Local Government Law Bulletin January 30, 2023 James F. Scales

Court of Appeals Issues Guidance for Competing Applications for Marijuana Establishments

In December 2022, the Michigan Court of Appeals issued its opinion in Yellow Tail Ventures Inc v City of Berkley. The opinion provides guidance to those municipalities which have decided to allow a limited number of marijuana establishments under the Michigan Regulation and Taxation of Marihuana Act (“MRTMA”).

Under the MRTMA, a municipality has the option of prohibiting or allowing marijuana establishments within the community. If the community decides to allow marijuana establishments, it can limit their number. If a municipality elects to do that, it must allocate licenses “among competing applications by a competitive process intended to select applicants who are best suited to operate in compliance with this act within the municipality.”

In 2019, the City of Berkley adopted an ordinance allowing three retail marijuana establishments within the City. The ordinance included 16 factors to be evaluated in deciding among competing applications. These included factors directly related to the ability to lawfully operate a marijuana establishment, such as any prior convictions for operating illegal business enterprises and having adequate resources to operate the establishment. It also included site design standards, such as stormwater management, adequate parking, and odor control. In addition, the Ordinance provided for consideration of matters such as revitalization or redevelopment of vacant or unused property, planned improvement to existing buildings, proximity to any school and the incorporation of “sustainable infrastructure and energy efficient elements and fixtures.” It also allowed consideration of “additional criteria intended to select licensees that provide the best outcome for the community…” The Ordinance provided for the City Manager to evaluate applications based on these criteria using a point-based scoring system and present the results to the Planning Commission then City Council for final action.

Following award of the permitted number of licenses, several disappointed applicants sued the City, alleging that the criteria were contrary to the MRTMA and that the scoring process violated the Open Meetings Act (“OMA”).

The Court first made the point that it did not agree with the MRTMA’s spelling of “marihuana,” but would instead use the standard spelling “marijuana.” Moving on to the substance of the case, the Court upheld the City’s Ordinance and reversed the trial court’s determination that there had been a violation of the OMA.

The challengers urged an interpretation of the MRTMA that the criteria for deciding among competing applications could include only those designed to determine the entities which would be “best suited to operate in compliance with the act.” They argued that considering factors such as sustainable, energy efficient infrastructure and redevelopment of property had nothing to do with the ability to operate a marijuana facility and thus were improper considerations.

The Court of Appeals rejected that argument. It noted that the phrase “… best suited to operate in compliance with this act within the municipality” allowed a municipality to “craft criteria suited to its own local concerns…” This is subject to the limitation that such criteria not be “unreasonably impracticable” and not be in direct conflict with the Act.

Although the trial court had also agreed that the City’s ordinance was valid, it found that the City had violated the OMA. The ordinance provided for the City Manager to score competing applications based on the criteria of the ordinance and present the results to the Planning Commission and City Council for final action. In scoring the applications, the City Manager had consulted with City staff, including the Director of Public Safety, Community Development Director, and a public policy assistant. The trial court found that this operated as a de facto committee which was required to comply with the OMA.

The Court of Appeals disagreed with that decision for two reasons. First, the City ordinance authorized only the City Manager to review the applications and make scoring recommendations. Under the Open Meetings Act, there is no “public body of one” and informal consultation with other staff members did not have the effect of creating a public body subject to the OMA. In addition, the City Manager’s report was in the nature of a recommendation only, and so if a committee were considered to exist, it would be considered an advisory committee not subject to the OMA.

This is to be a published decision, so it will be binding on lower Courts and in other cases unless reversed by the Supreme Court.

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