Will Detroiters Get Their Share of the Recreational Cannabis Market?

As Detroit moves to open up its enormous recreational cannabis market, city leaders vow to make sure real Detroiters aren’t left behind — even if it means stifling the industry’s growth

recreational cannabis market

On the late October afternoon when Detroit City Councilman James Tate and Mayor Mike Duggan stood beneath a towering, gold-framed portrait of Coleman Young to announce perhaps the nation’s most aggressively restrictive plan to roll out adult-use cannabis licenses, most of those assembled offered nothing but praise, gratitude, and enthusiasm. Few present wanted to sully the moment or be the one to question, at least publicly, the very well-intentioned efforts of Tate and Duggan to ensure that longtime Detroit residents and people whose lives were upended by marijuana convictions got dibs on the largesse to come from allowing recreational pot sales in Motown. Everyone, it seemed, just wanted to bask in the good feelings of having the municipal government of America’s Blackest big city find a way to provide opportunities for minorities in a fresh, new industry that has the potential to create lots of jobs and make millions of dollars for certain well-positioned men and women.

“This ordinance is important to help promote inclusion, diversity, and to help get others involved in this industry,” said cannabis entrepreneur Maurice Morton, one of a parade of locals who spoke from the podium in support of Tate and Duggan’s proposal. “We all know the cannabis industry is no different than the IT boom from 20 or 30 years ago. We support this from an equity standpoint. … This is all of our city. We have to make sure that diversity is promoted. It’s important, and we feel that this ordinance does that.”

Listening back, though, Morton — who is a lawyer — was clearly choosing his words carefully. He supports the goals and the imperative of the mission. But the next afternoon, in an interview with Hour Detroit, he added the other sentiment so many present the day before were feeling: doubt.

“I would hope that at some point the city would revisit the stance and say, ‘OK, it’s slowing down growth, and the market in Detroit is lagging behind other municipalities,’ but I guess we’ll only tell once this process gets started,” says Morton, owner of the medical cannabis dispensary Motor City Kush on Eight Mile who is also developing a grow operation off Livernois. “I’m just hoping the city is open to those kinds of changes if, in fact, there’s a lag in the market due to low participation.”

The plan itself, which was submitted as an ordinance for City Council deliberations the next day but was widely expected to sail through, sounds simple in the abstract. Detroit, which thus far has permitted the sale of only medical marijuana even as several nearby cities have rushed into the recreational cannabis market, will offer a total of 75 licenses to sell adult-use cannabis products. Half of those must belong to businesses that have a majority owner who is also a “legacy Detroiter,” which is defined as anyone who has lived in the city for 10, 13, or 15 years since 1991 depending on certain factors. (Certain folks with criminal convictions for pot offenses, seen as victims of the War on Drugs and due some reparations, can qualify with the minimum residency period.)

That means at least 38 licenses are set aside for qualified legacy Detroiters, who could be operating as soon as May 1. It also means there will be only as many as 37 licenses for non-legacy Detroiters, with those already licensed for medical marijuana sales able to start selling by June 16 and those without any licenses able to start selling in August.

The problem: The city has 46 medical marijuana dispensary licensees, and 42 of them are owned by non-legacy Detroiters. So at least five of those existing businesses would be shut out of the adult-use market — and that’s only if the city has 38 qualified legacy Detroiters. Duggan made it clear that the city would keep the ratio at 1-to-1, meaning if there are 10 legacy Detroit licensees, there will be 10 non-legacy licenses available. “We welcome the investment from people outside of our community, but we are going to demand there’s going to be equity for Detroiters,” he said at the press conference.

Russ Hasan, who operates The Reef dispensary on Eight Mile, finds that alarming: “To us, we’re taking this seriously that we could never come into the rec market if this were to go all the way through the way it is. … We have three other locations for retail that we are looking to explore, one in Detroit and the other two being outside Detroit. But with this rule that’s come out, it could definitely adjust our priorities.”

‘Fight Until Hell Freezes Over’

In the cannabis industry, the Tate-Duggan plan is known as a “social equity” program. That’s the term used to describe a wide range of efforts to help minorities, the financially disadvantaged, and people convicted of pot-related crimes gain access to the marijuana industry; the term also encompasses ways cannabis-related businesses offer donations or make other contributions to the neighborhoods where they operate. Some cities around the U.S. have restricted licenses to certain people based on location and criminal history, to be sure, but nobody in the industry can point to anything quite like Detroit’s proposal.

“I’ve heard there have been some similar scenarios in Illinois or California, but I have not seen any plans that are as inclusive of social equity as Detroit,” says Robin Schneider, executive director of the Michigan Cannabis Industry Association, a statewide trade group that does not take positions on municipal decisions.

The closest, according to Morgan Fox of the National Cannabis Industry Association, might be a plan in Portland, Maine, that was overturned in August by a federal court. The city council there gave priority for recreational licenses to entities based in the Pine Tree State, a move that U.S. District Court Judge Nancy Torreson ruled was “discriminatory” and “unconstitutional.”

