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This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.
The federal corruption charges announced Thursday against former Michigan House Speaker Rick Johnson and three others likely signal a beginning, not an end.
The charges levied against the defendants, who have all accepted plea deals, highlight the early troubles of launching the state’s legal marijuana industry — when eager cannabis startups looking for quick licensure were pitted against a new, overwhelmed state agency with a political board.
Matthew Schneider, former U.S. attorney and partner at Detroit law firm Honigman LLP, told Crain’s the case, which is still ongoing, is likely to lead to more indictments.
“This is just the start,” Schneider said. “While normally this threshold of a bribe isn’t brought to charges, the circumstances make this an interesting case. The head of this board held power, and even though the threshold was low, they will and should still get scrutiny.”
The indictments are a side effect of a sometimes chaotic, sometimes political beginning to Michigan’s legal cannabis industry.
“The way this industry started, it felt like a gold rush,” said Denise Pollicella, founder and managing partner of Cannabis Attorneys of Michigan, which got its start well before cannabis sales occurred in the state. “People were losing their minds trying to be the first to market. With the price as high as it was, it’s not hard to fathom that people would do this. There were millions and millions to be made. These indictments are only a very small portion of what happened out there.”
The U.S. Department of Justice and the FBI allege Johnson accepted at least $102,000 in bribes from three different parties to fast track the approval of medical marijuana licenses for two companies, which were not named in the legal case.
Johnson, who became a lobbyist after leaving the Legislature in 2005, was appointed by then-Gov. Rick Snyder to chair the Michigan Medical Marihuana Board in 2017 and continued to do until Gov. Gretchen Whitmer dissolved the board in 2019.
Medical marijuana sales were approved by voters in 2008 but the legal framework for sales didn’t exist until 2017 after Snyder signed a package of bills to regulate the industry, which led to the creation of the board Johnson chaired.
The board’s responsibilities included preliminary approval of license applications and ultimately offering a recommendation to regulators on whether to issue a full license. The feds allege companies tied to the co-defendants received application approvals and license recommendations after Johnson received bribes, which included two private jet flights to Canada.
The other defendants charged Thursday include lobbyists Brian Pierce and Vincent Brown and John Dawood Dalaly, who operated two marijuana businesses listed in court documents as Company A and Company C.
U.S. Attorney for the Western District of Michigan Mark Totten said in a press conference in Lansing Thursday that all four defendants were cooperating with the authorities, meaning they could be aiding law enforcement in identifying more wrongdoing.
Medical marijuana prices were extraordinarily high before adult-use recreational sales came online in December 2019. Medical marijuana was about $3,000 per pound in 2018, while retailers could purchase from caregiver suppliers — private citizens who were licensed to grow for medical use — were selling wholesale for less than half that.
But the board was riddled with problems early on, causing months of delays before eager medical marijuana retailers could receive licenses. In July 2018, 19 months after a law passed to allow for medical marijuana sales and seven months after the state began accepting applications, not a single license had been issued. And then, when the first license was issued, the board and the state agency suffered from chronically slow approvals.
The backlog and massive profit potential for the first to market led to shady behavior, said Pollicella.
“People see dollar signs and they lose all sense of morals and ethics,” Pollicella said.
Pollicella said a client terminated her when she refused to facilitate a bribe to members of the Detroit City Council on a medical marijuana client’s behalf.
“A lot of people in this industry do unethical things, but I think there’s a lot of hubris involved if you don’t think you’re going to get caught,” Pollicella said.
As Crain’s researched the potential charges announced today, several sources that spoke under the condition of anonymity feared their own business associates or clients could have turned up on the list of those being indicted. In fact, nearly a dozen different names were floated as those who could be indicted among sources.
It’s unclear if or when the feds will announce more corruption charges related to the industry, but the wrongdoing is already creating a stir among the Michigan Cannabis Regulatory Agency.
“As has been clearly seen in my first six months on the job, we don’t take illegal activity lightly here at the CRA,” Brian Hanna, executive director of the CRA, told Crain’s in a statement. “We are currently reviewing the information that has been made available today and will begin investigations as warranted. Marijuana industry stakeholders in Michigan can be assured that if we find that any businesses broke the law or rules, disciplinary action will be pursued.”
Pollicella and several other sources who did not want to comment on Thursday’s charges said that while the elimination of the licensing board in 2019 likely slowed corruption at the state level, it’s all but picked up at the local municipality level, where companies also need licensing approval.
The state requires a “competitive” scoring process for local municipalities to award marijuana licenses. This process has already spurred lawsuit after lawsuit in communities across the state, many alleging a corrupt process.
