Published in Economic Development

Growing Pains: Amid ‘green rush,’ Grand Rapids presses pause on medical marijuana licenses

BY Friday, October 12, 2018 06:15pm

GRAND RAPIDS — Since opting to allow medical marijuana businesses in July, Grand Rapids has seen a wave of development interest that’s driving up real estate prices and sending city officials scrambling to adapt with new regulations.

The City Commission adopted a moratorium last month that extends by six months the initial Nov. 1 start date for accepting applications. City officials are now clarifying aspects of the medical marijuana ordinance in response to unintended consequences around zoning and permitting.

Suzanne Schulz, the city’s director of design, development and community engagement, said the department received 200 inquiries within three days of the ordinance passing on July 3. Since then, the department gets up to 50 contacts a day on medical marijuana, putting a “substantial burden on existing resources.” She said property acquisitions by one potential applicant total $20 million.

“The numbers are huge,” Schulz said. “People talk about the initial green rush this industry causes — we’re certainly seeing that impact.”

On Oct. 9, commissioners held a work session to sort through policy uncertainties, though it was also a recap of what Schulz’s department has experienced over the past three months. The department presented a series of issues — including property setback waivers and community engagement — along with possible solutions that could be adopted by city officials.

“This is a little crazy. It’s been an interesting ride,” Schulz told the commission.

However, critics say the moratorium will exacerbate some of the unintended consequences of the ordinance, such as inflating the value of licenses and qualifying properties, thus creating high barriers for entering the market.

Cannabis Business Summit

On Oct. 18, the Grand Rapids Area Chamber of Commerce is hosting a Cannabis Summit to discuss the impact of medical marijuana regulations as well as potentially legal recreational marijuana in Michigan. Panel discussions will include human resources issues, local and out-of-state business impacts and legal implications. 8 a.m.-11 a.m., Thursday, Oct. 18, Grand Rapids Chamber, 250 Monroe Ave. NW, Grand Rapids. Cost: $80 for members, $100 for nonmembers.

City Commissioner Jon O’Connor, who has said the city’s ordinance is overly restrictive on zoning, mentioned during the work session that the owners of a 1,250-square-foot office on Alpine Avenue are marketing it as a medical marijuana dispensary. The property is listed on the Commercial Alliance of Realtors website for $850,000. The property was last purchased in 2015 for $101,000.

“This has artificially driven up real estate prices,” O’Connor said of the ordinance.

O’Connor believes the moratorium is “only going to further exacerbate the cost of real estate given the limited scope we originally adopted for locations. The players who have access to large sums of capital have a better chance to secure multiple potential sites to try to corner the market where these may exist, which may drive up real estate even further.”

O’Connor still supports reducing or eliminating setback requirements from properties such as churches and parks.

“I think we’ve artificially created buffers that are too far,” he said. “We’re just shooting from the hip on this, if you ask me.”

Earlier this year, the city’s Planning Commission recommended more liberal setback rules that would have allowed for more businesses, while the Planning Department’s recommendations would have limited them to a few industrial areas. The resulting ordinance was effectively a compromise, O’Connor said.

At the Oct. 9 meeting, Mayor Rosalynn Bliss pushed back on efforts to reduce setbacks, saying the commission spent a good deal of time this year on distances and mapping where prospective businesses could locate.

“We’ve always said we can go back with experience under our belts and make amendments,” Bliss said. “We spent a lot of time on distances in the ordinance language. Today is about giving clarification.”

Unintended consequences

Grand Rapids’ medical marijuana ordinance allows provisioning centers, growers, secure transporters, processors and safety compliance facilities in certain commercial and industrial areas of the city. Much of the contention while drafting the ordinance focused on separation between provisioning centers to avoid clusters, as well as setback distances from “sensitive uses” like schools, churches, daycare centers and substance abuse treatment facilities.

Each of the five types of facilities must be at least 1,000 feet from these sensitive-use properties, while provisioning centers must be at least 2,000 feet away from one another.

Coleman Baar, president and broker with Grand Rapids-based Neighbors Development LLC, is among those seeing the effect on real estate from what he calls overly restrictive zoning. The company is helping clients with interest in opening provisioning centers, but he said it is problematic finding properties that are within zones that would allow medical marijuana facilities.

“The buffers are so extreme, hardly any place is qualified,” he said of properties where medical marijuana businesses could operate. “Even if I wasn’t representing marijuana businesses, we have a situation where tenants are contacting me but can’t locate in an area because it’s a hotbed for medical marijuana use. It’s creating a market that’s very difficult to operate in, and they’re creating an artificial price gouge.”

In turn, he says inflating values of property and potential licenses will limit market access.

“People who don’t have serious capital and resources are not able to stay in the game,” Baar said. “And there are no slam-dunk areas where you know you’ll get a license.”

Planning Department officials have described instances of prospective businesses approaching churches with offers for waivers that would allow them to operate within 1,000 feet. Schulz called some efforts “attempted bribery.”

“This has proven to be highly problematic,” Schulz said, referring to churches’ role in potentially granting waivers for businesses to operate near them. “We’re seeing all sorts of quirky, crazy things. It also makes it a little challenging on the administrative side.”

Bliss said she “personally was not prepared for churches to be inundated by being contacted by people seeking a waiver. It’s a consequence of the decision we’ve made.”

Jay Fleming, a “cannabis consultant” who’s been closely following Grand Rapids’ ordinance, agrees that delaying the application process will likely make matters worse.

“You’re building up that pressure valve in people who are interested,” he said. “I think we’ll see some real uncomfortable situations with the real estate market in Grand Rapids. The longer they make this go on, the more chaotic it gets.”

Policy clarity

The commission’s Oct. 9 work session addressed policy concerns moving forward, such as determining how setback waivers should be granted by churches and parks, designing Voluntary Equitable Development Agreements (VEDA) and equitable development goals for medical marijuana businesses, and setting how the application process will start.

Commissioners made recommendations for the Planning Department to work on a revised ordinance, which would have to be approved by the commission.

The city’s application process also is linked with the state’s process for granting medical marijuana licenses to businesses. Grand Rapids’ moratorium aligns with the backlog of application reviews at the state Department of Licensing and Regulatory Affairs. A city must opt-in with an ordinance allowing businesses before applicants can be pre-qualified with the state. Having that pre-qualification also is required before getting city approval.

“The challenge is that 42 percent of pre-qualification applications are rejected by the state,” Schulz said. “For us, that’s a big policy question: Do we want staff resources committed to a process where almost half of the applicants don’t make it through the state’s first phase?”

Another key unanswered question is literally how the city will accept applications. Options include a first-come, first-served basis; a lottery; or a type of merit-based process.

“We believe this will lead to an unprecedented number of applications for review,” Schulz said. “We don’t have practices in place to take that many at once. There are lots of logistical issues.”

The commission appeared open to a process that would prioritize applications based on how well they “satisfy the City Commission’s goals established during the VEDA discussion.”

With an ordinance in place, Schulz said the work ahead still will need to balance the interests of various stakeholders.

“We’re trying to make sure we can still adequately serve the citizens of Grand Rapids who can have access to medical marijuana while making sure we’re not oversaturating our business districts with a use that could potentially be harmful,” she said.

O’Connor notes the significance of the task ahead, saying the level of interest in Grand Rapids so far “speaks volumes about the need in West Michigan. We’re the only municipality of any substantial size willing to take this issue up. Clearly there’s a demand in the market.”

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