Citing concerns about a need to provide Detroiters, including minority Detroiters, more opportunities to run cannabis businesses, city legislators will again extend the moratorium on adult-use cannabis sales.
City council originally set the moratorium to be in effect through Jan. 31. Then, it extended the moratorium to March 31. In March, District 1 Councilman James Tate, who first introduced the moratorium, told CD the council will extend the moratorium past March.
Meanwhile, cannabis companies have sued the state’s Marijuana Regulatory Agency (MRA), arguing they sent in adult-use license applications during a period in November 2019 before the city ordinance to opt out went into effect, according to MLive.com. (The businesses for which Cannabis Dispensary was able to find contact information did not grant interviews.)
Out of 40 existing medical dispensaries in the city, only four are owned by Detroiters, Tate said on March 11, citing the most recent figures he had from about a week prior.
“When we look at that, that is a huge challenge for us, when we started talking about an industry that has an opportunity to generate wealth, and potentially generational wealth, and create new opportunities—when you have a city like Detroit that has had an economic downturn based on folks leaving from the city of Detroit to the suburbs. Also, business and industry is also leaving Detroit for the suburbs,” Tate said.
Although Tate said possible solutions are still being discussed and he can’t share them all, he and council aim to find ways to improve access to people with ties to Detroit. It’s also important that the cannabis industry there reflects the city’s demographics; more than 78% of its residents are black, according to the U.S. Census Bureau’s Population Estimates Program.
“How do you determine who receives these so-called social equity benefits, in terms of Detroiters?” Tate asks. “What is a Detroiter? Is a Detroiter someone who lives in the city now, and put a period at it? Is it someone who's lived in the city for 10 years and more? We're identifying all of these different areas of criteria that would allow for residents, and even those who live in the city and had to leave for various reasons, to be able to participate and be on a more even playing field."
The state of Michigan has created a social equity program. Applicants can receive a 25% fee reduction or more if they have lived for the past five consecutive years in one of the state’s 41 communities that have been “disproportionately impacted” by cannabis prohibition, according to the state’s Department of Licensing and Regulatory Affairs (LARA). Applicants can also receive another 25% fee reduction if they have a criminal conviction for cannabis, except for a conviction for distributing a controlled substance to a minor. In addition, applicants can receive another 10% reduction if they have been a caregiver for two years.
MRA is currently accepting social equity applications for adult-use businesses for the foreseeable future, a spokesperson from the agency told CD.
But Tate said there are multiple actions the city of Detroit will have to take to further ensure equity in the city’s cannabis retail space.
In addition, Tate said he and the city are addressing issues such as how they can set up a fund and how to best utilize land that isn’t currently being developed.
“The largest challenge is this fund that we’re looking to create,” Tate said, adding that the state bars cities from placing additional taxes on cannabis. Detoit is hoping to work with other entities, Tate said, including some that aren’t interested in cannabis, to come around to the opportunity to work with the industry. Many banks and nonprofits, which often work closely with the city, haven’t expressed interest in working with the industry, he said.
“We just ask folks to be patient,” Tate said. “We are not anti-cannabis from the city standpoint. But we are pro-Detroit, and being pro-Detroit, we have to make sure that we do everything we can to get Detroiters a real opportunity in the industry."
Since Michigan voters passed adult-use legalization in November 2018, Detroit has had time to respond and set up its own program, said Matthew Abel, senior partner at Cannabis Counsel Law Firm in Detroit and executive director of Michigan NORML. At the same time, he said, he understands concerns that the city would like to achieve social equity and has some ideas of his own.
Until Dec. 6, 2021, the state will only issue licenses for cultivation and retail operations of a certain size to existing medical operators, according to emergency rules issued in July 2019 that expire July 2020. These rules exclude microbusinesses and “Class A” grows that are limited to 100 plants, and microbusinesses.
Anyone applying for a state license must pay $6,000, according to the emergency rules. Additional license fees are $4,000 for Class A growers and $8,000 for microbusinesses.
The following is a definition of microbusinesses:
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“It seems like we could allow microbusinesses for social equity applicants,” Abel said.
A ballot initiative to legalize could be coming
If Detroit hasn’t legalized adult-use sales by this summer, Abel said he will consider pushing a legalization ballot initiative for the November election.
That initiative could require the first microbusinesses and Class A grows in the city to be awarded to social equity applicants, Abel said. At the end of 2021, he said, those operations could possibly either convert to full retail businesses or choose to remain operating as is.
Legal requirements addressing zoning would require the city to draft zoning rules, Abel said. “In Michigan, we can't do zoning by ballot initiative, so we're trying to be creative to stay away from the zoning part of it, and maybe just require the city council to pass zoning that accomplishes the goals that we're talking about,” he said.
Redbud Roots shares lack of interest in setting up in Detroit
Alex Leonowicz, COO and general counsel for Redbud Roots, a Buchanan, Mich.-based vertically integrated cannabis business, said his company is not interested in opening a dispensary, cultivation facility or lab in Detroit.
Leonowicz said he finds the history of dispensaries in Detroit “fascinating,” and Redbud is refraining from setting up operations there for that reason. “Even when you look at the challenges it faced when it went through the medical regime, there was numerous court cases, there was an instance where it went all the way to the court of appeals, there was a referendum passed by voters,” he said, adding that many dispensaries shuttered. Redbud Roots does sell to medical dispensaries in Detroit.
The Motor City isn’t the only Michigan municipality banning, or temporarily banning, cannabis sales. Roughly 80% of municipalities in the state had opted out by mid-November, according to the Detroit Metro Times.
“In terms of adult-use, we do sell to just about all of those retailers [throughout the state] that are adult-use,” Leonowicz said. “That's because, truthfully, we're one of the only to have both a processing and a grow facility. Has it been good for business? Yeah, absolutely. You’re wanted by a lot of people, and there's not very many of you.”
However, those municipalities should legalize sales. If stakeholders in those communities become more educated about cannabis, they might come around to it, Leonowicz said.
The rationale behind the moratorium in Detroit seems different than in many other cities and towns across the state, Leonowicz said. But that doesn’t mean it should be in place, he said, as customers will find a way to get product anyway. As this happens, the city will miss out on tax revenue.
“I get the desire to involve people, and I can see where the city's coming from in delaying that to make sure that they do it the right way,” Leonowicz said. “But you've got to find the right fit here, because otherwise, people are just going to find a workaround.”
Tate is taking criticisms in stride. Because the cannabis industry will outlast his time in office, he said he wants to give Detroiters a chance to participate as it grows.
“I've been called all kind of names, and the city's been called all kinds of names, because we're trying to do something that's on behalf of the city—again, not telling you others you cannot participate,” Tate says. “But we have to identify ways that we get Detroiters into a brand new industry that has really no limit at this point."
