Two Important Takeaways from the Court’s Opinion on Temporary Cannabis Facilities

On April 30, 2019, Judge Stephen Borrello issued a decision related to the ongoing situation with temporarily operating cannabis facilities in Michigan.

Judge Borrello’s opinion contains two important takeaways moving forward as Michigan establishes its medical and adult-use cannabis licensing and regulatory system. Before digging deeper into the opinion, it’s important to understand how things ended up where we are today.

Temporary Cannabis Facilities v. LARA: How Did We Get Here?

To make a long story short, the Department of Licensing and Regulatory Affairs (LARA) allowed certain facilities with local approval to remain open and operating as quasi-licensed cannabis facilities. They operated until LARA received the opportunity to review, process and issue a final decision on each facility’s application. Moreover, these quasi-licensed cannabis facilities applied for a state operating license under the Medical Marihuana Facilities Licensing Act (MMFLA). 

Before now, each temporary operator required to satisfy certain criteria established by LARA to remain open. Eventually, LARA issued a deadline for these particular applicants to either obtain a license or shut down. Due to various factors, LARA— and the now-extinct Medical Marihuana Licensing Board (MMLB)—pushed back the deadline for temporary operation numerous times. 

Eventually, several temporary operator-applicants filed a lawsuit against the state challenging LARA’s and the MMLB’s shut-down dates. 

Judge Borrello’s Ruling 

For temporary operators who satisfied LARA’s criteria to remain open and held pending applications, Judge Borrello found that the state violated those applicants’ due process rights. 

The “arbitrary and capricious” ever-changing deadline for temporary operators to obtain a license or shut down remains a huge concern. According to Judge Borrello’s opinion:

“The shut-down date has been ever-changing, with shut-down date moves as the most consistent factor. However, this doesn’t regard whether all of the applications have received a substantive and final decision on the merits. These bait-and-switch announcements effectuated by LARA were entirely arbitrary and capricious.”

Judge Borrello also opined that:

“LARA cannot impose an arbitrary deadline and force applicant-plaintiffs to cease operations regardless of whether it has made a decision on their applications.” 

LARA Restrictions

In closing, Judge Borrello held that:

“LARA is prohibited from arbitrarily revoking the provisional licenses held by applicant-plaintiffs until it issues a decision and, if the application is denied, until 60 days after the date of mailing notice of the final agency decision.” 

Judge Borrello then set forth an injunction preventing LARA from enforcing the March 31, 2019 shut-down date for temporary operators. This date lasts for sixty (60) days after LARA’s final decision to deny a license. For more details, read Judge Borrello’s full opinion here.

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MMFLA State Operating License = Property Interest

Other than Judge Borrello’s holding, the court’s opinion contained two important points worth highlighting. One key point that came out of Judge Borrello’s opinion is that, “a license under the MMFLA is plainly a property right. 

In drafting the MMFLA, state legislature wrote in Section 409 (MCL 333.27409) that such a license is not a property right:

“A state operating license is a revocable privilege granted by this state and is not a property right. Granting a license does not create or vest any right, title, franchise, or other property interest. A licensee or any other person shall not lease, pledge, or borrow or loan money against a license.”

Despite this language contained in the law, Judge Borrello struck down the argument that an MMFLA license is not a property right:

“The MMFLA cannot, by creating a license with all the traditional trappings of a property right, arbitrarily ignore those characteristics and simply declare that no property right exists.”

Additionally, the Court also found that, “the provisional licenses were sufficient to create property rights as well.” In layman’s terms, Judge Borrello found that temporary operators posessed property rights in the existing facilities. 

The Impact of Judge Borrello’s Opinion

Judge Borrello’s opinion is noteworthy for several reasons. Not only because it establishes that a license under the MMFLA is a property right, but because it shows potential to use as a shield by applicants and licensed facilities. This shield protects operators from future violations of that property right by the state or LARA. Furthermore, it could extend to decisions made by local municipalities. 

To my knowledge, there are several municipal ordinances that consider a municipality-issued permit/license not a property right. While the Court’s decision doesn’t directly address this, Judge Borrello’s rationale could equally apply to municipal approvals, denials, and other decisions made by local government related to cannabis permits/licenses.

Following Judge Borrello’s opinion, every municipality should remain mindful of decisions made with respect to applicants. Additionally, these decisions should consider locally approved facilities  to avoid violations of individuals’ and companies’ due process rights.

Check out this episode of Cannabusiness LIVE on Temporary Operators in Michigan Legal Discussion

MMFLA License Denials and Appeals

Another key point to take away from Judge Borrello’s opinion concerns the decision-making and appeal process itself. Although the MMLB is now disbanded in favor of the Marijuana Regulatory Agency (MRA), the MMLB’s licensing board application review process was controversial. Applicants raised concerns regarding their approvals (and denials). 

In a footnote in the Court’s opinion, Judge Borrello referenced the argument of one of the temporary operator-applicants, which claimed:

“LARA denied its application without citing any facts or evidence and with little discussion.”

In fact, the Court noted that several of the complaints filed against LARA by plaintiffs in the lawsuit, “reveals that these allegations sound a common refrain.” Plainly, the judge noted that this was a common issue raised by the temporary operator-applicants against LARA and the MMLB. 

Judge Borrello elaborated, stating:

“If true, such allegations sound in the nature of an arbitrary and capricious denial, and could reverse the initial licensure denial and/or may be indicative of the notion that the applicant has satisfied its obligation of establishing eligibility for licensure (under the MMFLA.”

Appeals under the MMFLA, according to Judge Borrello

The administrative appeal process for MMFLA license denials under LARA’s Rule 93 was intentionally designed to be difficult to overcome. A denied applicant faces an uphill battle to establish, “its eligibility and suitability for licensure” by “clear and convincing evidence.” Considerably, this is a high burden of proof to establish in an appeal. 

Whether a denied applicant succeeds in appealing the denial is a case-by-case evaluation. It’s based on many factors that pertain to each application’s company/individual. Specific denial reasons are also considered.

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However, the language in Judge Borrello’s opinion regarding improper denials should at least provide ammunition and reassurance for denied applicants in the past and future.

The Main Takeaway for Temporary Cannabis Facilities

With Gov. Whitmer’s Executive Order 2019-7 recently eliminating the MMLB and creating the MRA comes the promise of a more streamlined application review process. Hopefully, this new licensing-issuing process establishes Michigan as a welcoming place for the cannabis industry.

As with any newly created licensing and regulatory framework, growing pains and issues can surface relating to licensing, compliance, and enforcement. Additionally, more legal battles can arise. However, with each step comes more clarity and guidance for this new and emerging industry.

Accordingly, it’s in everyone’s best interest to work together in ensuring that Michigan’s cannabis laws are properly created, established, and implemented. Not only for the present, but also the future success of cannabis in Michigan.

Nickolas Galendez (16 Posts)

Nickolas Galendez is an associate attorney with the Cannabis Legal Group. Since joining the State Bar of Michigan in 2015, Nickolas has practiced medical marijuana law under the Michigan Medical Marihuana Act and the Medical Marihuana Facilities Licensing Act. For over two years, Nickolas has gained significant experience related to preparing and filing applications for local and state licenses; property, land use, and zoning issues; as well as education and advocacy efforts.

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