Last Tuesday the Detroit City Council approved a long anticipated ordinance legalizing recreational cannabis sales within city boundaries. Introduced in October, the ordinance has been furiously opposed by existing medical dispensary license holders since it inevitably forces five current license holders to either miss out on a Detroit recreational license or sell half their equity to Detroit residents.
The new law, which does not begin to award licenses to Detroit residents until May 1, 2021 – other applicants come later – contains numerous social equity requirements for license applicants, but centers on a requirement that some portion of the applicants be “Legacy Detroiters”. Specifically, this means people that have resided in the city for at least 15 years, with exceptions for low income residents or convictees of cannabis-related crimes. Additionally, these applicants must own at least 50% of the business’ equity, according to the new ordinance.
Complicating matters even more, is Detroit Mayor Mike Duggan’s commitment to approving cannabis licenses on a one-to-one basis: For each non-Legacy-owned license type approved, there must be one Legacy-owned license approved. While most license types, including grower and manufacturer, are unlimited the ordinance approves only 75 dispensaries. Currently there are 46 medical license dispensaries in Detroit, four of which are owned by Detroit residents, leaving 42 owned by non-residents.
With only 37 of the 75 licenses going to non-resident owners, five owners will be forced into one of three solutions. First, sell only medical cannabis, a non-starter, owners tell Grown In. This is because Michigan medical patient permits are gradually declining and the price of recreational cannabis is sure to go down as it has lower testing requirements.
The second option for existing license holders is to partner up with some group of Detroit residents to sell them 50% of their company’s equity. This is essentially a sale forced by the city, complain dispensary owners, some of whom are already contemplating a lawsuit against the new ordinance, Grown In is told.
Finally, existing Detroit medical dispensary owners could leave Detroit for a near-in suburb interested in more dispensary income, a choice that incurs the cost of moving, but might be the path of least resistance.
Legacy Detroiters can apply for status certification starting January 1, 2021. Then, from April 1 to April 30, 2021, Legacy applicants and existing medical license holders can submit their applications for recreational licenses to the city. From May 1 to June 15, Legacy applications will be reviewed and approved by the city. From June 16 to July 30, existing medical license holder applications for recreational licenses will be reviewed and approved by the city. All other general applicants may apply beginning August 1, 2021.
The ordinance also introduced an extensive “Good Neighbor Plan”, stipulating that applications should include some combination of social equity aspects, including: providing one percent of gross revenues to local charities, hiring fifty percent of employees from Detroit, making fifty percent of purchases from Detroit businesses, or selling grown or manufactured cannabis at below market rates to Detroit dispensaries.
From the Good Neighbor Plan arises another possible conflict: Detroit’s Council has approved an unlimited unlimited grower and manufacturer licenses, but Mayor Duggan confirmed last month that he plans to issue those licenses under a one-to-one plan as well. This would mean no growers unless a Detroiter starts one first.
Since starting a cultivation facility is a capital-intensive endeavor, will local Detroit entrepreneurs be able to raise those funds to open a facility? If they don’t, local dispensaries will be challenged to purchase half of their supply to satisfy their Good Neighbor Plan.