of the cannabis industry. The resulting report details some general concerns and potentially applicable laws and regulations that may apply.[8]

Along with environmental impacts, cannabis grow and processing facilities require significant amounts of energy, often in areas that do not have adequate infrastructure to provide that energy. I have explored that issue in several blog entries.[9] The energy demand is significant and addressing the use of energy resources is another aspect of sustainability.

How Other Jurisdictions Address Concerns About the Impacts of Cannabis Production

Neither the Michigan medical nor adult-use statutes require consideration of environmental impacts or energy use for the operation of cannabis facilities. Other states and local governments outside of Michigan have identified ways to address the external costs of cannabis production.

Responses in Other States

Most recently, Illinois passed an adult-use cannabis statute, the Cannabis Regulation and Tax Act (CRTA).[10] It also provides for the medical use of cannabis under the Compassionate Use of Medical Cannabis Program Act.[11] The CRTA includes specific requirements relating to resource use by both medical and recreational cannabis businesses.

To operate a cannabis business in Illinois, a shop must obtain a conditional license from the state. Illinois scores applications for conditional licenses on a 250-point scale. The submission of labor, environmental, and social equity plans are among the elements to be considered. The labor and employment practices plan allows for the submission of plans for five points that will provide for a beneficial working environment, including health care, education, living wages, and a labor peace agreement.[12] The environmental plan is worth five points and may “demonstrate an environmental plan of action to minimize the carbon footprint, environmental impact, and resource needs for the dispensary, which may include, without limitation, recycling cannabis product packaging.”[13] By far, the largest amount of points (50) is available for those who qualify as a “Social Equity Applicant.”[14] If the number of complete applicants in a particular region exceed the number of available licenses, the points determine who will receive a license.

The dispensing locations are not the source for most environmental impacts related to cannabis, however. The CRTA imposes stricter requirements for cultivation centers. These mirror the social equity requirements described above, but more intensive resource and environmental requirements, too.Dispensing Quote

Those applying for cultivation licenses must demonstrate how they will provide estimates of energy use, how they will obtain that energy (either through a provider or self-generation), whether they will adopt a sustainable energy use and conservation policy, their water use, whether they will adopt a sustainable water use or conservation policy, their waste management and whether they will adopt a waste reduction policy.[15] Further, a cultivation facility will need to establish a recycling plan,[16] a commitment to comply with federal, state, and local environmental requirements,[17] and develop a “technology standard for resource efficiency.”[18] Regarding the final requirement, the facility must meet or exceed standards for lighting, heating, ventilation, and air conditioning (HVAC) systems, water use and filtration systems for removing contaminants from wastewater—all of which are subject to monitoring and reporting.

It is fair to say that Illinois’ statute is presently the most detailed and expansive when it comes to sustainability principals. Other states also have or are developing standards:

  • Massachusetts—The State has mandated energy use restrictions for cultivators and non-growing establishments when submitting their “Management and Operations Profiles” as part of their initial applications. There are requirements for lighting technology and limitations on energy use for growers. Areas for compliance include energy efficiency, use of renewable energy, reduction in demand, and involving the business in Mass Save, which provides energy assessments and audits. There is also guidance for best management practices for water use, waste management, and integrated pest management.[19]
  • Colorado—Colorado is well aware of the resource intensity of cannabis growing and processing. The State recently passed legislation that imposes requirements on renewable energy, energy efficiency, and reductions in greenhouse gas emissions with the ultimate goal of making Colorado’s electrical grid free of fossil fuels by 2040.[20] As part of the State’s goal to reduce greenhouse gas emissions by 50% by 2030, the Department of Public Health and Environment has instituted two pilot projects, one of which is designed to recycle carbon dioxide for cultivation[21] and the other to provide resources for energy management, using utility companies and electric cooperatives.[22] The Boulder County has developed a Cannabis Energy Impact Offset Fund, which requires growers to report energy use and offset 100% of their energy use and provides funds to implement local projects to reduce greenhouse gas emissions.[23] The City of Denver provides a guide for best management practices for cannabis businesses that include tips for energy use, water use, and environmental compliance.[24] Colorado has also established special licenses, known as “micro licenses,” in an effort to provide opportunities in low income areas.[25]
  • Oregon—The State requires all applicants for grower’s licenses to submit a form forecasting the applicant’s water and energy usage.[26] Upon renewal, the grower must supply a report on actual electricity and water usage.[27] The State also provides an energy use calculator so that the applicant and those seeking renewal of licenses can estimate their energy usage.[28] The City of Portland provides incentives in the form of fee reductions for cannabis businesses who adopt social equity programs.[29]

How are Michigan State and Local Governments Addressing Sustainability?

