In Grand Rapids, big Michigan players boxed out potential independent competitors before they even get started

Justin Razmus / 616media.com

Downtown Grand Rapids.

The biggest barrier to starting a cannabis business in Michigan is not obtaining a license, it’s  getting local zoning approval to site your business. And there’s precious few places to put one. Of the state’s 1,773 municipalities, only 154 have opted to allow marijuana businesses, and of those, only 94 municipalities have also opted to allow adult use licenses.

Then, once you choose a town to site a business, the municipality might choose to limit the number of licenses, create a lottery system, establish social equity standards, or set limits on potential locations. These local requirements often mean prospective cannabis business owners have to obtain rights to property and then hold it for months as local governments work through their approval process. And throughout that process, prospective owners have no guarantee their business will ever go live.

In Grand Rapids, a city of 201,000 and Michigan’s second largest, elected officials and city planners made thorough plans to encourage local businesses and to encourage social equity. But, despite those plans, almost a third of the city’s 31 cannabis zoning approvals have gone to a single group of companies, three of those to owners with local ties, and only one to owners of color.

Multiple cannabis company operators in Grand Rapids interviewed by Grown In all cite the difficulty of acquiring property that fits local zoning requirements. Smaller companies and non-vertically integrated operators are especially hard-pressed, as larger, better funded competitors often snap up eligible properties long in advance of applying for zoning approval. Making it hard for smaller competitors to even open a store at all.

Two companies in particular had been especially aggressive in Grand Rapids. The first, was actually a group of cannabis companies headed up by Victor Kattoula, including Green Skies – Healing Tree, which operates as 3Fifteen, and Fish Ladder Holdings and Red Triangle, which includes properties sold or leased to other cannabis companies.

Kattoula’s companies, according to city records, obtained rights for or sought cannabis business zoning approval for 16 Grand Rapids properties, won city approval for ten, but as of today, only has four operating locations in the city.

Today, 3Fifteen has eleven dispensaries in Michigan. Contacted for comment, Mr. Kattoula’s companies did not respond by publication.

Another aggressive acquirer of properties for prospective cannabis licenses, Humble Roots, had an even more complicated story.

Founded by Colorado cannabis veteran Ben Migdal and Chicago real estate broker Dev Patel, Humble Roots, “set out in Michigan to become a vertically integrated operator, and kind of pivoted to become a license flipping company that would acquire real estate and then look to earn municipal licenses on them and try and sell those,” Migdal told Grown In.

By February 2019 Patel announced in a city meeting that Humble Roots had “options to purchase 28 properties in Grand Rapids”. 

Migdal confirmed that number. “We had more than 28 under contract at one point,” he said.

Patel also told the city that Humble Roots owned a cannabis cultivation facility in Battle Creek. However, Michigan state records do not show any cannabis facilities owned by Dev Patel or Humble Roots. He was actually referring to a cultivation facility owned by another company, where Patel leased the land to the cultivator, said Migdal.

Meeting with Grand Rapids’ city officials, Patel and Migdal managed to get a copy of a zoning map showing all the potential cannabis business locations in summer 2018. From there, Humble Roots’ original business plan, said Migdal, was to secure as many properties as possible. Originally, in 2018, city officials indicated that they would conduct a lottery for all the cannabis zoning applicants. If you had more properties, you had more chances to win, reasoned Patel and Migdal, who were scouring Michigan for potential cannabis license opportunities throughout 2018.

“I was very arrow up on Grand Rapids,” said Migdal. “I saw there were no municipalities around it that had opted in. Through the zoning rules at the time, they would allow 37 dispensaries in the city. That’s great numbers for an operator. With 1 million people in the area [around Grand Rapids]. That was pretty good. And we were looking towards legalization of recreational [use] too.”

But, before the city’s lottery for zoning approval order was conducted, city commissioners approved the Marijuana Industry Voluntary Equitable Development Agreement (MIVEDA), which awarded points to those with local or Grand Rapids ownership and applicants who committed to hiring locally. Applicants with more points, got their applications reviewed first. Once a facility was approved by the city, no other cannabis facilities would be allowed within 2,000 feet, almost half a mile.

The most points went to applicants that had at least 25 percent of ownership based in Grand Rapids listed on the state’s license pre-qualification paperwork. Suddenly, the ground had shifted under Humble Roots’, which wasn’t locally-based.

“We were scrambling. We didn’t have the ability to get max points,” because they weren’t locally based, said Migdal. “We started to see our competition. We weren’t the only people left scrambling. How do we do something? There was nobody from Grand Rapids that had a 25 percent ownership on the pre-qual. There were very few groups that had local representation. There was another group called Green Skies. They found a resident owner to represent them, and all of a sudden Green Skies – you could see on the city’s website where they stand,” said Midgal, referring to a Grand Rapids city document that listed how many MIVEDA points each zoning applicant had received.

