Michigan Developer Files $60M Lawsuit over Medical Marijuana Permits

Lawsuit claims delays led to a loss of funding and tenants for the project.

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

A group of real estate developers filed suit this week against the city of Pontiac, Michigan, over a years-long delay in issuing a medical marijuana license.

Rubicon Real Estate Holdings, its principal Joseph Brown, and Brown Design Consultants allege in the suit filed in Oakland County Circuit Court that the city, and its clerk Garland Doyle, dragged its feet on issuing the permit for nearly four years, causing the developer’s lender to pull its $45 million in loans and led to the loss of several tenants for the proposed development.

The plaintiffs — alleging violations of equal protection, due process, the First Amendment and Fifth Amendment — are seeking nearly $60 million in damages and legal fees associated with not being able to develop the property. The suit requests a jury trial.

“Because of the defendants’ actions, plaintiffs have been significantly damaged, including but not limited to the loss of income, the loss of the increased asset valuation on the subject property from having the leases in place, the increased development costs … the loss of goodwill and reputation and other damages,” the lawsuit reads.

The new suit follows a May 2021 opinion by the same Oakland County Circuit Court judge that ordered the city to approve the permits for the redevelopment, by which time the tenants of the proposed redevelopment decided not to proceed with their lease agreements and the lender bailed on the project.

The suit is the latest blow to the city as it continues to be embroiled in other lawsuits over the city’s long-delayed issuing of medical marijuana licenses. To this day, the city has yet to issue a medical marijuana license, nearly four-and-half years after voters in the city authorized the 20 medical marijuana facilities in city limits.

Paula Bridges, communications director for the city of Pontiac, said the city has yet to be served the lawsuit so no official comment was given. Rubicon and its attorney, Cindy Rhodes Victor of Kus Ryan PLLC, did not respond to emails seeking comment. Rhodes Victor represented Hillside Productions Inc. and its owner Joe Vicari and Gary Roncelli in a successful $31 million suit against the city of Sterling Heights after it closed down the company’s concert amphitheater at Freedom Hill in 2003.

Strings Attached

Rubicon entered into a purchase agreement in 2019 for the former Kmart site, which was then rezoned in 2020 to allow for marijuana businesses.

According to the lawsuit, Rubicon only achieved the conditional rezoning, from local business zoning to commercial and light manufacturing zoning, by agreeing to construct a retail strip and grocery store as part of the development, which would include two medical marijuana licenses.

Rubicon negotiated leases with several retailers and secured a lease obligation from grocer Hollywood Market for the project.

Family Rootz, a medical dispensary, and Pharmaco, a marijuana processor, had planned to move into the development. It’s unclear whether Brown or associates are investors in either business.

The leases held millions in value, according to the suit. Pharmaco’s 15-year lease is valued at $37.5 million; Family Rootz two, 3-year leases were valued at $21 million and $15 million for Hollywood Market’s 10-year lease.

The suit alleges City Clerk Doyle refused to issue the necessary medical marijuana grower and processor permits because he believed the property was not zoned for marijuana businesses, despite clear language from the planning commission.

The leases obtained by Rubicon were contingent on the development receiving permits for the marijuana businesses, the suit says.

The suit also alleges that city officials then targeted Brown after he achieved a favorable ruling against the city in 2021. The suit alleges officials told SK Properties, who was redeveloping a housing development in the city and hired Brown as a designer, they would only move forward with the plans if Brown’s firm was removed from the project.

As a result, SK terminated Brown’s $9.3 million contract, the lawsuit alleges.

Permit Process Problems

Municipalities across Michigan are involved in lawsuits over the marijuana permit selection process, including Pontiac, Royal Oak, Berkley, Warren and many others.

Under the Michigan Regulation and Taxation of Marihuana Act of 2018, passed overwhelmingly by Michigan voters, the state offers unlimited licensure to marijuana operations; it’s up to local municipalities to create a competitive formula to decide who is allowed to sell or grow marijuana in their community.

That process often includes community benefits, like opening a grocer in the development.

Earlier this month, the Pontiac City Council continued to make changes to its medical marijuana scoring system. The city planned to give medical marijuana licenses to five companies, but a Dec. 9 ruling by an Oakland County Circuit judge found the city’s scoring system was unfair to Marshall-based vertically integrated marijuana company Common Citizen.

Common Citizen’s suit alleged that the city’s process for awarding medical marijuana licenses was arbitrary and rife with conflicts of interest. The judge’s ruling effectively awarded Common Citizen points in the scoring system it hadn’t received before the lawsuit. This pushed Common Citizen into the top five of scoring eligible for a medical marijuana license, thus muscling out the former fifth place holder Nature’s Remedy — which already invested $1.5 million into its dispensary location in Pontiac after being approved by the city’s planning commission, said James Allen, partner at Detroit-based law firm Schenk & Bruetsch PLC.

Allen said he is preparing a lawsuit against the city council over the issue in hopes of receiving an injunction to prevent the city from handing out the licenses.

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