Detroit's new recreational marijuana ordinance challenged in lawsuit

Sarah Rahal
The Detroit News

Detroit — A chain of medical marijuana dispensaries filed a lawsuit in Wayne County Circuit Court Wednesday challenging Detroit's new recreational marijuana ordinance.

A provision in the ordinance, which was approved last month by the Detroit City Council, doesn't allow medical marijuana establishments to be eligible to obtain a recreational license for five years. The lawsuit brought by four House of Dank dispensaries — each operating under a unique name — said that wording violates the state's 2018 recreational marijuana law.

The ordinance, which went into effect April 20, reads: "Commencing on January 1, 2027, any licensees which are holders of one or more licenses to operate a medical marijuana provisioning center in accordance with this article and which have been the holder of such licenses since prior to the effective date of this ordinance, may apply for an adult use retailer license."

The city's law department said it had not had a chance to review the complaint and declined to comment Wednesday.

House of Dank, which opened a medical dispensary on Eight Mile in 2015, now has four medical dispensaries in Detroit and four recreational dispensaries elsewhere in Michigan. 

"Specifically, the City is attempting to give certain preferred newcomer applicants an artificial head start by preventing existing medical marijuana provisioning center licensees in the city from even applying until at least 2027 — which clearly violates both the letter and spirit of the Michigan Regulation and Taxation Marihuana Act," according to the suit.

Michigan's voter-approved recreational marijuana law said dispensaries with medical marijuana licenses were expected to transition to recreational licenses once they received approval from local municipalities. The Michigan Cannabis Regulatory Agency provides equal access to both licenses.

The agency declined to comment on the lawsuit.

►For subscribers: Why Michigan is weeding out medical marijuana for ‘recreational cannabis’

"The City’s current ordinance does the exact opposite by intentionally singling

out and punishing the existing provisioning center licensees, who will all certainly be strangled to death and go out of business long before they are even eligible to apply for adult-use retailer licenses in 2027," according to the suit.

"These existing stores employ thousands of people, pay taxes, paved the way for this industry and now they're being legislated out of business unlawfully," Michael DiLaura, an executive for the dispensary chain and its general counsel, told The Detroit News.

It's a lucrative, competitive and capital-intensive industry as Michigan is paving the way for the once-illegal plant in the Midwest.

Recreational sales surpassed medical sales in mid-2020, and the industry forecasts medical receipts will be about $324 million this year, a dip from last year, a downward trend that is expected to continue. But surging sales of recreational cannabis are forecasted to hit a new high of $1.5 billion this year. The state anticipates to peak at around $3 billion in total sales.

Detroit's city council approved a revised ordinance last month, two years after the city opted to allow recreational marijuana, to determine how it would award business licenses.

The ordinance's passage followed a longstanding disagreement among leaders and residents over how many opportunities should specifically be given to longtime Detroiters. The city's initial attempt was halted last year after a federal judge ruled its first ordinance approved in 2020 was "likely unconstitutional" for providing too much preference to legacy Detroiters.

"Of the 71 dispensaries in Detroit, no less than 14 are owned by people of color," DiLaura said. "We’re seeing 20% inclusion and we support expanding that, we just believe this statute doesn’t do any of that."

Council President Pro Tempore James Tate spearheaded an ordinance using the same language as the Cannabis Regulatory Agency's social equity program. That language opens benefits to all residents from 184 communities in the state that were disproportionately affected by the war on drugs, rather than just Detroiters. 

The new ordinance provides options for provisional licenses, adding social equity and non-equity tracks and creating rounds of distributing 110 total licenses. The licenses, including designated consumption and microbusinesses, will be awarded over three phases that will be spaced out three months apart. 

The city established a rubric system to score applicants and is in the process of hiring a third party to host a lottery system should there be ties. Entrepreneurs who obtain a license from the city must also obtain a state license.

Tate could not be reached Wednesday. 

The 2018 ballot proposal to legalize recreational marijuana was supported by 68% of Detroit voters.

DiLaura said there's a ballot referendum circulating to gain 3,000 signatures by May 20 to put the ordinance on pause until voters can decide on it in November because "There are a number of stakeholders that feel they were wronged by this," he said.

"It's like the old taxi medallion or golden ticket," he said. "That's just not right and not the best way to design inclusion and opportunity. These stores should be open, we should encourage more people to get into the business but prioritize those that paved the way."

Twitter: @SarahRahal_