The cannabis industry is watching and waiting as a lawsuit challenging Detroit’s rigorous equity program for recreational marijuana creeps closer to a ruling.
Under the city’s regulations, longtime residents and those with marijuana-related convictions or low incomes get first priority in the license review process for opening a cannabis business. Applications began April 1, but a week later a legal challenge halted that process, leaving the adult-use cannabis business in Detroit frozen in limbo.
A March 2 lawsuit by resident Crystal Lowe argues that the preference rules, dubbed the Legacy Detroiter program, are unconstitutional and „unfairly favor” a specific group of residents, discriminating against nonresidents and those who live in the city but don’t fit the checklist.
While no official ruling has been made, U.S. District Judge Bernard Friedman said Thursday he agrees.
Friedman wrote in a new order that he was issuing a preliminary injunction „because the city ordinance governing the process for obtaining a recreational marijuana retail license gives an unfair, irrational, and likely unconstitutional advantage to long-term Detroit residents over all other applicants.”
In practical terms, it means the city remains blocked from processing licenses in recreational cannabis. The process first got put on hold April 7 with a temporary restraining order. The new action Thursday shows the case is advancing, and that there’s more likelihood the plaintiff will succeed at trial.
Friedman wrote that the ordinance’s „favoritism … embodies precisely the sort of economic protectionism that the Supreme Court has long prohibited.” He added that the „defendant has failed to show that its stated goal of assisting those who have been harmed by the War on Drugs is advanced by reserving fifty percent or more of the recreational marijuana licenses for those who have lived in Detroit for at least ten years.”
Despite its large medical cannabis industry, Detroit originally opted out of recreational pot when it got greenlit by Michigan voters in 2018.
Detroit City Councilman James Tate spearheaded creation of an ordinance over the course of more than a year that would establish the recreational, or adult-use, industry and aim to bring more Black Detroiters and longtime residents into the fold. The idea was to get those hurt by the war on drugs involved now that cannabis is legal, and to regulate the way to more diversity in the largely white sector.
The effort comes after medical cannabis hasn’t garnered local participation: There were 46 operational medical dispensaries in Detroit as of October, but a mere four were owned and operated by Detroit residents.
Now, though, there are questions over how Detroit is tackling that problem: Does the Legacy Detroiter program work? Who does it harm, if anyone, and — at the center — is it even legal?
Lowe, who wants to open a cannabis shop in Detroit, argues that her past and residency make her a prime candidate for a regulatory framework that’s seeking equity. However, despite Lowe living in Detroit 11 of the last 30 years and her experience with marijuana — her mom was convicted in 2007 for a marijuana-related crime, and she’s been working in the cannabis industry — she doesn’t qualify for the legacy program. Thus, the lawsuit argues, she has little to no chance of getting a license.
The adult-use ordinance gives preference in a couple ways: It allows for up to 75 retail licenses in the city, and at least half of those must go to Legacy Detroiter applicants. They also get priority in a tiered application review process, pay less in fees to get started and get land discounts.
To qualify for the Legacy Detroiter program, an applicant must have lived in the city for 15 of the last 30 years; have lived there for 13 of 30 years and qualify as low-income; or have lived there for 10 of 30 years and have a marijuana-related conviction, or a parent who was convicted of a marijuana-related crime before the applicant turned 18 years old.
Lowe’s mother has a marijuana conviction, but it was when Lowe was 19, according to court documents.
The lawsuit argues that with Detroit’s rules, legacy applicants will get the great majority of the licenses because they’re ahead in line, and there’s no cap on how many of the 75 licenses they can get.
The city denied the allegations in an April 6 response to Lowe’s complaint. The city’s legal team argued that the legacy program is not discriminatory, but rather provides „equal footing” in competition.
After the judge’s Thursday order, though, the city is offering to make changes to its rules. Still, it refuses to concede on giving its residents preference in some way.
„We will review the decision and can develop a revised plan to address the judge’s concerns,” Kim James, chief administrative corporation counsel for the city, said in a statement to Crain’s. „In the meantime, one thing is for certain: the City of Detroit will not issue any adult use marijuana licenses unless there is legal assurance that Detroiters will receive a fair share of those licenses.”
A request for comment from Lowe’s lawyer was not returned.
Among those following this case are prospective entrepreneurs, established medical cannabis businesses in the city and those who want to see equity in an arena known for resulting in the arrests of Black Americans at a rate 3.6 times more than their white counterparts, according to the American Civil Liberties Union.
„Obviously there are great concerns about this ordinance and whether it’s constitutional,” said Jeffrey Schroder, co-leader of Bloomfield Hills-based law firm Plunkett Cooney PC’s cannabis industry group. „There are other communities that have given preferences to local residents or property owners or businesses in their applications. … except when you look at other communities that have done that, it hasn’t been as strong as the Detroit legacy program. So I think that’s why this one made it quickly to the federal courts.”
Right now, Detroiters seeking nonmedical cannabis must leave the city for nearby communities with adult-use shops galore, like Ferndale and Hazel Park. Existing Detroit medical cannabis retailers want to get into the adult-use market to compete. In three to five years or less, Schroder predicts, a business won’t be able to hold out if they’re approved for just medical use.
„The Detroit facilities are hamstrung right now,” Schroder said. „They’ve invested a lot of money … now the city’s saying you cannot get an adult-use license … unless you follow this process, and we’re going to give preference to legacy Detroiters.”
Schroder said he respects the city’s goal. But still, he argues, the regulations say to someone who’s invested in the industry already in Detroit and done everything legally that they need to wait in line until, just maybe, getting a shot to enter the market.
Rebecca Colett, founder of the Detroit Cannabis Project and CEO of wholesale cannabis brand Calyxeum, has been helping cannabis entrepreneurs create businesses under the statewide social equity program and Detroit’s legacy rules.
„The ordinance, as it was designed, I think really provides opportunity for people who are not multimillionaires into the legal cannabis industry and it really promotes diversity,” said Colett, who is a Legacy Detroiter and helped lobby to get City Council to pass the legislation starting the program.
Colett formed the Detroit Cannabis Project to address educational gaps in a complex industry, between regulatory and legal processes, access to capital and creating a viable business plan. The incubator trained a cohort of 35 certified Legacy Detroiters starting in early April, continuing despite the application process being halted by the courts.
While the city cannot take any applications now, pending a ruling, it says on its Homegrown Detroit website that „we still encourage prospective applicants to continue diligent preparation for submission.” Nearly 400 Legacy Detroiters pre-qualified to apply.
„So many people are interested in investing in Detroit,” Colett said, but investors don’t necessarily want to commit until they know what happens with this lawsuit. Some would rather pack up their money and go to a less litigious city. And legacy applicants have already invested their own time and money.
It’s a waiting game. But not when it comes to education, Colett said. Adult sales will become legal in Detroit and, regardless of when, she wants the businesses her incubator helps to be ready.
„Nobody knows the day, or the hour, but we know it will come,” she said.