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Published in Economic Development
GR cannabis equity program in disarray with noncompliance, ‘unattainable’ goals MIBIZ FILE PHOTO

GR cannabis equity program in disarray with noncompliance, ‘unattainable’ goals

BY Friday, May 06, 2022 02:31pm

GRAND RAPIDS — Just three out of 11 cannabis dispensaries are fully complying with voluntary social equity commitments they made three years ago to improve their chances of obtaining a license in a highly competitive lottery system, MiBiz has learned.

However, some city officials and cannabis companies attempting to comply say the program includes unrealistic goals and needs to be revised, and it’s unclear whether non-complying operators will be penalized.

The city instituted its Marijuana Industry Voluntary Equitable Development Agreement (MIVEDA) when it started considering medical cannabis dispensary applications in April 2019. The program allowed applicants to earn points for promising measures such as local ownership and supplier diversity to encourage equitable business models.

Voluntary MIVEDA commitments gave applicants an advantageous spot in the city’s initial queue for licenses.

However, more than two years after the MIVEDA process launched, only three of 11 operators are fully achieving their initial social equity commitments, according to city officials. 

The city has a similar program for recreational dispensaries called the Cannabis Industry Social Equity Voluntary Agreement (CISEVA). Based on self-reported data, city officials also expect few of the CISEVA participants to meet their commitments. The city currently has 31 recreational cannabis operators, 23 of which have made CISEVA commitments.

Some city commissioners say the program has, in effect, allowed well-funded investors to start operating in the city based on promises they haven’t fulfilled.

“We cannot forget the multiple local people who wanted in (the cannabis) industry who were priced out of it because we had people who were not local, who had the resources to buy the buildings up in our city,” Third Ward City Commissioner Senita Lenear said during an April 26 Grand Rapids committee meeting. “We cannot forget them.”

Unrealistic goals?

The city in 2020 formed a Cannabis Justice Workgroup that includes officials from planning, legal, equity, oversight and accountability, and economic development departments to oversee local regulatory policies, including the MIVEDA and CISEVA programs. 

During an April 26 meeting, workgroup members listed potential ways for the city to proceed with its cannabis social equity programs in light of most operators not following through on their commitments. 

However, the workgroup failed to reach consensus on moving forward, including whether to enforce penalties for non-compliant operators.

Some city commissioners contend that MIVEDA and CISEVA goals involving local ownership and supplier diversity are unrealistic.

“I get really frustrated when we set these goals out there that aren’t attainable,” said City Commissioner Jon O’Connor. “We do this in zoning all the time: They are unattainable, nobody is ever going to do them, so why are we making a policy that’s unattainable?”

Deputy City Manager Kate Berens acknowledged that operators are primarily failing to meet their equity promises around local ownership and supplier diversity. She also noted that all operators have complied with commitments to hire at least 15 percent of their employees from within the city.

“We’re talking to the (city) commission about the way the industry is actually getting up and running, and as they mature, how that impacts their ability to meet their original commitments,” Berens said. “That’s the conversation the commission is now having.”

Still, it remains unclear how city officials will move forward with the cannabis equity programs.

“We would certainly like to be able to proceed and get it to some conclusion,” Berens said. 

Ben Wrigley, partner at Cascade Township-based CannaLex Law, said the city could open itself to lawsuits if it started revoking licenses based on non-compliance with the equity programs. The city will likely hire outside legal counsel to receive a third-party opinion on options moving forward, he added.

Ultimately, the city “needs to address it,” Wrigley said. “It is time to clarify.”

Road to compliance

Pharmhouse Wellness Co. is fully compliant with commitments made under the MIVEDA and CISEVA programs, said owner Casey Kornoelje. Kornoelje completed the MIVEDA application when he first opened Pharmhouse Wellness as a medical dispensary, and then the CISEVA application during the recreational approval process. 

“We have run into some challenges with CISEVA based on supplier diversity commitments,” Kornoelje said. “You have to spend a certain percentage with a Micro Local Business Enterprise.”

As a retailer, Kornoelje’s primary investments are in wholesale cannabis products to sell at his dispensary, he said. But he hasn’t found a cannabis grower or processor for supplies that qualifies as a Micro Local Business Enterprise, which the city defines as companies registered with the U.S. Small Business Administration that meet additional requirements for size, location and owners’ net worth.

“I believe we still hit the supplier diversity goal because my business is so small comparatively and what we’ve lacked in being able to spend on cannabis vendors, we’ve far made up for it in other ways,” Kornoelje said.

Pharmhouse Wellness has hired Micro Local Business Enterprises outside of the cannabis industry for urban planning purposes, cleaning and tech support. 

Fluresh LLC also made commitments through both MIVEDA and CISEVA programs, and the cannabis company is complying with every commitment except for its supplier diversity, said Shoran Reid Williams, Fluresh’s general legal counsel and chief regulatory officer. Reid Williams also oversees social equity efforts at Fluresh.

“Part of it is we are a big company and there aren’t as many minority-owned suppliers who can service a company of our size,” Reid Williams said. “That doesn’t mean those suppliers don’t exist, it just means you have to be out in the world to connect with people to find them. Many businesses also didn’t want to be connected with the cannabis industry until recently.”

With COVID-19 restrictions lifted, Reid Williams has been able to travel and identify more diverse suppliers that will help Fluresh reach its supplier goals, she said.

Fluresh will continue working toward social equity regardless of whether the city ends up enforcing MIVEDA and CISEVA, Reid Williams said. 

“I don’t know how you bridge that gap between the Fluresh’s of the world and those who misrepresented their intentions at the beginning,” she said.

As the owner of one of the few dispensaries that is fully meeting its social equity goals, Kornoelje feels conflicted on how the city should move forward. 

“I see both sides of the equation,” he said. “I think it’s very important for people to follow through with the commitments they made. I would also like to see the cannabis industry mature in the city of Grand Rapids, and to withhold someone’s license and not give them the opportunity to remedy commitments they made, I feel like it’s a bit of a step backwards in the industry we all worked so hard for in Grand Rapids.”

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