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Michigan Municipal Adult-Use Marijuana Licensing Processes Give Rise to Lawsuits

The process of establishing criteria for businesses seeking marijuana licenses, and reviewing business applications for licenses, is complex. And unsurprisingly, in many municipalities across Michigan, the licensing process has led to significant and costly litigation.


In December, 2019, Michigan authorized the sale of adult-use marijuana (i.e., recreational marijuana). Michigan municipalities are thus automatically deemed to permit adult-use businesses without restriction unless they pass ordinances restricting or prohibiting them within their jurisdictions.

The legalization of adult-use marijuana has resulted in the establishment of procedures for businesses to become licensed to sell in accordance with local regulations and restrictions on the number and types of businesses that qualify. These procedures and restrictions apply in addition to the Michigan Marihuana Facilities Licensing Act (MMFLA) and Michigan Regulation and Taxation of Marihuana Act (MRTMA).

Under MRTMA, a municipality is authorized to limit the number of marijuana establishment licenses. If a municipality does impose limitations, and the limit prevents the state from issuing a state license to all applicants, then “the municipality shall decide among competing applications by a competitive process intended to select applicants who are best suited to operate in compliance with [MRTMA] within the municipality.”  MRTMA permits restrictions that go beyond limiting the number of licenses allowed within an area as long as such restrictions  are not “unreasonably impracticable.”  To avoid being unreasonably impracticable restrictions must not “subject licensees to unreasonable risk or require such a high investment of money, time, or any other resource or asset that a reasonably prudent businessperson would not operate the marihuana establishment.”

The process of establishing criteria for businesses seeking marijuana licenses, and reviewing business applications for licenses, is complex. There is a lot of money at stake. And unsurprisingly, in many municipalities across Michigan, the licensing process has led to significant and costly litigation.

In November, 2020, the City of Detroit announced its rules for allowing licensed adult-use marijuana sales, which included controversial provisions meant to give “social equity applicants” a competitive opportunity. Applicants are entitled to preferential treatment if they have lived in Detroit for:

  • 15 of the last 30 years
  • 13 of the last 30 years and are low-income
  • 10 of the last 30 years and have a past marijuana-related criminal conviction, or
  • Have parents who have a prior controlled substance record and still live in the city

These rules gave rise to a lawsuit filed on March 2, 2021, in Wayne County Circuit Court, by a plaintiff who has been a Detroit resident for 11 of the past 30 years who intends to apply for an adult-use retail establishment license.

The lawsuit alleges that the “licensing scheme favors certain Detroit residents over other Michiganders based on the duration of their residency.” The plaintiff argues that the ordinance violates the U.S. Constitution’s commerce clause because it “discriminates against out-of-state residents and punishes people for moving between states.”

Detroit is not the first (and almost certainly won’t be the last) municipality to have its licensing process challenged.

In November, 2020, Traverse City was ordered by a judge to refuse to accept applications for adult-use marijuana retail and microbusiness establishments in light of pending lawsuits. One of the primary issues being litigated in the Traverse City lawsuits is whether existing medical marijuana retailers have the automatic right to sell recreational marijuana as well.

In December, 2020, the Oakland County Circuit Court issued a preliminary injunction in a case brought against the City of Berkley, enjoining Berkley from issuing licenses to marijuana establishments pursuant to the MMFLA or MRTMA. The court enjoined Berkley based on the likelihood that its process for scoring and awarding licenses violates the requirements of MRTMA.

The process of establishing rules and reviewing license applications for adult-use marijuana will remain a contentious one. Given that adult-use sales in Michigan totaled nearly $440 million in the first full year of the program, there is a lot to be won (or lost) in the process.

For assistance in the application process, or any other issues related to operating a marijuana business in Michigan, please contact Paul Mallon, Jr.


mallon-paul

Paul C. Mallon, Jr.  is Shareholder and Chair of Fraser Trebilcock’s cannabis law practice. You can reach him at pmallon@fraserlawfirm.com or (313) 965-9043.