Michigan regulators warn of illicit grows, unreliable testing and hemp-product risks as cannabis market expands

Lansing — The Cannabis Regulatory Agency (CRA) told the Michigan House Regulatory Reform Committee on Wednesday that the state’s adult-use marijuana market has grown far larger than the medical market, driving license growth, oversupply and a collapse in retail flower prices that is helping sustain unlicensed growing operations and fraudulent testing practices.

Director Brian Hanna and CRA staff member Derek Sova said the adult-use market now accounts for nearly all state marijuana sales and that current laws limit the agency’s tools to cap licenses and quickly discipline bad actors. "Now, today, it is $62," Hanna said of the average retail price per ounce of marijuana, down from previously much higher levels. "We had $2,800,000 was included in that budget to to build and equip the lab," he said, describing state funding appropriated to create a CRA reference laboratory.

The CRA framed the risks as three related problems: large-scale unlicensed cultivation operations, unreliable or fraudulent laboratory testing, and a proliferation of intoxicating hemp-derived products sold outside the regulated marijuana supply chain.

Why it matters: The agency said those three issues together threaten public safety and the regulated industry’s economic viability. Large illicit grows can be operated by transnational criminal organizations, Sova said, and enforcement is hampered when penalties are low or when administrative tools to suspend licenses are weak.

Most important facts: The CRA described the regulatory landscape and data: nearly 300,000 medical patients at the program’s peak, about 50,000 caregivers at that time; current registrations of about 62,000 medical patients and 4,000 caregivers. The agency said adult-use sales represent roughly 99.8 percent of marijuana retail sales in Michigan. CRA officials showed that grow licenses have increased significantly since 2022 even as retail outlets and processors remained comparatively flat, creating an oversupply that has driven prices down.

Unlicensed illicit activity and penalties: Sova warned of the difficulty prosecuting large illicit operations because Michigan’s ballot-law provision that capped penalties leaves maximum possession penalties low in some cases. "The problem of unlicensed illicit activity," he said, "poses not only a public health and safety risk, but also a challenge to the licensed industry." The agency cited a 2023 court decision that limited the effective penalties for possession in large-scale operations and said that weak criminal penalties and modest administrative remedies reduce local law enforcement incentives to pursue such cases.

Testing and summary suspension: Hanna and Sova described unreliable or doctored laboratory results as a national and state problem. The CRA said it lost a 2024 court decision tied to its summary-suspension language and that weak suspension authority has allowed some licensees accused of egregious violations to continue operating while cases proceed. The agency said it hopes to add stronger summary-suspension language through new rules and possible statutory changes.

CRA reference lab and HB4501: The CRA said it has built a reference lab with state funds intended to speed investigations and to audit commercial laboratories. The goal is to shorten evidence turnaround from about 45 days with third-party labs to roughly 7–14 days with a state lab and to provide a basis for auditing lab SOPs. Derek Sova described House Bill 4501 (sponsored previously by Representatives Mueller and Carter) as legislation that would allow the agency to possess marijuana for use in the state lab; staff said the bill was reported unanimously out of committee last year but did not pass lame duck and that CRA would welcome the committee’s support when it is reintroduced.

Intoxicating hemp products: The CRA also told lawmakers that the federal 2018 farm bill’s hemp carve-out and Michigan’s Industrial Hemp Research and Development Act were not designed for the current market in which hemp-derived consumables can contain high levels of THC and are sold with little of the testing, labeling or distribution controls applied to licensed marijuana. Sova said such products can be marketed and shipped online and sometimes resemble regulated marijuana products, creating both public-health hazards and competition for licensed retailers.

Enforcement priorities and next steps: The agency described ongoing rulemaking to strengthen summary-suspension authority, plans to use the state reference lab for faster testing and audits, and a request for legislative support on penalties and tools to prevent licensees from closing to avoid discipline. The CRA said it expects to have the lab validated and staffed by June and asked lawmakers to consider statutory fixes to give regulators and prosecutors stronger, faster tools.

The committee followed the presentation with questions on licensing timeframes (Hanna said the adult-use licensing decision deadline in the MRTMA is 90 days and that CRA averages 30–40 days), medical program differences, banking and tax burdens for licensed businesses, and the interactions between hemp and marijuana markets. The CRA said it is listening to industry feedback on disciplinary guidelines and has lowered fines and adjusted enforcement practices in response to stakeholder concerns.

The CRA presentation and committee questions underscored gaps between state law, federal classification of cannabis, and the practical tools regulators and prosecutors use to police large illicit operations and protect licensed businesses.