The environmental impact on business operations is just one part of sustainability. The social cost of operations is another aspect of sustainability and Michigan’s adult-use statute does require consideration of those factors. However, unlike the statutes identified above, Michigan’s medical use and recreational statutes do not require similar considerations related to energy and the environment.

Environment and Energy

Under Michigan’s medical use statute, local governments possess significant control over the operation of facilities within their jurisdictions. In addition to obtaining a state license for operation, cannabis business must also receive local licenses, procedures for which vary from municipality to municipality. There are a large of number of local ordinances and some of them have included considerations of energy use and environmental controls.

For the most part, the environmental controls take the form of requirements for compliance with Michigan’s environmental statutes. Cannabis-specific requirements tend to focus on controlling odors and wastewater from the facilities. As long as an ordinance is not directly contradictory to the state statute, the local government may regulate these types of activities.

Some local ordinances do require consideration of energy usage. In addition to grow and processing facilities’ heavy use of electricity, many of these facilities are being constructed in rural areas that do not have the electrical infrastructure to provide adequate power, but have very affordable land prices. As examples, the following communities have addressed those concerns in their ordinances:

  • Bay City: As part of its application process for local licensing, Bay City requires prospective licensees to submit electrical plans to the local utility so that it could do a load review and must pay for any necessary overbuild of primary and secondary utility lines, transformer costs, labor costs, and equipment costs. The local utility may also deny electrical service to those applicants that cannot meet the load acceptance review or that are in a location that cannot be adequately serviced.[30]
  • Ann Arbor: In October 2019, Ann Arbor amended its ordinances to require cannabis growers and microbusinesses in their applications to provide an estimate of water usage[31] and to provide a description of energy needs and improvements that must include a minimum of 10% of the facility’s energy usage from on-site solar panels.[32] They must also provide annual reports documenting “energy used, water used, and sanitary sewer discharge[s].”[33]
  • Grand Rapids: Also in October 2019, Grand Rapids amended its cannabis ordinances to include enrollment in the City’s 2030 District[34] before operations commence.[35] Section 7.367 of the Grand Rapids Code, titled “Environmental Sustainability,” requires growers and microbusinesses to submit an environmental sustainability plan within six months of operation detailing an analysis of energy load, forecasting annual greenhouse gas emissions, identifying water efficiency measures, listing of wastewater pollution loads and toxicity, and a solid waste management plan.[36] It also requires use of energy efficient lighting and a whole building energy audit.[37] Finally, all license renewals must include an energy sustainability plan and proof of compliance with annual reporting requirements.[38]

Social Equity

Briefly, the adult-use statute provides that the Michigan Marihuana Regulatory Agency (MRA) develop “a plan to promote and encourage participation in the marijuana industry by people from communities that have been disproportionately impacted by marijuana prohibition and enforcement and to positively impact those communities.”[39] Known as the “social equity program,” the MRA has developed a program to provide incentives for people residing in communities specifically identified as disproportionally impacted by previous enforcement of criminal cannabis statutes.

The state has “social equity representatives” that provide a variety of services to those communities, including responding to specific questions, providing one-on-one assistance in completing and submitting license applications, distributing educational resources, and coordinating the availability of resources from other public and private sources. Residents in the identified communities may take advantage of reduced charges for application, license, and renewal fees.

Conclusion

The legal use of cannabis, both medicinally and recreationally, is in its infancy as an industry. Government interest in the regulation of cannabis businesses and in addressing external costs has just begun. As more data is generated about their operations, we can expect more direct regulation, including that of their environmental and social costs.

Some states have begun to address some of those concerns, but Michigan is not yet one of them. Some local governments in Michigan are taking advantage of their broad powers under the medical and recreational cannabis acts and focusing on local priorities with respect to resource use, environmental impacts, and social equity. As imitation is the sincerest form of flattery, communities that have not addressed those issues may be looking to their fellow municipal governments and out-of-state regulators for clues as to how to proceed.

As an industry, cannabis businesses, particularly growers and processors, should look down the road to see how their businesses may be impacted. There are significant costs to starting up that may prevent those businesses from making investments to reduce energy and water usage. But, given the potential financial success of this industry, they can expect future regulations that may require them to make investments not currently required.

