MENOMINEE, Mich. — When this small town in the Upper Peninsula was working on a law allowing the sale of marijuana in 2020, it was warned that restricting the number of dispensaries could lead to a legal quagmire.

The town, which is just across the border from Wisconsin, where pot is prohibited, went ahead and limited the number anyway. Critics said it has since passed "quagmire" and now is in legal Bizarro World.

Matt Cross, a municipal law attorney hired by Menominee to defend it against lawsuits by marijuana companies, said the city's experience should serve as a warning to other towns.

“Menominee is going to be a cautionary tale for any community that wants to opt in to allow these types of facilities," Cross said.

Consider the following curiosities:

The Menominee City Council spent 11 months considering 14 applicants before naming the two winners in 2021. The council was sued by some of the losing applicants, won the lawsuit and promptly changed its mind about the limit, opening the licenses to everyone.

Rize is one of the two original marijuana dispensaries in Menominee selected to operate in the Upper Peninsula city. The City Council has since changed course and opened the market to all applicants, which has prompted a lawsuit by Rize and The Fire Station against the city.

When a citizens’ group tried to hold a referendum to keep the original limit, the council avoided the vote by tacking a minor funding measure to the revised marijuana law, which prevented residents from voting on it.

In opening the licenses to everyone, the council also watered down an ethics rule related to marijuana. Among the nine council members are the brother of a lawyer who represents one of the losing applicants and another councilman who was discussing selling his property to the same applicant, according to council meeting minutes.

Rize and The Fire Station, the two dispensaries that were originally selected, accused the council of having conflicts of interest, engaging in backroom deals and enriching themselves, their relatives and their friends. They hired a private investigator to look into the relationship between the council and the losing applicants.

Rize and The Fire Station filed a state lawsuit against the city that is scheduled to go to trial on May 13 in Menominee Circuit Court.

“We won our license fair and square,” said Mike Cox, a former Michigan attorney general who is representing Rize. “I’ve been doing this for 35 years. Generally, when you reach a deal with the attorneys, it happens. But rarely do things happen in Menominee the way they do in the rest of the state.”

Mayor Casey Hoffman, who was elected in November, defended the council’s decision to increase the number of dispensaries. Council members did so to raise tax revenue, not to benefit themselves, he said.

“This conduct is beneath the dignity of Rize and The Fire Station,” Hoffman said.

The legal dispute has grown increasingly personal. The brash Hoffman said he is legally “wiping the floor” with Cox, while the former attorney general has ridiculed Hoffman, 34, a law school graduate, for failing to pass his bar exam.

Menominee Mayor Casey Hoffman has defended the City Council's decision to change course and allow more marijuana dispensaries in the city and criticized the two original winning applicants for suing to stop an open market.

Other critics of the City Council are its own staff. In a rare public spectacle, the city manager and lawyer have openly chastised council members, who are their bosses, for negotiating directly with the losing applicants while they were suing the city, according to meeting minutes.

It's all about the money

The source of all this consternation is money, lots of money.

One might wonder how such a small town could support all the dispensaries: five open, three preparing to, still others thinking about it.

But the businesses aren’t thinking about the 8,300 residents of Menominee. They’re thinking about the 6 million people living in Wisconsin.

The pot shops estimate that 85% of their business will come from the neighboring state, producing revenue of tens of millions of dollars. That’s a lot of cheese, even for Wisconsin.

“It’s lucrative, the amount of money to be made,” former longtime Mayor Jean Stegeman said. “With a border community where no marijuana was available before, there’s an obscene amount of money to be made.”

Menominee was once a boomtown for lumber. Since neighboring Wisconsin bans the sale of marijuana, the Upper Peninsula border town hopes to cash with its own pot dispensaries, which the outfits estimate would get 85% of their business from across the border.

Menominee was once the lumber capital of the United States, and some council members said they would love to exchange one boomtown for another. It’s a depressed industrial town whose industry has fled across the Menominee River to Marinette, Wisconsin.

It sometimes seems like those fleeing businesses took Menominee’s identity with them. Billboards in Menominee advertise Wisconsin businesses. Residents get their news from Wisconsin newspapers and television stations. Detroit Lions fans are outnumbered by ones rooting for the Green Bay Packers.

How pot business limit started

The City Council originally limited the number of dispensaries in 2020 because residents were split over the issue, council members said. A statewide initiative that legalized recreational adult marijuana in Michigan in 2018 barely passed in the city with 51% of the vote.

A city committee ranked the 14 applicants based on how they would help the city in creating jobs and boosting construction. It gave perfect scores of 50 to two applicants but recommended just one of them, The Fire Station, for a license.

The other license should go to Rize, which finished third with a score of 48, the committee said. Brett Botbyl, the acting city manager who was on the committee, said the panel bypassed Lume and its perfect score because the dispensary’s proposed location would have required a special use permit.

