Detroit’s Second Recreational Cannabis Ordinance Faces New Legal Challenges
MRTMA
By most accounts, Detroit has failed to reap the benefits of the passed 2018 Michigan Regulation and Taxation of Marihuana (MRTMA) legislation legalizing recreational marijuana in the state. In addition to that state license businesses must obtain per the Act, cannabis businesses must also apply for and receive municipality licenses. This requires each municipality to first either opt in or out of recreational cannabis and second, each must create a license application process in accordance with the state law.
According to the language of MRTMA, each municipality must simply craft a ‘competitive application process’ that awards licenses to those that are ‘best suited to operate cannabis businesses in that municipality’. Many municipalities chose to avoid the process altogether by opting out of recreational cannabis in their jurisdiction, however, the ones that opted in have nearly all suffered from legal challenges stemming from a variety of issues, but most often it has been their lack of a competitive process – Detroit being no exception.
Detroit’s first ordinance, drafted in 2019 and released in 2020, was deemed ‘likely unconstitutional’ and was halted with an federal preliminary injunction in the summer of 2021, restricting any recreational licensing. The original ordinance was deemed to provide too much of a preference to ‘Legacy’ Detroiters and was considered too economically protectionist, in violation of the dormant commerce clause of the US Constitution.
After months of legal battling, the ordinance was pulled and amended by the city as it attempted to recraft the ordinance into a compliant framework that would stand up to any legal scrutiny. Thus, the ‘new ordinance’ was released in the spring of 2022, however, this new ordinance is now being challenged in the same manner as the first. The main question being whether the city has altered the ordinance substantially enough to be considered compliant under state and federal law.
Legacy v. Equity
In the latest complaint against the city regarding the new ordinance, established marijuana businesses such as JARS and House of Dank, have alleged that the city has not done enough to make their recreational licensing process truly competitive and equitable, such that the most qualified applicants are the ones actually receiving licenses. The lawsuit further states that the city council’s attempt to rebrand the Detroit ‘legacy’ program as ‘equity’ applicants to align their language with state’s own equity program is not sufficient to level the playing field for non-Detroiter applicants.
Michigan recognizes the disparities that the over policing of cannabis has led to in communities all across the state. As a result of this recognition, the state law on recreational marijuana includes a social equity program meant to “promote and encourage participation in the cannabis industry by people from communities that have been disproportionately impacted by marijuana prohibition and enforcement and to positively impact those communities.”
Qualified social equity applicants are eligible for regulatory benefits largely in the form of fee reductions and extra business assistance, which is apparently very much by design. This is evident as despite Detroit changing its ordinance language, the city has left intact the aspect of its program that former ‘legacy’ applicants – now Detroit ‘equity’ applicants reap more benefits that just fee reductions.
5-Year Waiting Period
The largest section of the complaint in the recent lawsuit addresses the forced time frame of 5 years (until Jan. 1, 2027) that current licensed medical dispensaries must wait before they are able to apply for and receive an adult-use license. This waiting period is classified by the challengers of this ordinance as a ‘death sentence’ to all of the medical provisioning centers in Detroit. If those medical shop owners in Detroit are forced to wait until 2027 to apply for recreational licenses, there is a large probability, the lawsuit argues, that not one of them could survive against fully licensed recreational cannabis market in the city.
No government law at any level can be considered to be taking a person’s property without properly compensating them for that loss, otherwise that action by a government entity is unconstitutional. If the current ‘new ordinance’ from Detroit is allowed to stand and medical dispensary owners are slowly but surely put out of business by adult-use retailers; the city government will, in effect, be taking the business owner’s medical dispensaries without properly compensating them for their loss. If a court sees the facts of the situation this way, it is unlikely that the ordinance will be able to survive these recent challenges.
What’s Next
Despite these challenges, Detroit and its city council are very intent on opening the city up to recreational business to begin capturing the tax revenue it has been missing out on since recreational legalization in 2018. In fact, despite its legal challenges and the potential for the ordinance to be struck down again for favoring locals beyond what is allowed under the law, the city has granted 2 class C recreational grow operation licenses to the Oregon based cannabis company, Doghouse Farms.
Many observers of Detroit’s mismanaged recreational cannabis program rollout are baffled by this, as this is one of the more crucial aspects of the program’s delay - the city’s attempts at creating a preference for Detroiters in the industry - and the first recreational licenses go to an out-of-state operator. Perhaps the move is meant to signal that more than just Detroit locals will be able to access the city’s recreational market, but it is a surprising first licensee, nonetheless.
The cultivation licenses in the city are not the largest concern for cannabis business owners competing for a license in the city as that type of license is uncapped. The cannabis retailer licenses are generally the most sought after as they have the potential for the highest revenue streams, and most municipalities, including Detroit, have placed caps on the retailer licenses.
Throughout its three staggered rounds of license issuance, the city will grant a total of 100 adult-use retailer licenses. However, half of those 100 license will be reserved for social equity status applicants, a status that is not necessarily an indicator of how well-equipped the applicant is to run a cannabis retail business. As the city begins awarding these adult-use licenses, they may be counting their chickens before they hatch as ongoing litigation in the Wayne County 3rd Circuit Court could require yet another complete rewrite of the adult-use cannabis ordinance.
Conclusion
There is no question that the recreational cannabis market in Detroit will continue to be profitable in the coming years, however, the city tied its shoelaces together as the adult-use cannabis race started 4 years ago in 2018 and appears to continue to do so, missing out on years of tax revenue. So, whether it is the current ordinance survives the latest round of lawsuits against it or if a new ordnance has to be drafted, there will be interested parties waiting to gain access to the Detroit recreational market.
If you or someone you know sounds like one of those interested parties, it is definitely advised to begin certain application steps now so that you will be poised to apply to Detroit as quickly as possible when their application window opens. The cannabis law attorneys of Scott Roberts Law are the exact type of experienced legal team you want assisting you on both your state and local municipal applications, schedule your consultation here today.
Updated Status
On behalf of the Wayne County Third Circuit Court of Michigan, the Honorable Leslie Kim has granted a temporary restraining order that will require the city of Detroit to cease its issuance of any recreational cannabis program licenses once again.
Judge Smith appears to have agreed, at least preliminarily, with the plaintiff’s arguments that the city’s ordinance violated Michigan’s MRMTA and created a probability that many competitive applicants would incur irreparable harm if the ordinance was allowed to take effect as it stands.
This means that the City of Detroit will have to get back to redrafting its recreational cannabis program ordinance before adult-use licenses can be legally issued. The city has left its shoes tied together as the recreational cannabis race is well under way in the state of Michigan. All Detroiters can do is sit and wait with the hope that the city can get its act together and amend the ordinance and finally have it become valid law before recreational cannabis is truly available to Detroit residents, as they voted for in 2018.