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Court Enjoins City’s Competitive Process for Selecting Adult Use License Applications

Cannabis Law Blog

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Court Enjoins City’s Competitive Process for Selecting Adult Use License Applications

On December 7, 2020, the Oakland County Circuit Court issued a preliminary injunction in Fire Farm, LLC et al v City of Berkley et al, Case No. 2020-184754-CZ, enjoining the City of Berkley, Michigan from issuing licenses to marijuana establishments pursuant to the Medical Marihuana Facilities Licensing Act, MCL 333.27101-333.27801 (“MMFLA”), or the Michigan Regulation and Taxation of Marihuana Act, MCL 333.27951-333.27967 (“MRTMA”), due to the likelihood that the City’s process for scoring and awarding licenses fails to comport with the requirements of MRTMA.

Like a number of other municipalities in Michigan, the City of Berkley adopted an ordinance to authorize and license a limited number of adult-use and medical marijuana businesses to operate in the City. Berkley’s ordinance permits only three adult use retail establishments and three medical marijuana provisioning centers, and prohibits every other license type.

Under MRTMA, a municipality may limit the number of marihuana establishment licenses. MRTMA provides that if a municipality does so, 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.” MCL 333.27959(4). Berkley’s ordinance purports to comply with this requirement in that it establishes a process to award licenses, which involves scoring each application based on a variety of factors to determine which applicants move forward to final licensure.

The City received and scored twenty-three applications. Six of the twenty lowest-scoring applicants filed suit, alleging that the City’s scoring system violates MRTMA in that it is not designed to select applicants who are best suited to operate in compliance with the law.

In evaluating whether to issue a preliminary injunction, the court agreed (at least for now), holding that it was likely “the competitive process devised by [the City] wanders far the statutory mandate.” According to the court, out of the sixteen factors in the City’s scoring system, the following eight appeared to be unrelated to whether an applicant will operate in compliance with MRTMA:

  • Whether the proposed facility will revitalize or redevelop property that has been vacant or unused for an extended period of time.
  • Planned outreach on behalf of the proposed business, and whether the applicant or its stakeholders have made, or plan to make, significant physical improvements to the building housing the marihuana business, including plans to control traffic, noise, and odor effects on the surrounding area.
  • Whether the proposed location in the city in relation to its proximity to other locations for marihuana businesses represents a reasonable and harmonious dispersion of marihuana businesses.
  • The proximity of the business to a school.
  • Whether adequate off street parking is provided or available.
  • Whether the size and nature of the use in relationship to previously approved and issued marihuana business licenses is reasonable.
  • Whether the proposed plan incorporates sustainable infrastructure and energy efficient elements and fixtures.
  • Whether the proposed plan incorporates infrastructure that adequately addresses stormwater drainage.

The court’s order is important for three reasons. First, the court found MRTMA’s requirements for a competitive selection process to apply to the City’s initial selection of licenses. The plain language of MRTMA requires a competitive process only when the State is faced with more license applicants for a municipality than there are municipal spots. But because a state application is not complete without the municipality first signing an attestation supporting the applicant’s state application, there should never be a situation where the State is faced with too many applications from the same city. Some have speculated that this fact gives municipalities an escape from having to design a competitive process. In Oakland County, at least, the court is going to respect the intent of MRTMA. 

Second, several of the factors identified as being unrelated to the MRTMA mandate are commonly found in the marijuana ordinances of municipalities throughout Michigan. If the court is correct and these factors are outside the scope of the competitive process envisioned by MRTMA, a municipality with an ordinance that uses similar factors for awarding adult use licenses may be at risk for litigation. Additionally, more and more municipalities are basing scoring or selections on applicants being owned by citizens of the municipality. We have written frequently on successful challenges to such ordinances on constitutional bases—the court’s ruling illuminates a statutory basis for these challenges as well.

Third, the court enjoined the City from issuing both adult use and medical licenses, even though the competitive process requirement is found in the adult use statute. The reason for this appears to be because the City’s ordinance limited licenses to three locations, which could then be used as either adult use retail establishments, provisioning centers, or both. Thus, if an applicant receives a medical provisioning center license for one location, it nonetheless implicates MRTMA by reducing the availability of adult use retail licenses. Providing for licensed locations—rather than discrete medical and adult use licenses—in a single comprehensive ordinance is another common aspect of marijuana ordinances in Michigan. The court’s order, however, highlights how MRTMA can expose the entire licensing scheme to the risk of invalidation.

Still, it is important to note that the court’s order is a preliminary injunction and that, if the case progresses, the court could ultimately determine that the City’s competitive process complies with MRTMA. Moreover, this decision does not establish precedent, so other circuit courts may reach different conclusions about similar ordinances. Thus, the ultimate disposition of Fire Farm, LLC and its scope are unclear at this time.

Needless to say, though, the case could result in a significant change to the way many Michigan municipalities review and process marijuana licenses.

Stay tuned to Dykema’s Cannabis Blog for further updates as this case develops.