After the council adopted the committee’s recommendations in 2021, five losing applicants quickly filed lawsuits against the city. They said the scoring was arbitrary, overlooked pertinent information and accused the committee of making its decisions in private.

The Fire Station, a medical and recreation marijuana dispensary, was one of the original two applicants that the Menominee city government approved for operating in the city. A committee gave it a perfect score of 50.

The committee had scored the applicants during a public meeting, but there was little discussion and all three committee members gave identical scores for each applicant in each category, said the losing applicants.

“(It) was a debacle,” said Steve Eckley, head of business development for Higher Love, an applicant that had one of the lowest scores, 42. “(The) scores were completed ahead of time, and there was no dissent among the selection committee.”

The rejected applicants found a sympathetic ear on the City Council; in fact, a lot of sympathetic ears. In March 2023, the council voted 6-3 to approve a resolution saying it was considering settling the lawsuit by the dispensaries and awarding them licenses.

Most of the six council members supporting the expansion were the same ones who supported the limit two years earlier. Why did they change their minds?

Some council members said the lawsuit was preventing any dispensaries from opening, so settling the legal action would allow the city to begin collecting taxes from them.

Menominee City Council member Doug Robinson said he voted to lift the cap on the number of marijuana dispensaries in the city after originally supporting a limit of two dispensaries because the city needed more revenue. A lawsuit by rejected applicants had delayed the opening of pot outlets, he said.

“The city needed additional revenue sources,” City Council member Doug Robinson said. “The most important dollar you have is the one you got and the one you can get. There’s also a cost to not doing something.”

Other council members, however, were dubious about the about-face by their colleagues. They said the city fully expected the lawsuits, prepared for them legally and were winning the legal actions, which it later did.

The council members who opposed the expansion said they were suspicious about the motives of their fellow elected officials but stopped short of accusing them of anything untoward. Rize and The Fire Station were less circumspect.

The two dispensaries filed a federal lawsuit in 2023 accusing several council members of having various conflicts of interest in supporting the increase in the number of dispensaries. The legal action was later dropped in favor of the lawsuit in state court.

The federal lawsuit said Joe Dulak, a real estate broker who joined the council in 2022, could make money from commissions or referrals from the sales of properties to the pot shops. The legal action didn’t cite any instances of Dulak being involved in such transactions.

Dulak didn’t respond to emails and phone calls asking for comment.

Menominee City Council member Joe Dulak, who is also a real estate broker, has been accused by the Rize and The Fire Station pot dispensaries in a lawsuit of potentially making commissions or referrals from the sales of properties to the pot shops since the council limited the limit on the number of dispensaries. But the lawsuit didn’t cite any instances of Dulak being involved in such transactions.

Lawsuit explores potential conflicts

The federal lawsuit also noted that Councilman Josh Jones is the brother of Joseph Jones, a lawyer for Higher Love, one of the dispensaries originally rejected by the city.

During a council meeting in September 2021, Josh Jones talked in general terms about the possibility of his brother having an investment with a dispensary, but that, Mike Celello, the city attorney, told him that it didn’t present a conflict of interest, according to meeting minutes.

Asked about the matter, Celello told the council that the question posed by Jones wasn’t related to the council’s code of ethics. If it had been, Celello said he would have responded that it was a conflict of interest for Jones to vote on giving a license to Higher Love.

Despite the lawyer’s view, the council voted 4-3 to allow Jones to vote on the matter, according to the minutes. All four council members who supported Jones also favored increasing the number of dispensaries.

Neither Jones nor his brother responded to emails or phone calls requesting comment.

At the same council meeting in 2021, Councilman Dennis Klitzke recused himself from voting on the expansion because he was in discussions to sell property to Higher Love.

But that didn’t stop him from talking about the issue during interviews and at council meetings. He told the Marinette Eagle Herald in a story published Oct. 3, 2021, that the city should have given Higher Love a license. He told the reporter that the dispensary could bring 80 jobs and $10 million in investment to the city.

“This is a one-shot deal, either come here or they don’t,” he said. “They’re going to locate somewhere else and that will be that. This is an opportunity to generate revenue.”

Klitzke died in May.

Lume was one of the original losing applicants that was allowed to open a medical and recreational pot dispensary in Menominee after the City Council lifted the restriction on how many dispensaries could operate in the Upper Peninsula city.

Council members ignore legal advice

During the lawsuit by the rejected dispensary applicants, most council members routinely ignored legal advice from its city and litigation attorneys, according to meeting minutes. Instead, they communicated frequently with the lawyers who were suing the city.

If the council members needed a legal opinion, they sought it from the other side’s attorneys, according to the lawsuit by Rize and The Fire Station. During meetings, they parroted the same arguments the rejected applicants were making in court.

At one point, Councilman Bill Plemel complained that the city staff wasn’t returning phone calls from the losing applicants’ lawyers, the minutes showed.

