Weed wars: Local battles simmer 5 years after voters approved recreational pot law

Weed wars: Local battles simmer 5 years after voters approved recreational pot law

Posted on The Detroit News

Five years after Michigan voters approved the use of recreational marijuana, a multibillion-dollar industry has cropped up, but it has been accompanied by lawsuits, criticism about the vagueness of the state’s law and accusations of outsiders coming in to try to start dispensaries.

Dozens of legal challenges have unfolded in communities across Metro Detroit, from Highland Park to Pontiac, amid growing cries of favoritism that the system benefits some more than others financially. Other communities without dispensaries, including those in Rochester and Keego Harbor, have been surprised by outside groups that have managed to get initiatives placed on local ballots to allow them.

“I don’t think people appreciated an outside group coming into our city and trying to change the charter,” said Robert Kalman, the mayor of Keego Harbor, after voters there in November rejected a local measure that would’ve allowed dispensaries. “I think people resented the attempt to take over local control. … For me personally, it really wasn’t about marijuana. My own personal take — this was about local control.”

Under Michigan law, communities decide whether they want to allow the sale of recreational cannabis. While some communities, such as Ann Arbor and River Rouge, moved quickly to let shops open, others took their time or decided against legalizing them altogether. Voters in Grosse Pointe Park, Rochester and Birmingham also rejected dispensaries in their communities in November’s elections.

Customer Kairan Dupuie of Taylor smells Lemon Cookie flowers offered by budtender Nya Middlebrooks at Puff Cannabis Co. in River Rouge. In 2021, River Rouge officials faced heavy criticism when they proposed rezoning land belonging to city officials and employees to permit marijuana businesses.

Critics said the system of deciding who does and doesn’t get a license once dispensaries are approved is also flawed. Some said the groups getting measures on local ballots attempt to control the criteria of who does and doesn’t qualify. And even in cities where dispensaries have been approved, there are accusations of favoritism.

“I always thought our political system was so fair, but it’s plagued by lobbying,” said Mohamad Hamade, general manager of the Flower Bowl, a chain of recreational and medical cannabis dispensaries in Metro Detroit.

In fall 2023, three individuals were sentenced to prison for their roles in bribing or funneling money to former House Speaker Rick Johnson, who chaired the state’s medical marijuana licensing board from May 2017 to April 2019. Oakland County businessman John Dawood Dalaly got sentenced to 28 months behind bars for giving $68,200 in bribes to Johnson while Lansing lobbyists Brian Pierce and Vincent Brown received sentences of two years and 20 months, respectively, for their roles in the bribery scheme. Johnson was sentenced to nearly five years in prison for pocketing more than $110,000 in bribes, including repeated trysts with a sex worker.

Many, including some dispensary owners and attorneys, said one of the biggest issues is the broadness, or vagueness, of Michigan’s recreational marijuana law and the selection process of shops when communities opt to allow dispensaries to operate.

“It’s reached the point where a lot of municipalities who have opted in to allow recreational marijuana expect to get sued, so they come up with a very opaque process that makes it difficult to learn how the applications were evaluated,” said Brian Etzel, a Birmingham attorney who has litigated dozens of legal disputes over marijuana licenses in Michigan.

Robin Schneider, the executive director of the Michigan Cannabis Industry Association, helped to draft the language of the ballot measure that voters approved five years ago. The state law was written in deference to local control, she said.

“We did feel that giving local control was important so local leaders could decide whether to have cannabis facilities in their communities, decide how many they want and where they should be located,” Schneider said.

But the industry group is concerned about the number of lawsuits between applicants and communities, she said, adding that “there has been a little lack of transparency in some cases” in the selection process.

The lack of transparency wasn’t foreseen when the state law was drafted, she said.

But if lawmakers would seek protections for marijuana dispensary applicants and communities, Schneider said, “we would be open to having that conversation.”

OUTSIDE INFLUENCES

In the recent November elections, one Sylvan Lake-based industry group, Canna Zoned, targeted several communities that previously opted out of the 2018 law, attempting to reverse bans on pot retail establishments.

