Traverse City Marijuana Lottery About To See Lawsuit, Chaos
By Beth Milligan | April 26, 2019
A group of applicants will seek a court-ordered injunction to stop a lottery next week that would distribute 13 medical marijuana dispensary licenses in Traverse City. The move comes amid overwhelming demand for the licenses, with high-profile names like former Detroit Lions star Calvin Johnson applying for the lottery and numerous well-known Traverse City buildings listed as potential provisioning centers.
Attorneys Michael C. Naughton and Michael J. Corcoran plan to file paperwork early next week on behalf of their clients, a group that includes Rare Bird Brewery co-owner Tina Schuett. Schuett is seeking to open a dispensary in the building she and family members purchased at 488 Munson Avenue – formerly Krause Realty Solutions. She is among 77 applicants seeking to claim one of 13 available licenses. That pool that could have grown even higher had city staff not stopped accepting applications last week, citing a lack of adequate review time before the May 3 lottery, according to City Clerk Benjamin Marentette.
Schuett says deeper-pocketed applicants are flooding the lottery using shell corporations or other means to artificially boost their chances of landing licenses. “I think the city really tried hard to craft as tight of an ordinance as they could, and tried to avoid the stacking of licenses and multiple applications, but unfortunately people found a loophole,” Schuett says. “What we see as the biggest problem is allowing multiple applications at one location.”
Traverse City’s ordinance aims to prevent “gaming” the lottery by prohibiting more than one application from the same individual. Each application requires a $5,000 nonrefundable fee and must list any “true party of interest” in the business, with no duplicated parties allowed among applications. Traverse City does not, however, limit multiple applications for the same property from different individuals or entities. Marentette says that decision was made intentionally to avoid interfering with property owners’ right to entertain more than one bid on their parcels.
“Should the city be concerning itself with preventing a property owner from getting multiple offers on their piece of property?” Marentette says. “It doesn’t serve the public health, safety or welfare. Those are market forces, and the city doesn’t get into that space in other forms of business.” Only one license can be issued per location – if the same site is drawn two or more times in the lottery, only the first applicant drawn will get a license – but a property owner may choose to line up several leasees or buyers in the hopes one of them will get selected in the drawing.
Banning multiple applications for the same location would cut the field by more than half – from 77 applicants down to 37 applicants. Twelve locations have two or more applications attached to them, while two sites have nearly a dozen applications each. Those include 707 South Garfield Avenue – home now to Precision Tune Auto Care – and 314 Munson Avenue, the site of O’Grady Development Corporation. Kyle O’Grady says the company was approached by a single buyer who made an offer for the building, which was accepted. O’Grady says he was surprised to learn 10 applications listed his property as a planned dispensary site, instead of just one. “It certainly was not our intention as the property owner (to flood the lottery),” he says. After reviewing the applications, Marentette says it appears the buyer – whom O’Grady declined to name – turned around and offered potential lease agreements to 10 different applicants, all of whom entered the lottery.
That is not illegal under Traverse City’s rules, nor technically is one conglomerate forming multiple LLCs or using different associates to stack the lottery under different names, provided each entity is legally structured. Each of those applicants has to get preapproved by the state, meet stringent financial and other licensing requirements, and pay the $5,000 fee. Schuett says larger corporations can afford to jump through those hoops, while smaller mom-and-pops or independent entrepreneurs cannot. Limiting applications to one per location would at least give local property owners a fair chance to compete, Schuett argues. “There are people who aren’t from here who are willing to throw hundreds of thousands of dollars at it,” she says.
The lottery pool confirms fierce competition for Traverse City dispensary sites, with many locations never even hitting the market before private offers were made. Garfield and Munson Avenues have the highest number of potential dispensary locations at nine and seven, respectively. On Garfield, sites where dispensaries could go include the former La Senorita building, the Fit For You gym, and the homes of Reclectia, Pure Water Works, and Aquallations. Munson properties include Schuett’s and O’Grady’s buildings, the former Schelde’s and Cottage restaurants, the former Life Story Funeral Home in East Bay Plaza, and The Bear radio station.
Other notable sites listed as potential dispensaries in Traverse City include Brick Wheels on Eighth Street, Hamlet’s Quick Lube & Auto Repair on East Front Street (as well as the vacant lot across the street at the corner of Front and Barlow), Signature Salon on East Front Street, and Northern Angler on West Front Street. Addiction Treatment Service’s Eighth Street location is also listed. Executive Director Christopher Hindbaugh says his organization was only renting that building from its owner, and that ATS is relocating its community center to Garfield Avenue in June. “It’s clearly awkward for us (to be associated with a dispensary application)…which is why I had our signs taken down,” Hindbaugh says.
Former Detroit Lions wide receiver Calvin Johnson is also applying to open a dispensary under the business name Michigan Community Collective with his wife, Brittney, at the Sail Inn property on Barlow Street. Johnson is one of two applicants vying for the bar building. The other applicant, Joshua Weinberg, has partnered elsewhere on marijuana businesses with former Detroit Lions player Rob Sims. Sims and Johnson have worked together in the past, jointly applying to the state for a separate marijuana license downstate that was rejected in December.
Should the Traverse City lottery continue as planned next week, it will take place on May 3 at 10am at the Governmental Center. The first 13 names drawn will have six months to obtain their final license from the city, a process that includes background investigations, physical inspections of properties, operations plan reviews, and more. If any applicants fail to meet the requirements – or the deadline or criteria for receiving an extension – the next person on the lottery list will have an opportunity to get a license. Naughton says his clients don’t seek to prevent a lottery entirely, but rather to delay it long enough for a judge – or the city – to reconsider its rules and implementation. “The argument we’re putting together is how do we make sure this is done properly,” he says.