For smaller applicants, even with the MIVEDA scoring process in place, companies like Green Skies and Humble Roots had taken options on dozens of desirable locations. They’d flooded the zone. 

“Who has $200,000 just to put a property on hold?” said Casey Kornoelje, owner of Pharmhouse Wellness. “That’s not including the inventory, or build out, or all the professional fees for the location. I knew that there was no way that was even possible for me. That’s why we took the alternative route we took.”

Kornoelje ended up purchasing a former residential home along a commercial corridor that was actually next door to a Green Skies-optioned property that didn’t make it through the city’s approval lottery.

“I do think Green Skies messed it up for a lot of people,” said one cannabis company operator who applied for a location in Grand Rapids that requested anonymity. “There have been many stories about individuals that got the investment, gathered up the property and were boxed out by Green Skies or Humble Roots. In retrospect the city could have done something like limit the number of licenses to one per entity.”

Although one Humble Roots location eventually went up for Plan Commission review, it was not approved. Ultimately, none of the locations supposedly optioned by Humble Roots were approved by the city. Unhappy with the direction of the company, Migdal left in June 2019 and now operates a cannabis processor in Oklahoma. Co-founder Dev Patel founded another Michigan cannabis real estate company, Veltiste.

“It is a reflection on how well organized and funded the [bigger] groups were in town, and also just how difficult it is for a small cottage-sized operator to break into the Grand Rapids market,” said Kornoelje, who’s Pharmhouse Wellness is the only totally locally-owned, social equity cannabis business in Grand Rapids. Kornoelje had been arrested on cannabis possession charges twenty years ago, and thus qualified as as social equity applicant

“That core challenge with Green Skies is the land aspect, which took the biggest part of the play from smaller groups,” said Eric Foster, a consultant from Banks & Company who specializes in lobbying municipalities for cannabis business location. “They put in a huge number of options on property in different parts of the city to limit the available land, and tried to tie up as much land as possible, so they could either flip to other entities or have the ability to go for multiple applications and control the market.”

Indeed, one Green Skies owned and approved location in Grand Rapids, 2301 44th Street, SE, was transferred to another Kattoula-owned company Fish Ladder Holdings, which now operates a High Profile medical provisioning center on the site.

One applicant that got squeezed out was Neighborhood Provisions, a family-owned company who sought to locate a dispensary on the city’s West Side. But, according to co-owner Kevin Currier, a location they purchased was deemed ineligible in June 2019 by the city because of proximity to another cannabis facility. By then there were no other possible legal locations for the company to move to.

“It made it harder to apply and find spots,” Currier told Grown In.

Of course, not every applicant was blocked out from opening a cannabis business. Eleven of the city’s 31 sites approved are operating today, including six that include adult-use retail sales. The first cannabis company to open a dispensary in Grand Rapids, Fluresh, actually sidestepped most zoning problems by focusing on building a cultivation center in an industrial part of town, and then adding a dispensary to the location.

Although Grown In contacted the Grand Rapids mayor and four other elected city officials, all declined to comment on the record. Only City Planning Aide Al Romero-Gibu would comment.

“We believe it is too early to tell whether the process implemented in Grand Rapids has been successful, considering the short length of time since we began approving recreational local licenses (less than 6 months ago), and the number of pending applications that are still in the queue,” Romero-Gibu said in an emailed statement.

But, with only 11 of 31 city approved locations operating, Grand Rapids is missing out on the boost to locally-oriented businesses it was aiming for in the first place.

“We’re the only locally-operated and owned store,” said Kornoelje. “We have a really big heart for what that means for the mission of Pharmhouse. It’s to connect our organization back with the community that supported us, off the ground. That’s reinvesting money back into the community whether that’s through mentorship and protege programs, safety and traffic improvements, street facade improvement, expungement clinics, homeownership training. All of this is important to the ethos of where we came from.”

The results all come from zoning, says lobbyist Eric Foster, and whether or not Michigan municipalities map out potential locations before opening the process.

“The zoning matters are one of the core challenges, because you can zone to minimize impact and disperse the licensing, but also at the same time if you mapped out the land, you can create an environment so that groups end up getting zoning out because there isn’t enough land for everyone to proceed,” said Foster.

“What needed to have happened, they needed to take a look at what was available inside those areas to see how many actual sites where someone could build a business, how many sites does the city own, [and] where they could hold out a provision for local applicants. That was not something they had thought of in advance.”

“It’s a shame. I see all the businesses there, and only one or two are there for the community,” said Migdal. “Really, you gotta find really strong people for this. It’s a lesson about vetting people, more than anything else. That’s what it comes down to.”

[Ed. Note: This article has been corrected to reflect that one of the Grand Rapids properties obtained by Green Skies was transferred to another company, and that company, High Profile, had no role in obtaining zoning approval. We apologize to High Profile for the error.]