Michigan is emblematic of what happens across the country each year – and why the the industry is in turmoil even as legalization spreads: Unhappy hopes that a Democratic-controlled Washington could ease decades-old restrictions on drugs have given way to market glue and plummeting prices that have put dozens of companies in danger of collapse.
In Colorado, prices have fallen 51% over the past two years, according to BDSA, a cannabis testing firm. The price of a pound of weed has fallen 36% in Massachusetts and 46% in Missouri in the past year alone, according to LeafLink, which tracks wholesale transactions.
The drop in prices is even more extreme in Michigan. Over the past two years, the price of weed in the recreational market has dropped about 75%, from nearly $400 an ounce to under $100.
The crisis is messy enough in Michigan that some industry officials are calling for a moratorium on grow licenses three years after the state launched a recreational market.
“With the glue of the supply and with so many licenses, it puts businesses in check,” Beau Whitney, an economist who focuses on the cannabis industry, said of the Michigan market. “Nationally, very few people make a profit in this industry.”
This market dynamic is exacerbating an already bleak financial outlook for cannabis companies even as sales are expected to reach around $30 billion this year, more than double the volume of sales three years earlier.
Companies face exorbitant taxes because they are treated like illegal drug dealers. And the failed bipartisan effort in Congress this month to make it easier for marijuana companies to access basic banking services means they will continue to face exorbitant rates to raise funds to run their operations. As Republicans retake the House, that dynamic is unlikely to change anytime soon.
There is one big winner among all market upheavals: weed buyers.
“What you see is the market working,” said Michael DiLaura, general manager of House of Dank, which has 10 Michigan outlets. “The Michigan consumer is now getting probably the best weed in the world at by far the best prices in the world.”
Lax enforcement
The Michigan weed market was in many ways a smash hit.
Sales in the adult market are expected to reach $2 billion this year, about four times the volume of sales in 2020, the first full year of operation. In the past year alone, the number of retail outlets where anyone 21 or older can buy weed has grown nearly 50%, approaching 600 stores statewide. Nearly 30,000 workers were authorized to work at state-licensed cannabis businesses as of late November, according to Michigan’s Cannabis Regulatory Agency.
But by all accounts, the state has also struggled to repress the still vibrant illicit market. According to a study by the Anderson Economic Group which was commissioned by the Michigan Cannabis Manufacturers Association. The rest of the transactions were conducted either through illicit channels or through the state “caregiver” market that developed to serve medical patients prior to recreational legalization.
Most observers say the biggest problem is finding illegal cannabis on the market from other states. Oregon, Oklahoma, and especially California are frequently cited as sources of illegal products that end up in Michigan cannabis stores.
“There are a lot of out-of-state products that end up on dispensary shelves in Michigan,” said Geoff Korff, CEO of Galenas, a cannabis cultivation and retail company that launched operations in Michigan. the state. Last year.
Michigan is not alone in the fight against a illegal market. In California, the vast majority of sales still come from illegal sources nearly five years after the state established its recreational market. New York saw a massive proliferation of illegal outlets as he prepares to launch adult sales. Nationally, Whitney Economics An estimated 75% of cannabis sales in the United States were illegal in 2021.
Michigan officials are now vowing to crack down on cannabis fraud. In September, the Democratic Governor. Gretchen Whitmer has named Brian Hanna to head the state’s Cannabis Regulatory Agency. Hanna’s background is in law enforcement, including serving as an intelligence analyst for the Michigan State Police and as a Kalamazoo County Deputy Sheriff.
He has made it clear that cracking down on rogue businesses is the number one priority. 1 priority.
We have heard [about] a lot of illicit market material is coming into the regulated market,” Hanna said in an interview. “We want to identify that and we want to find that and expose that.”
To facilitate this crackdown, the regulatory agency is in the process of hiring 11 additional people, including six investigators.
But some industry officials are calling for a more aggressive tactic: a moratorium on new cultivation licenses. The CRA held a public meeting in September to discuss this possibility and many business owners expressed their support for the idea.
“What you tend to see is a race to the bottom at this point in the market,” said Narmin Jarrous, executive director of the Cannabis Business Association of Michigan, who did not take a position on a possible moratorium. . “What people do is they just try to undermine each other.”
But the prospect of a moratorium on culture anytime soon seems extremely remote. The regulator says it needs legislative authority to enact even a temporary moratorium on grow licenses. It would require the approval of three-quarters of House and Senate lawmakers, and Democrats are poised to take control of both chambers.
“The idea of a moratorium is there, but I don’t necessarily know if it has momentum,” said Shelly Edgerton, president of the Michigan Cannabis Manufacturers Association, who previously spent 16 years working in the State Senate. “The Democrats haven’t been in charge in years – 40 years – so they’re going to have a lot on their agenda, probably outside of cannabis.”
Democratic State Sen. Jeff Irwin, who was previously political director of the 2018 Recreational Legalization Campaign, says the industry’s struggles in Michigan have received too much attention for a market that’s only three years old. He is concerned about the presence of illicit products on the market and a lack of consistent product testing, but does not believe major changes are needed at this stage.
“We work in a market that has been completely illicit for decades and decades and decades,” Irwin said in an interview. “I think sometimes we miss how much progress has been made over the past few years on growing the legal market.”
market upheaval
Michigan’s cannabis gluten will reshape the industry in the coming months. Struggling businesses are likely to collapse or be swallowed up by bigger, better-funded competitors.
“We’re starting to see a lot of people wanting to sell,” said Corbin Yaldoo, president of C3 CRE, a Bloomfield Hills-based real estate company that focuses on commercial cannabis properties. “And for good, well-funded operators, there will be plenty of opportunities for them to pick up people on the cheap.”
Common Citizen is among the companies looking to take advantage of this opportunity. The company currently operates an approximately 200,000 square foot grow facility in Marshall and seven retail outlets serving the medical and adult markets.
Common Citizen CEO Michael Elias predicts the company will look dramatically different a year from now as it seeks to shop. He expects revenue to double this year, mostly due to acquisitions, and projects they will more than double again in 2023.
“I actually like that it’s so distressed, because I’m picking it up at retail for a fraction of the price than a year ago,” Elias said. “It’s a buyer’s market.”
Similar dynamics are expected across the country, with analysts predicting a wave of mergers and acquisitions in 2023, in part due to the large number of struggling businesses, from family-owned retailers to large publicly traded companies.
“More consolidation is coming, and we’re going to see an acceleration of that next year,” said Jonathan DeCourcey, an analyst at BTIG who tracks the cannabis industry.
Elias and many others remain bullish on the Michigan market over the long term. Most market watchers believe there is still significant room for growth, especially with some of the state’s largest cities – especially Detroit – has not yet licensed recreational businesses.
“Anyone who has the stomach for it, now is the time to come in,” Elias said.
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