Clearly, that ruling was on the minds of Duggan and Tate at the press conference as both were proactively defiant about the prospect of lawsuits. “As with any legislation that is put in place to provide equity in industries where it doesn’t exist, I’ve already received emails and other forms of communication threatening lawsuits,” Tate said. “So I’m letting Detroit know — everyone who’s watching today, everyone who can hear me — you have recruited leadership that’s not only willing but equipped to fight until hell freezes over, and then, if necessary, we shall fight on the ice.”

Barriers to Entry

Still, there’s a broad concern that the Tate-Duggan proposal, assuming it withstands legal challenges, could hamstring the nascent Detroit cannabis market in devastating ways.

“If you’re setting up a system where there has to be a certain number of social equity licensees to be granted licenses in order to move forward with any other licensees, or that there must be an even split before anyone is allowed to start operating, but you’re not actually supporting those licensees and helping them to get open or making it easier for them to qualify or provide assistance they need to qualify, then it may very well delay the implementation of a regulated market,” Fox says.

Indeed, nobody knows how many legacy Detroiters can overcome the still-imposing barriers to entry, which include hundreds of thousands of dollars required to be approved first by the state and then by the city. Duggan touted some work-arounds — legacy Detroit applicants may be able to buy city land at a 75 percent discount; outside investors can agree to accept a minority stake; and efforts are afoot to create special financing options — but it’s still daunting and likely out of reach for most candidates.

Morton estimates the application processes, which include fees to the state and city plus the cost of attorney services and architectural renderings of proposed stores, is more than $30,000 alone. “That’s the hard part — getting a business built out and ready to open,” he says. “But even at that point, then you have to buy product to stock your stores, and right now there’s a product shortage. A new operator would have to spend between $100,000 and $400,000 to stock up using state-approved growers.”

Even legacy Detroiters who are enthusiastic about the ordinance aren’t sure how they’ll manage all that. Jess Jackson, who with her wife in early 2019 opened their Detroit home as a “bud and breakfast” called Copper House — think Airbnb with weed — aspires to obtain a grow license and also open a retail and social consumption space. She figures they need a 20,000-square-foot building that would cost about $400,000 alone, plus there would be expenses for equipment and renovations in addition to all the costs of licensure.

“What the city has opened up is incentive for people with capital to invest in legacy Detroit cannabis businesses and partner with them,” Jackson says. “It doesn’t say 100 percent ownership by a legacy Detroiter. Legacy Detroiters just have to own 51 percent or be the majority owner. What does that look like in terms of creating partnerships with some of these other businesses that are already operating in the city and creating business opportunities for everyone? I’ve been in the cannabis scene, working with legitimate businesses, building these relationships. But I don’t have the capital. Does that mean I should not be able to enter and compete in this market?”

Jackson’s dream would be the ideal outcome, but is it realistic? Morton notes that the ordinance requires investors to remain in business with a legacy Detroiter partner for five years, which is a long time in an emerging industry that’s expected to expand rapidly. “Investors want to get in and out and make their money,” he says. “The industry could look very different in five years. It could be thriving for the first two or three and then drop off. You cannot time that. At some point, you could say, ‘Oh, my God, it’s a good time to sell,’ and then you’re not able to.”

Detroiters Come First

Duggan and Tate, though, say they’re OK with limiting the market if it means preventing it from falling predominantly into the hands of outside interests. Duggan pointed at the press conference to the fact that, with no such limits in place when the city began issuing medical marijuana dispensary licenses, existing businesses now belong almost entirely to non-Detroiters. He and Tate have withstood intense pressure since the state began allowing the sale of cannabis for adult use, and they’re ready to withstand even more. “We’re not going to have dispensaries as long as Detroiters are going to be locked out,” Duggan declared.

If the ordinance short-circuits the growth of adult-use shops in the city’s limits, the big beneficiaries will likely be the surrounding cities with far looser social equity and ownership rules. 

Narmin Jarrous, executive vice president for Ann Arbor-based grower and dispensary Exclusive Brands, says she expects Detroit’s strictures to chase investors to the suburbs rather than encourage them to plunge their money into the city. “I don’t think this will be great for the industry,” Jarrous says. “While I appreciate Detroit’s attempt at equity, I don’t agree with their execution. I think this is penalizing the current licensees who have invested in Detroit already without ensuring the people who are being helped actually need help.”

Indeed, one question unanswered by Tate or Duggan is how the city will decide which existing medical marijuana licensees receive an adult-use license if and when they become available. “If we get pushed out of the rec market in Detroit, it might just be smarter for us to close down The Reef and open shop somewhere else,” Hasan says. “Just being medical in the city of Detroit, the volume doesn’t support it.”

In the end, though, Detroit’s mammoth market size could make it worth it for some to bite the bullet and play by the Tate-Duggan rules. Even Hasan says they’re not completely out: “We still want to move forward and do what we can.”