Officials in Grosse Pointe Park, Keego Harbor, Rochester and Troy had previously opted out of the state legalization program, but local ballot question committees were started for each municipality, attempting to ask voters to decide the issue. The initiative in Troy didn’t make it to the ballot. Another ballot measure was offered in Birmingham.

The ballot question committees in each municipality were led by an employee of the Canna Zoned marijuana real-estate broker company, according to campaign finance records. Canna Zoned worked with and supported the initiatives, spokeswoman Andrea Walker said.

The initiative surprised Rochester city officials.

Rochester voters rejected allowing recreational marijuana dispensaries in their community in a November ballot measure vote. A Dairy Queen sits next to one of the proposed locations for a dispensary if the measure had passed — a former Thai restaurant.

“We had nothing to do with this. I don’t even know who these people are. I’ve never met them. They didn’t come in and talk to us,” Rochester City Manager Nik Banda said. “They just dropped these signatures on us.”

Canna Zoned is comprised of real estate agents and attorneys who work together to locate properties with the potential to become marijuana facilities. Licenses and properties are generally packaged and sold to entrepreneurs looking to operate marijuana businesses, said Amanda Kilroe, one of the company’s lawyers.

“We want to bring the conversation to the table, but … ultimately, it’s always up to the voters to decide,” Kilroe said of the ballot initiatives. “Sometimes the voters are like, ‘Hell no, we don’t want it.’”

More:Rochester, Birmingham, Keego Harbor say no to marijuana retailers within city limits

Canna Zoned wanted the opportunity to apply for licenses that would become available if the ballot initiatives passed, Kilroe said. The ballot proposal language in Rochester spelled out criteria for a competitive point-based process the city would be required to use to select applicants if the proposal had passed. Kilroe said this approach is “standard.”

If an applicant is pre-qualified by the state Cannabis Regulatory Agency and has a “recorded real property interest” in a proposed location prior to 30 days after the ballot question is certified by the county clerk, it gives that applicant a head start in the process, according to the ballot language. This assures applicants can open their businesses quickly, Kilroe said.

COMMUNITY PUSHBACK

Even in communities where marijuana dispensaries are allowed, there can be surprise efforts to create more such businesses that residents have pushed back on. In 2021, River Rouge officials faced heavy criticism when they proposed rezoning land belonging to city officials and employees to permit marijuana businesses. The effort failed.

River Rouge city officials did not respond to requests for comment, including City Councilwoman Karen Ward, who owned one of the properties that was considered for rezoning.

Other local officials declined to comment on the issues involving recreational cannabis in their communities because of ongoing litigation.

Nickolas Calkins, corporate counsel for Herbology Cannabis Co., spoke of one municipality, which he declined to name, that wanted a $20 million buildout of the proposed dispensaries as a condition for allowing the businesses to open. Such a pricey buildout would not make a store profitable, he said.

Calkins and others said the state law does not give “enough direction” to local municipalities about selecting marijuana dispensaries if they opt into the law. The result is that individuals and groups pursue a variety of ways to try to establish preferential treatment on local zoning and licenses, Calkins said.

“You see that influence,” Calkins said, “whether it be John giving his buddy, Jim, the license award, or … zoning an applicable property as eligible. There are so many ways to give preferential treatment.”

The state of Michigan’s Cannabis Regulatory Agency said it could help provide advice on any proposed changes in state law.

“The CRA enforces the state statutes as passed by the voters and the Legislature,” said David Harns, the agency’s spokesman. “If industry stakeholders or municipalities want to make adjustments to those statutes, we stand ready to offer our input as needed.”

RAPID GROWTH

A booming industry has taken root since the Michigan Regulation and Taxation of Marijuana Act took effect in December 2018, legalizing recreational cannabis statewide. A month earlier, 56% of state voters approved the measure that created a state licensing system for recreational marijuana businesses. Dispensaries began opening in 2019.

Since then, adult-use marijuana establishments have generated more than $6.6 billion in sales, according to the latest data available from the Michigan Cannabis Regulatory Agency.

