This story was republished with permission from Crain’s Detroit.
Nearly a year after a landmark Michigan Court of Appeals ruling, Michigan’s illicit marijuana dealers have an economic edge.
In a 3-0 opinion, the court ruled in October 2023 that Shaaln Kejbou, who was growing more than 1,100 marijuana plants without a commercial license — and protecting those plants with a 12-gauge shotgun and dogs — could not face felony charges due to voters passing the 2018 Michigan Regulation and Taxation of Marihuana Act.
Instead, black market dealers like Kejbou could only face a 90-day misdemeanor charge.
The ruling, which the court admitted was “unjust” to the state’s legal market, has created a blending of the legal and illegal weed markets in the state with nearly no repercussions for unlicensed large-scale growers to operate.
For law enforcement, the ruling cut the legs off of criminal prosecution and is leading to a boom of illegal growers flooding the market with bad intentions and bad weed that could impact the health and safety of Michiganders.
“The dirty product that is infiltrating the licensed market is being sold to unwitting consumers,” said First Lieutenant Tom Kish, commander of the Michigan State Police Marijuana & Tobacco Investigation Section. “I have real concerns about organized crime coming in Michigan more than it already has and the violent crime that will follow. We’re talking multimillion-dollar operations. Once we’re talking about dollar amounts like that, people are going to get shot. It’s an unfortunate consequence of the way our laws are written.”
Dealers and weak pricing
The Michigan market is lucrative already. The state is on track to sell more than $3.3 billion in marijuana in the legal market this year — with consumers averaging a monthly weed expenditure of nearly $110, well above California’s at $37 per person monthly.
Michigan’s established and expansive network of marijuana processors and retailers make clandestine operations like Kejbou’s and others’ valuable, especially if there are no potential criminal charges.
In the Kejbou case, a Tuscola County judge ruled — and the appeals court concurred — that the state’s marijuana laws simply make severe prison sentences not an option. The state’s legal marijuana laws were designed to reduce felonies for marijuana possession and growing. The punishments, often viewed as draconian and severe, from the state’s Act 368 of 1978 included up to 15 years in prison for possessing more than 99 pounds or 200 marijuana plants, no longer applied thanks to the voter-passed MRTMA.
“After the appeals court decision, there’s been reduced interest from prosecutors involving marijuana cases,” Kish said. “They simply do not feel there is a mechanism in place to follow through with criminal prosecution. The court ruling effectively puts up a sign at the border, ’Grow your dirty weed here.’”
The state’s basement-low marijuana prices are likely impacted by the influx of illegal, and untracked marijuana, in the legal system.
The average price for an ounce of marijuana flower in August was $80.14, up from the lowest price on record $79.70 in July, according to data from the Michigan Cannabis Regulatory Agency.
Prices have fallen since legalization in 2019. The average price for an ounce of flower was $116.84 in August 2022 and more than $400 in August 2020.
Those price declines are driven by oversupply. The market is already saturated with the number of active plants being grown by legal growers in the state, which is up 47% year-over-year in August to 3.83 million plants.
With illegally grown plants entering the legal market, price compression is even higher and is shoving some legal market operators out. Dozens of legal marijuana businesses have buckled under the cost pressure.
David Morrow, CEO of the state’s largest marijuana grower Lume Cannabis Co., said the inability to stymie illegal grows is a disincentive for many growers to operate above board.
“They are sending a clear message that following the rules and being compliant is optional,” Morrow told Crain’s. “The last time I checked, paying our licensing fees and excise taxes are not optional. Very few cannabis operators follow the all the rules.”
Messages to prosecutors in Calhoun County and Oakland County were not returned on the subject.
Green without the threat of orange jumpsuits
The Kejbou conundrum has left law enforcement up in arms.
