On July 14, 2022, the Michigan Court of Appeals issued a published opinion in Cary Investments, LLC v City of Mount Pleasant—their second interpreting the application and licensing process within the Michigan Regulation and Taxation of Marihuana Act (MRTMA). Cary Investments, LLC is of critical importance for all licensees and prospective licensees who may find themselves facing a competitive or limited municipal license application process, as it details when a denied applicant must file an appeal of a denied application versus when a licensing and application process can be properly challenged in a lawsuit. This case also aims to answer questions that many applicants, prospective applicants, municipalities, and circuit courts have faced concerning the competitive municipal licensing process required by Section 9(4) of the MRTMA.

Cary Investments, LLC involves an applicant’s denial of a municipal marijuana license through a competitive process pursuant to the MRTMA through a myriad of constitutional challenges. The City of Mount Pleasant adopted a municipal ordinance pursuant to the MRTMA that authorized a maximum of 3 marijuana retailer licenses. Mt. Pleasant’s ordinance also detailed a competitive process to determine which applicants would be awarded those licenses. The ordinance established nine criteria and created a selection committee consisting of the city clerk, the city planner, and the director of public safety. Ten applicants sought these 3 licenses. Among the applicants were several, existing operating medical marijuana provisioning centers that were licensed and operational pursuant to the Medical Marihuana Facilities Licensing Act (MMFLA). After applications were submitted, Mt. Pleasant conducted public hearings on the applications, and the selection committee awarded conditional authorization to operate a recreational marijuana retail license to the three highest applicants. Cary Investments ranked seventh and its application was denied.

Cary Investments filed suit claiming violations of substantive and procedural due process. Having lost in the trial court, Cary Investments appealed its unfavorable decision to the Michigan Court of Appeals. In a published opinion, the Court reinforced a familiar judicial theme: that courts are reluctant to get heavily involved in municipal licensing schemes, especially for first-time applicants. Specifically, the Court held:

  • Claims directly challenging a local body’s licensing decision must generally be presented as an appeal to the circuit court;
  • Claims alleging constitutional violations may be brought as an original action in circuit court;
  • First-time applicants for licenses are entitled to minimal, if any, due process rights, and courts will only void licensing schemes where the municipal conduct and procedure is obviously unfair or is otherwise arbitrary and capricious.

This decision is less than ideal for first-time applicants that have been denied a municipal marijuana license resulting from a competitive process. Not only did the Court emphasize that first-time applicants lack a substantial interest in a license, it highlighted that these procedures implemented by Mount Pleasant’s ordinance required “an extraordinary amount of process.”

Most notably, the Court, in dicta, touched upon an important provision of the MRTMA that could impact medical marijuana license holders anticipating a transition into the adult-use market. The Court stated:

“[T]he City’s decision to authorize plaintiff to operate a medical-marijuana facility did not obligate the City to subsequently approve a licenses to operate as a marijuana retailer for purchases who wish to obtain marijuana for recreational purposes.”

While this is likely not binding authority, this language is concerning in light of MCL 333.27956(5), which, interestingly, was not cited in the opinion. MCL 333.27956(5) states in relevant part, “A municipality may not adopt an ordinance that… prohibits… a marihuana retailer… from operating at a location shared with a marihuana facility operating pursuant to the [MMFLA].” This particular statutory language has been the subject of litigation in Kalamazoo, Traverse City, and other municipalities in Michigan, as existing MMFLA licensees have argued that this language in the MRTMA prohibits a municipality from adopting an ordinance that would not permit existing MMFLA licensees to apply for adult-use licenses.

It is unclear the impact this will have as more municipalities begin to integrate recreational adult-use into an existing medical marijuana licensing schemes. Cary Investments, LLC may become a crutch to municipalities and other courts to justify lack of preference given to medical marijuana license holders that apply for an adult-use license within the same municipality. Ultimately, Cary Investments, LLC creates confusion and uncertainty surrounding the meaning of MCL 333.27956(5) and whether a municipality can effectively shutter existing MMFLA licensees by refusing to permit a transition to the adult-use market.

While the medical market in Michigan continues to shrink—and the adult-use market continues its exponential growth—existing MMFLA licensees must transition into the adult-use market to keep up. At Dykema, we provide our partners with the tools and resources to prepare for this transition, and guide them through any challenges that may arise in the process.

Stay tuned for more updates from Dykema, as we continue to monitor the emerging trends and legal developments in the cannabis world, and remain at the forefront of this dynamic industry.