On August 30, 2022, the Wayne County Circuit Court issued rulings denying injunctive relief to several cannabis companies that challenged the implementation of the City of Detroit's adult-use cannabis ordinance (the "Ordinance"). In addition to denying motions for preliminary injunctions, the Court also dismissed the cases entirely. In doing so, the court reached several conclusions that are at odds with a full reading of Michigan's cannabis statutes and rules. The opinions can be found here: Case No. 22-006534-CZ Jars Holding LLC et al v. City of Detroit; and here: Case No. 22-00594-CZ House of Dank et al v. City of Detroit.
Following these rulings, the City began accepting adult-use applications on September 1 and will accept applications until September 30. It has been a long and torturous route to get to this point.
The City's ordinance was previously challenged in federal court for mandating that at least half of all licenses be awarded based on residency. After the City's licensing was enjoined, the City amended its ordinance, creating two retail license categories: equity applicants and non-equity applicants.
In their challenges to the City's amended ordinance, existing medical dispensaries advanced the following arguments:
- The Ordinance continues to impair the ability of non-Detroiters to successfully apply for licenses, both by reserving half of the licenses to social equity applicants and by scoring applications in a way that only Detroiters could receive the maximum points;
- The Ordinance violates the statutory language of the Michigan Regulation and Taxation of Marihuana Act ("MRTMA") requiring that a municipality's scoring process must be intended to select those applicants best suited to operate in compliance with MRTMA;
- The City's prohibition on owning more than one adult-use dispensary would prevent those operators who have more than one medical license from having an adult-use license for each store, violating MRTMA's mandate against municipalities prohibiting co-location; an
- The Ordinance is "unreasonably impracticable" under MRTMA and therefore it deters a reasonably prudent businessperson from operating a marijuana establishment in Detroit.
Some key takeaways from the Circuit Court's rulings are that, in the court's reasoning, the Ordinance does not improperly favor social equity applicants because there are (i) an equal number of social equity and non-social equity licenses available in the city; and (ii) applications will be considered for both categories of local licenses at the same time. The court also concluded that a municipality may score its competitive licensure process based on the quality of an applicant's social equity plan and that the Ordinance does not violate MRTMA because it does not flatly prohibit co-location of medical and adult-use licensed operations. Several of the court's conclusions are questionable.
With respect to the Court's conclusion that the scoring in a municipality's competitive licensure process may be based on which applicant has the best social equity plan, there are serious errors. In its analysis of that issue, the court appears to reason that the Cannabis Regulatory Agency's (the "CRA") Rules require an applicant to submit a social equity plan to a municipality as part of a municipality's local licensing process and that nothing in MRTMA limits a municipality's ability to require such a plan. However, there is no such requirement in the Rules. Rather, the Rules' requirement that applicants submit a social equity plan refers to the state-level licensing process administered by the CRA; they do not mandate that municipalities require applicants to submit social equity plans as part of a competitive process for local licensure.
The court's conclusion seems to have formed the basis for the court to rule that a competitive process can be based on social equity scoring—a ruling that is contrary to plain statutory language. MRTMA explicitly states that a municipality's competitive process must be "intended to select applicants who are best suited to operate in compliance with this act within the municipality." The competitive process required by MRTMA does not mention social equity plans and is instead focused on an applicant's ability to run an MRTMA-compliant business. The court's misreading of the Rules and MRTMA will allow Detroit's competitive licensure process to move forward despite the fact that—under the court's own analysis—the competitive process is focused on scoring "the best social equity plan" and not on the statutorily required focus of suitability to operate a compliant business within the municipality.
Additionally, while the court's conclusion that the Ordinance allows for co-location of adult-use and medical operations is technically true, the practical reality is different. The practical impact of the Ordinance is that the vast majority of currently operating medical provisioning centers will not be able to secure an adult-use license until 2027, by which time there is a real risk that those provisioning centers will have been forced to shut their doors due to the shrinking market for medical marijuana.
Further, under the Ordinance, applications will be denied if the applicant already holds or is applying for more than one license of a given type, regardless of how many medical licenses the applicant currently has. As a result, a company that owns three medical stores, for example, would find itself with two stores unable to receive adult-use licensure. The court does not address this practical impact of its ruling and instead reasons that a municipality is not obligated to approve an application for an adult-use license just because it previously issued the same applicant a medical license. This entire line of reasoning undermines the clear purpose of MRTMA's requirement that a municipality cannot enact an ordinance that restricts co-location of medical and adult-use retail operations.
The court also gives no weight to MRTMA's requirement that local ordinances not be "unreasonably impracticable" and even stated that "nothing in the MRTMA requires a municipality to enact an ordinance that comports with the 'reasonably prudent business person' standard," despite the fact that MRTMA plainly does have such a requirement. MRTMA only allows municipalities to adopt ordinances that are not unreasonably impracticable (MCL 333.27956(2)), and the statute's definition of "unreasonably impracticable" is anchored by the standard of a reasonably prudent business person. MCL 333.27953(x). The circuit court's ruling in this regard is plainly at odds with the unambiguous statutory language.
While the City is now implementing the Ordinance, the plaintiffs have an immediate right to appeal those rulings. Given shortcomings with the Circuit Court's reasoning, it would be surprising if at least one set of plaintiffs do not appeal.
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