A 2023 raid in Calhoun County around the time of the Kejbou ruling involving a group of Chinese nationals importing and exporting thousands of pounds of marijuana from a warehouse in Albion, resulted in no criminal charges. The weed in question was being grown and stored in “deplorable conditions,” including mold and dog feces, according to Michigan State Police records obtained by Crain’s through the Freedom of Information Act.
That marijuana held a street value of more than $28 million.
“We thought this was a great case, felony possession with intent to deliver along with the safety concerns. The conditions were deplorable,” Kish said. “This case is a disappointment for us. We’ve lost a lot of traction. There’s no disincentive to do this and if you’re caught, do it again.”
It started in Illinois.
A state trooper pulled over a rented Chrysler Pacifica in Sangamon County near the state capitol of Springfield. The driver, a Chinese national, appeared nervous, according to police records. The driver informed the officer he had flown from New York to Oklahoma and was driving to Michigan. He didn’t know who he was meeting; he only had a cell phone number and an address, police said. Inside the vehicle, officers discovered black bags containing 193.8 pounds of marijuana packaged in 170 vacuum-sealed bags.
Coordinating with the Michigan State Police, Illinois State Police allowed the delivery to continue, and the van made its way to a nondescript building northwest of downtown Albion.
MSP cased the joint and raided the property days later. Officers had to air out the building before entering as the smell of decaying plants and mold spilled out. A dog chained inside had defecated on the floor, according to investigative reports accessed by Crain’s under the Freedom of Information Act.
The building, officially licensed by the state to grow 6,000 marijuana plants for medicinal use, held 9,298 plants and 236 pounds of packaged marijuana. The relative street value of the cannabis at the time would have been in excess of $28.3 million.
Yet the operator — Hongrui Enterprises, operated by Kevin Sea, a Chinese national and accountant in New York — had never made a legal market marijuana sale, had yet to pass a safety inspection and its weed never passed quality testing, according to the CRA.
It’s suspected the operation attempted and failed to grow quality, mold-free marijuana for the legal market; instead turning to the illicit market, including importing and exporting black-market marijuana to and from Michigan.
The Kejbou ruling came down in the middle of the criminal investigation and railroaded the MSP’s attempt to criminalize the operations.
Sea and the group of Chinese nationals, many unwittingly participating in the crimes, faced no prosecution after the court ruling and the Calhoun County district attorney dismissed any and all charges. Attempts to reach Sea via email and cell phone were unsuccessful.
The CRA, which filed a complaint against Hongrui last month in a likely attempt to revoke the operator’s medical grower license, declined to comment on the case or the issues posed by the Kejbou ruling.
Doug Mains, partner at Detroit law firm Honigman LLP and co-author of the MRTMA rules, said the appeals court interpreted the law correctly; but said eliminating the felony consequences for large-scale illegal operations, like Hongrui in Albion, was never the intent.
“ … I also think that case illustrates that the penalty provisions of MRTMA likely need to be amended,” Mains told Crain’s. “The overall intent of the initiative was to allow adults to cultivate and possess marijuana for personal use and to bring commercial cannabis activity into a regulated system, not to allow anyone to grow, possess, or sell large amounts of cannabis with near impunity. Certainly, the intent was never to create a loophole that would allow individuals to receive slap on the wrist punishments for blatantly and egregiously violating the act by operating large-scale, clearly commercial, enterprises without having to get a license. To the extent such a loophole was created, I think it should be legislatively addressed.”
A change to MRMTA requires a three-quarters vote in Michigan Legislature and, as of now, there doesn’t appear to be a groundswell to fix the problem in Lansing.
Kish said the operators even though Hongrui’s weed stash was confiscated, there’s no guarantee they didn’t acquire a new building and continue their efforts.
“We’ve seen it a few times since our section was created; we shut them down and they move to a different location and start up again,” Kish said. “If we don’t address this legislatively, and that’s the only way to fix this, it’s going to get a lot worse. It’s already bad.”
Illicit dealers could only face a 90-day misdemeanor charge, which hurts the licensed operators. Read More