TRAVERSE CITY — A medical marijuana retailer in Traverse City is suing over the city’s newly-passed rules for recreational cannabis sellers.

Leoni Wellness LLC’s owner argued the city’s limit of four recreational retailers violates state law, according to a complaint filed in 13th Circuit Court in August. The company is one of 13 medical marijuana sellers to be licensed in a 2019 lottery.

The Michigan Regulation and Taxation of Marijuana Act states local governments cannot ban medical and recreational retailers from co-locating, said Joslin Monahan, an attorney for Leoni Wellness LLC. Traverse City ordinances mean up to four existing medical marijuana sellers, or provisionally licensed ones, could get recreational retail licenses.

“So that means that there are nine that will not because they are prohibited to by the ordinance, and that means they have now run afoul of the statute,” she said.

City Attorney Lauren Trible-Laucht declined to comment on the city’s position on the suit when reached by email.

She filed a response Monday denying that the city ordinance breaks state law. She also rejected the retailer’s claim that the scoring rubric city commissioners chose for competitively awarding recreational retail licenses puts existing medical license-holders at a disadvantage.

Monahan said not every retailer has, say, a second floor to offer residences, as one item on the rubric would reward. Nor does the city expect any other type of business to enter into another line of work, such as property management or becoming a landlord.

One retailer’s giving it a shot, with Green Pharm planning on adding two stories of apartments over its store, and building a four-story structure for a wellness center and more apartments in the future, as previously reported.

Daniel Till, Green Pharm head of business development, previously said the plans aim to bolster the company’s chances at a recreational retail permit but will move ahead regardless of whether the city awards one.

Monahan said she couldn’t comment on the business’ plans, but that they have no bearing on whether the city ordinance violates state law or not.

Recreational retail licenses are becoming increasingly important for medical sellers who will struggle to compete in light of a drop-off in medical marijuana cardholders, Monahan said. Buyers don’t necessarily need that card any more to buy their medicine.

Not getting a recreational retail license could put Leoni Wellness LLC out of business, according to the complaint.

The company seeks an injunction and for a judge to declare the city’s adult use ordinance unlawful, according to the complaint. It’s also asking a judge to block the limit of four recreational retail licenses, rather than 13 to match the number of medical sellers allowed.

The company also wants a judge to block the city from using its scoring rubric, and award the company damages and attorney fees, according to the complaint.

Trible-Laucht in her response asked the court to deny the injunction request and dismiss the lawsuit.

City commissioners at a recent meeting discussed the lawsuit in closed session then took no action afterward.

The question of how to consider medical marijuana sellers applying for recreational retail licenses was a repeated point of contention as city commissioners drafted recreational business rules. Some medical retailers or those connected with medical sales argued they should get preference, if not automatic approval.

The limit of four recreational retailers stems in part from concerns over another lawsuit against a different city, Mayor Pro Tem Amy Shamroe said. She served on an ad hoc committee that drafted the city’s recreational marijuana rules.

Shamroe declined to comment on Leoni Wellness LLC’s lawsuit, but said arguments in the other suit against Kalamazoo involving questions of whether medical retailers are entitled to recreational licenses prompted caution in setting Traverse City’s recreational retailer cap.

Kalamazoo wasn’t the only city where similar arguments were playing out as Traverse City commissioners drafted recreational rules, Shamroe said. They discussed what number of retailers they’d be comfortable having if the argument prevailed and every medical marijuana retailer was allowed to enter into recreational sales.

Commissioners also discussed what they’d like to have as a good starting base, Shamroe said — city leaders largely agreed it was easier to start small and possibly expand later, as previously reported.

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