Michigan city’s licensing day turns into a foot race

This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh.

Getting a local marijuana license in Michigan is supposed to be a competitive process.

Municipalities are required under state law to make the selections based on a competitive process that typically takes the form of a scoring system — often revolving around an applicant’s ability to invest in curb appeal or sustainable operations.

But in Harper Woods, the process devolved into a show of athletic prowess, much like issues that are settled on the playground. With a footrace.

The outcome of that mad dash has created controversy as applicants who lost prepare potential lawsuits, while the municipality moves forward with reviewing the race winners’ documents at a Feb. 28 planning commission meeting. Licenses could be issued soon thereafter.

The wild scene in Harper Woods is emblematic of a cannabis licensing regime where each municipality can create its own rules to allow some or many cannabis businesses. Now, several years into legalization, fewer and fewer towns are opening up to legal weed, and that has amped up competition when licenses do become available.

Whether the footrace abides by state rules that forbid “arbitrary” licensing processes is up for debate. A city hall employee who did not give her name told Crain’s by phone that the city did not host a sanctioned footrace to determine whose planning documents would be reviewed and that the process was simply a first-to-file system.

But to those who participated, those who sprinted from the parking lot to the back door of Harper Woods City Hall that day, it was only the fastest that were being rewarded.

Emails sent to the mayor, every City Council member, the city manager, and both economic development officials were not returned. Attempts to reach the mayor, city manager, and economic development office by phone were not successful.

The event that turned into a race started with Harper Woods City Council’s decision to limit cannabis licenses and the method by which it would decide who received those licenses.

The city settled on three available dispensary licenses and decided it would abstain from scoring applicants and instead settled on the seemingly simpler approach of choosing those who filed their planning documents first.

It’s not a new method. Other cities, including Garden City and Westland, used the first-to-file method as their competitive process as well, seemingly without hiccups.

But there was no footrace in Garden City. Instead, applicants secured their spot in line outside city hall days before the city took review documents, like concert ticket buyers of old.

Harper Woods, however, didn’t want applicants “loitering” on city grounds, as it said in a list of rules for filing obtained by Crain’s. Instead, it chose to squeeze the first-to-file process into one morning — on Nov. 1 last year.

The city’s rules ordered applicants to arrive and line up in a specific way at a specific time. Participants were not allowed to enter the city hall parking lot until 8 a.m. Once there, they had to wait until 8:30 a.m. to line up at the city hall’s back door.

The first three applicants to that line, marked by chalked numbers on the sidewalk, would have their documents reviewed for licensure by the planning commission.

While a seemingly innocuous method to determine winners, the process incentivized participants to run, not walk, to secure a spot in line.

Pandemonium ensued.

“I’ve never seen anyone going for a business, trying to establish a business anywhere where a footrace is involved to get your doors open,” said Maj Dabish, owner of real estate development firm Heavy Industrial LLC. “You usually show your plans, you show your financials, you show things you’ve done in the past. That’s how these things get done. But instead, there was running and people shoving and a total ruckus.”

Dabish has applied for a local marijuana license with the intention of leasing out his property at 19950 Kelly Road to a marijuana dispensary operator.

Dabish’s son, who joined him on that day, landed in the sixth spot in front of the city hall door after being pushed aside by other applicants, Dabish said.

Another applicant, who spoke to Crain’s on the condition of anonymity, finished fourth, just out of the running for planning commission review.

“This wasn’t a competitive process like the state demands,” the applicant said. “It was running a race. There was an elderly man there. That guy can’t run. This was a joke.”

The state Cannabis Regulatory Agency declined to comment on the happenings in Harper Woods.

Security video obtained by one of the applicants through the Freedom of Information Act and shared with Crain’s shows a chaotic scene of applicants sprinting with their planning documents in arms and crashing into each other as they reached the city hall door. One applicant even fell in the parking lot and got up limping.

Some applicants realized ahead of time that running speed would wind up being a factor.

House of Dank, which operates nine dispensaries across the state, sent three runners, all with duplicate materials, to secure a Top 3 spot in line. It didn’t happen.

“We sent them down there early to scope the place out and figure out a strategy,” said Mike DiLaura, House of Dank’s chief corporate officer and general counsel. “But it’s awkward. No one knows when a race is supposed to start unless there’s a starting gun or something. It was pure chaos.”

Stephen Lindley, the city’s economic and community development deputy director, stood in front of the door, according to the video obtained by Crain’s. Numbers were chalked on the sidewalk to his right, according three people there that day who spoke to Crain’s.