Planning ahead may make the transition less disruptive and may put them in a better place to compete in the market. As cannabis is a commodity, it is not too far a stretch to imagine a time in the not-so-distant future when instead of competition between Michigan market participants, growers and processors will be competing against businesses in other states. At that point, those that are able to provide product more efficiently and sustainably may be in a better position to survive and thrive in the long term.


[1] Report of the World Commission on Environment and Development, Our Common Future (1987), p 16, ¶ 27.

[2] Ford Motor Company 2018/2019 Sustainability Report.

[3] Press release, Legal Marijuana Market Worth $73.6 Billion By 2027, Grand View Research (May 2019).

[4] The Cannabis Conservancy (accessed March 20, 2020).

[5] Clean Green (accessed March 20, 2020).

[6] MCL 333.27101 et seq.

[7] MCL 333.27951 et seq.

[8] Michigan Department of Environmental Quality Marijuana Workgroup, White Paper: The Environmental Impacts of the Marihuana Industry (September 17, 2018).

[9] Saulius Mikalonis, Energy-Intensive Cannabis Industry to Boost Demand on Electric Grid in Michigan, Crain’s Detroit Business (May 14, 2019).

[10] 410 Ill Comp Stat 705 (2019).

[11] 410 Ill Comp Stat 130 (2019).

[12] 410 Ill Comp Stat 705/15-30(c)(6) (2019).

[13] 410 Ill Comp Stat 705/15-30(c)(7) (2019).

[14] 410 Ill Comp Stat 705/15-30(c)(5) (2019). A “Social Equity Applicant” is one that has at least 51% ownership and control who has lived in a “Disproportionately Impacted Area” for at least 5 of the last 10 years, an applicant that has been arrested for or convicted for offenses eligible for expungement under the CRTA (essentially, cannabis offenses) or is a member of an impacted family, or for applicants with at least 10 employees, 51% of them must live in a Disproportionately Impacted Area or have been arrested or convicted of a crime that may be expunged under the CRTA. 410 Ill Comp Stat 705/1-10 (2019).

[15] 410 Ill Comp Stat 705/20-15(a)(18) (2019).

[16] 410 Ill Comp Stat 705/20-15(a)(21) (2019).

[17] 410 Ill Comp Stat 705/20-15(a)(22) (2019).

[18] 410 Ill Comp Stat 705/20-15(a)(23) (2019).

[19] Cannabis Control Commission, Energy and Environment Compiled Guidance (January 2020).

[20] Colo Rev Stat §§ 40-1-101 et seq.

[21] Colorado Department of Health & Environment, CO2 Capture and Reuse Pilot Project.

[22] Office of Governor Jared Polis, Gov. Polis Announces Green, Innovative Pilot Programs to Increase Efficiency in Cannabis and Beer Industries (January 29, 2020), (accessed March 21, 2020).

[23] Boulder County, Cannabis Energy Impact Offset Fund (accessed March 21, 2020).

[24] City of Denver, Cannabis Environmental Best Management Practices Guide (October 2018).

[25] 2019 SB 224 (Sunset Regulated Marijuana).

[26] Or Admin R 845-025-1030(6)(g)(B)(i).

[27] Or Admin R 845-025-1030(6)(g)(B)(ii).

[28] Oregon Department of Energy, Indoor Cannabis Cultivator Energy Use Estimator Oregon Department of Energy (accessed March, 21, 2010).

[29] City of Portland Oregon, Social Equity Program: Details and Benefits for Qualifying Businesses (accessed March 21, 2020).

[30] Bay City Code, § 30-706(b)(8)(f).

[31] Ann Arbor Code, Unified Development Code, ch 55, § 5.16.3(G)(6)(e)(ii).

[32] Ann Arbor Code, Unified Development Code, ch 55, § 5.16.3(G)(6)(e)(iv).

[33] Ann Arbor Code, Unified Development Code, ch 55, § 5.16.3(G)(6)(e)(v).

[34] The Grand Rapids 2030 District is a public-private partnership to create energy efficient buildings and promote options for mobility within the City. Several cities have signed on to their own 2030 Districts.

[35] Grand Rapids Code, tit VII, ch 105, § 7.367(1).

[36] Grand Rapids Code, tit VII, ch 105, § 7.367(2)(a).

[37] Grand Rapids Code, tit VII, ch 105, § 7.367(2)(b-c).

[38] Grand Rapids Code, tit VII, ch 105, § 7.367(2)(d).

[39] MCL 333.27958(1)(j).


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