Grand Rapids Faces Lawsuit from Cannabis Companies Over Equity Fee

News Summary

Six cannabis companies have sued Grand Rapids over a controversial 3% equity fee imposed on their sales, claiming it jeopardizes their operations and licenses. The lawsuit points out that other businesses do not share this fee burden. It has raised serious concerns over the city’s Cannabis Social Equity Program, which is meant to aid those previously impacted by cannabis restrictions. As the legal proceedings unfold, the future of cannabis businesses in Grand Rapids hangs in the balance.

Grand Rapids Faces Lawsuit from Cannabis Companies Over Controversial Equity Fee

In a surprising turn of events, six cannabis companies have filed a lawsuit against the city of Grand Rapids in Kent County circuit court, raising serious concerns about the city’s Cannabis Social Equity Program. The companies are claiming that the program imposes a fee of 3% on their annual sales, which they have labeled as “municipal extortion.” This lawsuit sheds light on the ongoing challenges that cannabis businesses face as they navigate new regulations in a rapidly evolving industry.

What’s Cooking in Grand Rapids?

The crux of the lawsuit revolves around the requirement that cannabis companies must pay a fee that their representatives argue is not applicable to any other types of businesses. According to the plaintiffs, the mandated payments jeopardize their licenses and threaten to shut down their operations if they fail to comply. The law firm Varnum LLP, based in Grand Rapids, is representing these companies and is seeking a preliminary injunction to stop the enforcement of the Social Equity Program.

Filed on Valentine’s Day, February 14, the lawsuit points out that these fees have turned into a gray area for many owners, complicating their chances of running a legitimate and sustainable business. The Cannabis Social Equity Program, established through an amendment to the cannabis ordinance back on July 7, 2020, was originally advertised as a voluntary initiative. However, it has morphed into a complicated landscape for operators who wish to participate in the cannabis market responsibly.

The Initial Intent Behind the Program

The program was first intended to encourage those previously affected by cannabis prohibitions to enter the industry. It included commitments around local ownership, workforce diversity, and supplier diversity, alongside the possibility to contribute to the Cannabis Community Reinvestment Fund, which provides vital funding sourced from multiple avenues, including city investments and optional donations from cannabis companies.

Despite these well-meaning intentions, operational challenges have left many cannabis companies feeling cornered. Many claim that they have had a tough time meeting the program’s compliance standards, with the looming threat of license suspension or denial hanging over their heads. In fact, the city delayed enforcement of these compliance requirements beginning January 1, 2023, due to numerous issues but later reinstated penalties for noncompliance, leaving businesses in a state of confusion and financial strain.

How the Fees Are Affecting Business

One of the standout cases mentioned in the lawsuit involves a company called Fluresh, which was required to pay a whopping $344,785 to ensure compliance with the social equity fees. The financial burden put on these companies has had a ripple effect, leading to some being denied additional licenses because of outstanding fees related to the program. This kind of situation raises questions about whether the city has overstepped regarding the fees they can charge cannabis businesses, particularly since it’s been asserted that state laws clearly limit local governments to collect no more than $5,000 annually from cannabis license holders.

To make matters worse, the city’s Cannabis Regulatory Agency has been issuing formal “notices of noncompliance”—a move that has effectively stopped operators from renewing their state licenses until the social equity fees are covered. The stakes have never been higher, as failing to adhere to these financial demands could result in business closures.

Legal and Ethical Dilemmas

The lawsuit brings forth a mix of legal concerns, asserting that the city’s social equity program violates several laws. These include state mandates that limit cannabis fees and constitutional protections that apply to contractual obligations. Furthermore, the complaint argues that the local residency preferences put forth in the program may contradict U.S. and state constitutional provisions.

With the stakes so high, local leaders and cannabis business advocates are pushing for adjustments to the Social Equity Program to help facilitate compliance. As more cannabis industry leaders voice their concerns, it’s clear that Grand Rapids is at a crossroads, with potential repercussions that could reshape the landscape of the local cannabis marketplace.

In the weeks ahead, all eyes will be on the court’s response to this lawsuit as it navigates the complex dynamics between municipalities and the burgeoning cannabis industry. Stay tuned as this story develops!

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Additional Resources

• MLive: Pots Shops Sue Grand Rapids
• Wikipedia: Cannabis in Michigan
• Law360: Mich Pot Cos Say Grand Rapids Equity Fees Are Illegal
• Google Search: Cannabis Social Equity Program
• Green Market Report: Cannabis Businesses Call Grand Rapids Social Equity Program Municipal Extortion
• Encyclopedia Britannica: Cannabis
• MSN: Dispensaries Sue City of Grand Rapids Over Social Equity Policy
• Google News: Grand Rapids Cannabis Lawsuit