Once the rest of the applicants reached the door, there were shoves and jostling to get a space in line. On applicant had run from the side of the building, not the designated parking lot, per the rules, to secure the third spot in line, the video showed.

Crain’s has been unable to verify the identity of the first three applicants in line.

“I broke the rules every single way possible,” said an applicant who did not make the top three and asked not to be named due to their company still seeking a license in Harper Woods. “They gave us guidelines that said if the rules were broken, they’d do a random draw from a hat. We wanted that, because this clearly wasn’t a fair process. But they must have liked the outcome of the lineup because they didn’t even question the wrongdoing.”

Dabish said when people complained to Lindley about the process, he told several applicants they had weeks to prepare and that they could have had a faster runner show up. Dabish said Lindley said this to an elderly applicant.

Lindley did not return an email on the matter, and calls to city hall would not be connected to Lindley or the city manager.

“To walk away after years of negotiating for properties and dealing with rules changes, realizing you’ve lost all of that in 30 seconds, I’m at a loss for words,” DiLaura said. “Harper Woods put together a process that was doomed to fail. I’ve seen less malfeasance in this industry and more just dumbass decisions. It’s not bad faith, but bad lawyering and bad advice.”

Travis Copenhaver, a partner at cannabis law firm Vincente LLP in Ann Arbor, said he warned the city about using an “arbitrary” selection process.

Copenhaver represents Altum LLC in its application for a dispensary in Harper Woods. Altum operates which operates a single dispensary in the state, Pure Canna in Lansing.

“We’ve been telling them there needs to be a merit-based system, but they kept sticking with this first-come, first-serve selection process,” Copenhaver said. “My clients have written why they have a problem with this, and I don’t think it’s too out of our way to say that if this method officially gets used, my clients will seek legal proceedings.”

Dabish also said he plans to sue the city if licenses are distributed based on the footrace results.

“We will definitely 100% take legal action as soon as they follow through and issue the licenses,” Dabish said.

House of Dank isn’t as sure it wants to pursue legal action, DiLaura said.

“Absent a clear path to a license, I don’t think we’ll sue,” DiLaura said. “Three or four years ago, everyone was primed to fight for every license in every municipality. Things have changed. To spend $100,000 or more fighting for a shot at a license just doesn’t make sense for us.”

Those potential lawsuits will likely be filed sometime after the Harper Woods planning commission holds its Feb. 28 meeting and licenses are distributed. If one of the first three to file are denied a license, the city would move to the next applicant in line, which is why some of the applicants asked to speak off the record.

Cannabis lawsuits over the selection process have embroiled several municipalities across the state.

The city of Detroit’s launch of recreational marijuana licensing was delayed by two years due to lawsuits over its selection process.  Royal Oak, Warren, Pontiac and others also remain tangled in lawsuits.

“The driver of all of this is from probably the worst decision that the drafters of the adult-use statute made — requiring that competitive selection process,” Lance Boldrey, partner and cannabis attorney at Detroit-based law firm Dykema Gossett PLLC, told Crain’s last year. “It all sounds well and good from a policy standpoint, trying to eliminate picking favorites, but it is the longest process and most expensive process for applicants to follow, and you end up with these lawsuits that can tie applicants up in court for three or four years.”

Harper Woods’ marijuana ordinance, only allowing for three dispensaries, is largely based on a rule dictating a 1,500-foot buffer between all marijuana businesses. The small city near Detroit’s east side is only 2.61 square miles. But the city was also taking heat for its selection process.

To avoid litigation, the acting city manager recommended the city eliminate its 1,500-foot buffer, which could open up the city to unlimited licensure that would effectively eliminate the need for a competitive process.

However, residents pushed back, gathering to support the buffer at an August 2023 council meeting. The City Council voted 4-3 to keep the buffer and limit the number of licenses, WDIV-TV reported.

But the city chose not to create a more advanced competitive structure than the lineup in November.

The city of Roseville, for example, uses a scoring system to determine whether a medical marijuana license is issued based on scores from several factors, such as: Sufficient application information; whether proposed facility is consistent with land use; physical improvements to the property; whether applicants have any criminal record; sufficient financial resources; proximity to existing facilities; reasonable size; sufficient operating experience; and more.

“I’m $100,000 into this already, and it’s been nothing but a joke,” said the applicant who requested anonymity. “We’re getting blackballed because I didn’t run to the front of the line fast enough? Come on.”