GRAND RAPIDS — Companies looking to break into the lucrative medical marijuana industry want to ensure their place in line for the city’s lottery process that will determine the order in which their proposals are considered.
In an effort to boost their chances of being selected in the lottery, some applicants have submitted multiple proposals — sometimes even for adjacent properties — in concentrated areas where city zoning allows medical marijuana-related businesses. For example, five of the eight proposals submitted for sites along Leonard Street NW between U.S. 131 and Alpine Avenue came from just two companies.
Battle Creek-based Humble Roots LLC submitted three of the proposals for sites whose current uses include an art gallery, a pawn shop and an apparel store. All told, the firm submitted 20 proposals for provisioning center sites across the city, each of which required a $5,000 application fee and the company to own, lease or have an option to purchase each property.
Co-founder Ben Midgal says the company, which operates provisioning facilities in Emmett Township and Bay City, wants to operate two or three dispensaries within Grand Rapids. In fact, some of Humble Roots’ applications are likely to be eliminated because provisioning centers must be at least 2,000 feet apart from one another under the current city zoning.
“That’s why you see the multiple applications for us,” said Migdal, who described Humble Roots as a “bootstrapped, smaller startup” company. “It was about increasing our probability of success in that city specifically.”
None of the Humble Roots’ ownership team is from Kent County, Migdal said, but the company has committed to hiring staff from Grand Rapids.
Other firms appear to have increased their preferential points possible in the lottery by including several local residents who hold small minority ownership stakes in their companies.
The city of Grand Rapids instituted the Marijuana Industry Voluntary Equitable Development Agreement (MIVEDA) to allow applicants to earn points for a number of items with the aim of encouraging equitable development and maximizing local economic impact and business ownership.
In reviewing the applications, the city found some non-local companies gained these points, said Landon Bartley, senior planner with the city of Grand Rapids.
“We have received relatively few applications that are wholly from local applicants,” said Bartley, who estimated 10 to 12 applications out of the 91 the city received show a majority local ownership.
MIVEDA allows locals to have a higher chance in being selected in the lottery drawing because it awards points for local residency and a company’s commitment to hiring local employees. The agreement requires 25 percent local ownership to gain points for local ownership.
Bartley said several applicants have locals who own an approximate 8 percent stake in the companies, just below the 10 percent requirement at the state level that would require them to be pre-qualified.
“So they add up to being exactly 25 percent, and they can say they’ve met the 25 percent requirement,” he said. “I’m not sure that completely hits the intent of what the city commission was going for.”
Advocates who pushed the city to implement a process to give preference to local ownership say some companies’ attempts to stack the deck is not in the spirit of MIVEDA.
“I think it was a really valiant effort (by the city) and I think it went above and beyond probably what most Michigan cities did, but it’s not the applicant pool that we were really, really fighting for,” said local entrepreneur Tami VandenBerg.
VandenBerg, who co-owns The Meanwhile and Pyramid Scheme bars, partnered with her brother, Jeff VandenBerg, and Jeff Hank, former executive director of the MI Legalize group that pushed for Proposal 1, to submit a proposal for a dispensary on South Division Avenue.
“It’s the craziest business thing I’ve ever been involved in,” she said, describing the application process as a “rollercoaster.”
That’s because of the rush they were under to find a property that fit into city regulations for a medical marijuana business and was still affordable. VandenBerg said they needed to spend $5,000 for an option to buy the building, $5,000 on the city’s application for a provisioning center, and $6,000 for the state’s licensing application, for which they needed to show upwards of $300,000 in available capital. That’s all while they’re awaiting pre-qualification at the state level.
“That was an issue,” she said of the up-front costs involved in the process. “Now we’ve got to pull out all the equity out of our houses. I’m very proud to be a successful business owner. We’re self-made, but we are small change compared to these outside players.”
In the city’s application process, multiple hotspots for proposed marijuana businesses have emerged. Concentrated areas include 28th Street on the southeast side, Michigan Street in the northeast quadrant and between Ann Street and Leonard Street on the northwest side.
These hotspots emerged before the city last fall adopted a moratorium on accepting applications, which resulted in a wave of development interest that drove up real estate prices.
Prices doubled or sometimes tripled on properties marketed specifically for marijuana uses, said Stephanie Goodman, owner of Pontiac-based Bricks & Mortar Group, a real estate brokerage firm that specializes in the cannabis industry. The company helped connect some potential marijuana business owners with properties in Grand Rapids.
A drastic increase in property value is seen especially in metropolitan areas like Grand Rapids, she said.
“(Grand Rapids) is probably one of the most crazy cities I’ve seen so far,” Goodman said, adding that those with more financial resources can take measures to make themselves more competitive.
Some companies, she said, target a location for a provisioning center and work to make sure no one can compete against them by putting in offers on surrounding properties, with no intention of actually purchasing them.
“Basically, you just put them under contract with no intention of closing, so the seller doesn’t realize they’re not buying the property, so they sign a purchase agreement,” she said. “The whole intention is to hold that property until after the application window is done, so no one else could apply next to them.”
Some companies have submitted applications for properties that are home to active businesses, including applicant Green Skies - Healing Tree LLC for the Russo’s International Market site at 2770 29th St. SE and WL Green Ventures Inc. for the property occupied by Point Bar at 1720 Hamilton Ave. NW.
Other current uses include a used car lot, refurbished appliance store and a pool supply retail location.
Bartley with the city said he has spoken with other communities that limit one application per applicant, but that opens up the possibility of more loopholes, he said. Some applications are “not good,” signaling companies are “just peppering our system with applications” in the hopes of getting some through initial review, he said.
“There’s time and efforts and finances that go into (the applications),” Bartley said. “But that’s a business decision on their end. If they have the money and resources to do it, it’s not our position to stop them.”