In fiscal year 2022-23, which ended Sept. 30, the $266 million generated from the marijuana excise tax created more revenue than the sale of beer, wine and liquor combined, according to a report by the Michigan House Fiscal Agency. Taxes from sales of adult-use cannabis increased 49% compared with the year before.

Tax revenues are divided four ways: 15% to municipalities in which marijuana businesses are located; 15% to counties where the businesses operate; 35% to the Michigan School Aid Fund for grade K-12 education; and 35% to the Michigan Transportation Fund for the repair and maintenance of roads and bridges.

Budtender Ravion Smith restocks edibles at PUFF Cannabis Company in River Rouge. The Wayne County community was an early opt-in on allowing recreational marijuana sales.

The 2018 state law, created through a grassroots initiative, allows every local municipality ― city, township or village — to allow, limit in number or ban cannabis dispensaries in their communities. A huge majority of municipalities, 1,370, have “opted out” or banned the businesses. Only 138 opted in.

As of November, there were 741 active retailer licenses for adult-use establishments, according to the Michigan Cannabis Regulatory Agency.

ONGOING LITIGATION

Etzel, the Birmingham attorney who has litigated a couple dozen legal disputes over marijuana licenses in Michigan, said the competitive process required under state law is “a nebulous standard.”

“It (the statute) says it’s got to be a competitive process, but … the Legislature didn’t provide any guardrails to what that process should look like.”

Etzel is involved in one of the several lawsuits aimed at Royal Oak over its licensing procedure. Six of 37 applicants for permanent facilities in the city sued over Royal Oak’s marijuana licensing ordinance after being denied licenses in 2022. While an Oakland County Circuit judge sided with the city, at least one applicant, Quality Roots, has filed an appeal.

Quality Roots is embattled on two legal fronts with the Oakland County city. First, the firm has appealed its scoring in the city’s competitive process for doling out licenses.

Given the active litigation, the city declined to comment on the lawsuits or licensing process, spokesman Luke Londo said.

Quality Roots, which is represented by Etzel, also challenged the eligibility of one of the applicants approved for licensure. Quality Roots argues a competitor is ineligible for a license because the proposed retail setting is within 1,000 feet from Oakland Schools Technical Campus-Southeast. State law creates a 1,000-foot buffer zone around schools, although municipalities can reduce this.

City officials have defended their selection process but have not gone into detail.

Applicants seeking approval still “must demonstrate that features or elements are deemed adequate by the Commission to protect the public health, safety and general welfare from excessive noises, traffic, obnoxious and unhealthy odors and any detrimental effects from general operation of the establishment, and to minimize any adverse effect on the character of the surrounding area,” according to a city news release issued earlier this year.

Etzel called the city’s competitive process “more or less a charade.”

While some municipalities have adopted transparent and merit-based competitive processes for awarding licenses, there will always be disappointed applicants, he said.

“You can’t prevent disgruntled applicants from turning to the courts,” Etzel said. “But the more transparency and the more specific the evaluation criteria, the less opportunity for cronyism and capricious results.”

Aric Klar is founder and CEO of Quality Roots, which has dispensaries in Battle Creek, Hamtramck, Monroe and Waterford. It is poised to open its eighth Michigan store in Madison Heights early next year.

Klar described the litigation associated with opening his retail marijuana businesses across southeast Michigan and beyond as “a three-year nightmare.”

“We put in these applications, right, and we went and we’re winning these licenses, and then when people don’t want these licenses, their last result is to litigate,” Klar said. “The litigation is a pain point for the industry, but I hope that now there’s enough case law… that people recognize that the cream is rising to the top.”

Puff Cannabis Co. has 10 locations throughout the state, including in Hamtramck, River Rouge and Madison Heights. Nickolas Hannawa, Puff’s chief legal counsel and partner, also argued that municipalities lack direction to follow.

“You are always going to have bad actors,” he said.

He contends a solution is for the state to provide municipalities a standard way to permit and zone dispensaries in local communities, similar to how the state handles liquor stores.

“If the state were to allow it, like with other businesses, like liquor stores, that would really stop the shady business,” Hannawa said.

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