On Wednesday, January 25, 2023, we held an ICLE Community Zoom discussion about recent developments in marijuana law. John Fraser, Michelle Donovan, Ben Sobczak, and Jerome Crawford joined us to share their insights. Here’s a quick recap of what we covered:
- Detroit updates. Detroit’s original adult-use ordinance included a legacy program providing Detroit residents priority. That ordinance was challenged on a Dormant Commerce Clause theory and ultimately found unconstitutional. In 2022, the city passed a new adult-use ordinance seeking to correct the issues. The city still wanted to include the social equity component, so they separated equity applicants from everyone else and required an equal number of each, capping the total number of adult-use licenses at 100. Medical marijuana operators sued, arguing that they should be granted adult-use applications automatically. A case was dismissed in Wayne County Circuit Court on the grounds that the dispute was essentially unripe, as the operators hadn’t yet been denied licenses. After Detroit began to accept applications, a federal lawsuit was filed—also on a Dormant Commerce Clause theory—but Judge Friedman denied the temporary restraining order (TRO). While the case is still open, it is unclear if the plaintiffs are interested in continuing the litigation, or whether other lawsuits will be filed.
- Cary Investments. In Cary Invs, LLC v City of Mount Pleasant, Nos 356707, 357862, ___ Mich App ___, ___ NW2d ___ (July 14, 2022), the court of appeals upheld the city’s decision to deny an adult-use license, essentially indicating that nothing obligates a municipality to approve a plaintiff to operate in an adult-use capacity just because it applies in a medical capacity. John noted that while the case has been cited repeatedly for this proposition, it is arguably dicta and the holding is narrower. The issue is likely to be argued in the court of appeals in future cases.
- Yellow Tail Ventures. Yellow Tail Ventures, Inc v City of Berkley, Nos 357654 et al, ___ Mich App ___, ___ NW2d ___ (Dec 15, 2022), involved statutory challenges to the city of Berkley’s municipal licensing criteria. The city’s scoring process included factors not directly tied to who is best to operate, such as social and charitable commitments. Those who didn’t get licenses would argue that certain factors were out of line with the Michigan Regulation and Taxation of Marihuana Act (MRTMA). The court of appeals held that the qualifier in the statute that the municipality can choose operators that are “best suited to operate in accordance with the act” allowed municipalities to cater their best-suited analysis to local concerns. This is generally in line with statutory analysis—you can’t do something the statute prohibits, but you can go beyond what it requires.
- Pinebrook Warren. In Pinebrook Warren, LLC v City of Warren, Nos 355989 et al, ___ Mich App ___, ___ NW2d ___ (Aug 25, 2022), an Open Meetings Act (OMA) case involving Warren’s medical marijuana review committee, the committee discussed how to issue the licenses and then brought its recommendation to the city council for approval. The court of appeals found that the city complied with the OMA because the committee wasn’t a public body for purposes of the act. The group noted the potentially broad implications of this holding—if all a municipality has to do to circumvent the OMA is empanel something less than the decision-making body and have them do the work, the OMA does not seem to have much force. The group noted that a best practice for municipalities would be to vest decision-making in one executive official, like a city manager or city clerk, and they can refer pieces of the review process out. This case is currently pending on application for leave to appeal in the Michigan Supreme Court, so it is definitely one to watch.
- Oversupply issues. Jerome discussed some of the issues facing manufacturers and retailers. Because of the oversupply and lower prices, profit margins are getting destroyed. He noted that testing plays a role in driving price, and that’s impacted by the misconception that potency is the most important factor (instead of taste, appearance, smell, effect, etc.). He noted that the Cannabis Regulatory Agency (CRA) has some new leadership focusing on enforcement, which could help “the cream rise to the top” in terms of quality product. Ben noted that we’re in the “Darwinism phase” with providers, and the next year or so will be very busy. Just as with the craft beer industry, there will be a glut at first and then things will level out. He noted that when everyone is making money, litigation is slow, but when things get tight, the demand letters and collection cases will start up.
- Licensing issues. Michelle noted that the CRA bulletins are getting more detailed. They’re more restrictive on operators, and they're trying to curtail the black market. At the end of 2022, a bulletin was issued on closing a business. A lot of operators are closing, so the CRA has provided direction on that. Additionally, Michelle noted the Annual Financial Statement (AFS) report bulletin for FY23 was released. Although lawyers are not CPAs, they need to advise clients on their compliance with AFS report requirements.