When Plemel proposed the resolution considering a settlement in March 2023, it contained a legal certification, several legal recitals and citations of various state laws, according to the Rize lawsuit. Plemel, 86, is a retired mechanic.

He didn’t respond to emails or phone calls asking for comment.

Relations between the council and city staff deteriorated, with meetings marred by shouting matches and emotional outbursts.

During the March 2023 meeting, Councilwoman Jackie Nutter argued with Celello, the city attorney, and then Botbyl, the city manager, after they said the council had violated the state’s open meetings law, according to a recording of the meeting. Stegeman, the mayor, banged her gavel several times as Nutter interrupted the staffers.

“You scheduled it for tomorrow,” Nutter said. “I already have plans for tomorrow.”

“Well, I’m sorry about that,” Botbyl said. “We all have plans. Then I said if that didn’t work ---”

“You’re not sorry about that,” Nutter said.

“Nutter!” Stegeman yelled.

“No!” Nutter yelled back. “You’re only hammering at me, but we’re both going back and forth.”

'Who settles a lawsuit you're winning?'

In May 2023, a Menominee Circuit Court judge dismissed the lawsuit by the rejected dispensary applicants, ruling that the city awarded the original two licenses correctly.

Two weeks later, the City Council gave in to the demands of the losing applicants, voting to revise its ordinance and allow an unlimited number of pot shops to open.

“Who settles a lawsuit that you’re winning?” asked Stegeman, who opposed the expansion. “I don’t know in whose world you settle a lawsuit that you’re winning.”

When the council opened the licenses to everyone, it also voted to change the ethics rules regarding the businesses.

The 2020 ordinance prohibited council members from having any type of interest, direct or indirect, in a dispensary. The new ordinance forbids them only from owning or operating a business.

The change allowed the elected officials to make money from the dispensaries in other ways, such as selling them property, brokering such deals or selling them products, said the lawsuit by Rize and The Fire Station.

“There is no rational basis for this change in ethical rules except to allow City Council members to profit in some manner from the removal of caps on licensing and issuing more licenses,” according to the lawsuit.

In July, a group named Committee to Stop Unlimited Marijuana Shops filed a petition for a referendum on keeping the number of dispensaries at two.

The petition said it was intended to prevent the opening of dozens of dispensaries. It also would ensure that the pot shops were at least 1,000 feet from schools.

“THAT’S TOO CLOSE!!” the petition read.

The petition also said it would prevent council members from having conflicts of interest.

“City officials should NOT use their position to PERSONALLY BENEFIT because of their job!” it read.

The group was dismissed as a sham by the council majority. It received $200,000 from Rize and The Fire Station, according to Michigan campaign finance disclosures. The notary for the petitioners was Jacie Duranso, who is director of licensing and compliance for The Fire Station, according to the dispensary’s website.

Two weeks after the petition was filed in July, receiving 1,200 verified signatures, the City Council called a special meeting.

The council repealed the revised ordinance allowing unlimited dispensaries and then adopted a nearly identical one but, this time, it included a $15,000 appropriation to the police. The city charter prohibits referendums from being held on ordinances that involve funding measures.

Robinson, the councilman who proposed the move, was candid about his reasoning. He said he wanted to prevent the referendum because the committee sponsoring it was a front for Rize and The Fire Station.

“The idea behind this is to put an end to a referendum that was brought forward by outside parties,” Robinson said.

'Pot Town USA'

Rize and the Fire Station opened dispensaries over the summer and were soon followed by three competitors in the fall. One of the first things Wisconsin residents see when they cross the bridge into Menominee is the Higher Love store, located behind the Michigan Welcome Center.

Some residents welcome the newcomers, saying they’re bringing jobs and refurbished buildings. They’re also helping the city government get closer to filling a $500,000 hole in its budget. The city received $295,000 in state taxes from the sale of marijuana products for 2023.

But others wonder if the businesses are worth the trouble, especially the legal fight that began in 2021 and continues with the trial in May.

Menominee City Council member Michael DeDamos supported a two marijuana dispensary limit in the city and doesn't like all of the litigation tied to regulating the industry in the city. “We didn’t sign up to be ‘Pot Town USA,'" DeDamos said.

Councilman Mike DeDamos, who wanted to keep the number of dispensaries at two, sometimes feels like that may be too many as well. He yearns for a simpler time when the only trouble caused by marijuana was getting caught with it by the police.

“We shouldn’t do any of this,” said DeDamos, 44, a gas station clerk. “We didn’t sign up to be ‘Pot Town USA.’”

Cross, the lawyer hired by the city to defend it against the lawsuits by the losing applicants, is now defending it against the legal action by the winning applicants.

He said Menominee isn’t the only example of a city being legally manhandled by dispensaries but, in his view, it may be the most egregious.

“It’s a clear example of large marijuana companies strong-arming local governments to ensure they make as much money as possible," Cross said.

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