In a significant enforcement action by Michigan's Cannabis Regulatory Agency (CRA), Anthony Czuchra, the owner of The Reef dispensary in Detroit, along with Clark Street Investment Group Inc., has been officially prohibited from holding a business license in the state's cannabis industry. This decision follows the discovery that The Reef was engaging in the sale of cannabis to individuals without a medical marijuana card.
The CRA's Exclusion List, which documents entities barred from participating in Michigan's cannabis market, now includes Czuchra and his business. This move comes after a complaint filed in October 2022 alleged that The Reef was conducting unauthorized sales of marijuana. Subsequent to this complaint, CRA officials conducted an unannounced inspection in November, where they uncovered a series of regulatory infractions.
These violations were extensive and varied. The Reef was found to be inaccurately tracking transactions, selling unrecorded marijuana products not registered with the state, and improperly consuming food and beverages in areas designated for storing and processing marijuana products.
Clark Street Investment Group Inc. and The Reef join other entities like Candid Labs, Klean Herbal Solutions, and Pharmaco on the CRA's voluntary exclusion list, highlighting the strict regulatory environment in Michigan's cannabis industry.
During the CRA's visit to The Reef, officials discovered several concerning practices in the dispensary's storage room. These included improperly labeled products, loose cannabis flower on trays, and instances of product contamination by the owner himself while rolling pre-rolled joints. Notably, Czuchra admitted to altering the strain names of certain cannabis products, changing 'Banana Runtz' to 'Grinch Mints' for the holiday season, a clear violation of state policy.
This incident underscores the rigorous standards set by Michigan's regulatory bodies for cannabis businesses and serves as a cautionary tale for other operators in the industry.
In November, Michigan's cannabis market saw a marginal decline in sales, totaling $260.5 million, a slight decrease of less than 1 percent from October. Despite this dip, November marked a significant 28 percent increase in sales compared to the same month in 2022, signaling robust growth year-over-year.
Adult-use cannabis sales demonstrated a notable increase, rising 35.2 percent compared to November of the previous year, reaching $256.7 million. This figure, however, reflects a marginal 0.7 percent decrease from October 2023. In stark contrast, medical cannabis sales experienced a dramatic downturn, totaling just $3.8 million. This represents a substantial 72 percent decrease from November 2022 and a 14 percent decline from October 2023, indicating a continued decline in the medical sector.
The pricing for adult-use cannabis flower averaged at $1,560 per pound, marking a 2.5 percent increase from the previous year. In terms of product categories, combined sales of medical and adult-use flower led the market with $117.5 million. Vape cartridges, encompassing both medical and adult-use products, followed with sales of $50.3 million. Concentrates also performed well, with sales reaching $28.5 million.
Looking at the broader picture of 2023, the cannabis market in Michigan has seen a 34 percent increase in sales over the first 11 months compared to the same period in 2022. This trend suggests that the state is on track to achieve approximately $3.3 billion in combined medical and adult-use cannabis sales for the entire year of 2023.
The latest findings from the Monitoring the Future survey, conducted by the University of Michigan and financed by the National Institute on Drug Abuse, reveal a significant trend in adolescent behavior. The 2023 data indicates that the percentage of teenagers using illicit substances has remained below the pre-pandemic levels noted in 2020. This continuation suggests a lasting change in substance use patterns among adolescents following the initial drop observed after the onset of the COVID-19 pandemic.
The survey, which annually collects self-reported data on substance use from eighth, 10th, and 12th graders, showed that in 2023, 10.9% of eighth graders, 19.8% of 10th graders, and 31.2% of 12th graders reported using any illicit drugs in the past year. These figures, although reflective of the lowered levels of 2022, highlight a steady trend in adolescent behavior.
Richard Miech, the study's lead at U-M's Institute for Social Research, emphasized the importance of these findings. He noted that the persistent decline in teen substance use is significant, potentially indicating long-term reductions in future drug use trajectories. The survey, which also measures students' perceptions of drug harm, disapproval of use, and perceived availability, is crucial for understanding and tracking these behavioral trends.
In 2023, the survey captured responses from 22,318 students across 235 schools in the U.S. and found that the most commonly reported substances were alcohol, nicotine vaping, and cannabis. Notably, alcohol use among eighth and 10th graders remained stable, while there was a decline in use among 12th graders. Nicotine vaping showed a stable trend in eighth graders but declined in the higher grades. Cannabis use remained steady across all three grades surveyed.
For the first time in 2023, the survey included questions on Delta-8 THC use, revealing that 11.4% of 12th graders reported using this substance in the past year. Other illicit drug use outside of marijuana also remained stable among the surveyed grades.
In terms of abstinence from marijuana, alcohol, and nicotine, there was an increase among 12th graders, with 62.6% reporting no use of these substances in the past month. The rates remained stable for eighth and 10th graders.
The diversity of the survey's respondents was notable, with a broad representation across different racial and ethnic groups. Additionally, the survey methodology adapted to the pandemic's impact, with the majority of students completing it in person at school. However, there is an acknowledgment that those less engaged in school, a group at higher risk for drug use, might be underrepresented in these findings.
This study's results are crucial in understanding teen behavior and guiding public health strategies, especially in the context of changing policies and access to substances like Delta-8 THC.
The recent developments in Michigan's cannabis industry, marked by the financial and operational challenges of Skymint, present a complex landscape with both setbacks and opportunities. While our previous report detailed Skymint's closure of its Harvest Park cultivation facility, the broader implications of this event offer insights into the evolving dynamics of the state's marijuana market.
Skymint's ambitious growth targets were not met, as evidenced by their significant shortfall from the projected $263 million in sales for 2022. This misalignment between expectations and market realities highlights the difficulties faced by companies in accurately predicting market trends in the rapidly shifting cannabis sector. Despite holding a small share of the state's total retail licenses and an even smaller percentage of growing capacity, Skymint's aspirations did not align with the competitive and fluctuating nature of the marijuana industry.
The acquisition of Skymint by Tropics, two months prior to the closure announcement, has positioned the company to continue its operations in the retail segment. Skymint's shift in focus reflects a strategic adaptation to the current market conditions and underscores the importance of flexibility and responsiveness in the cannabis industry.
The cessation of Skymint's growing operations, while significant, does not necessarily predict a broader downturn in the industry. In fact, the situation has been perceived as an opportunity by other market players. Mike Elias, CEO of Common Citizen, and Andrew Sereno, CEO of Glacial Farms, both recognize the potential benefits for smaller growers and the overall market stability.
"I think the entire market is benefiting," said Mike Elias. "It's especially good for smaller operators trying to get a foothold. Keep in mind they're still operating a fairly large portfolio with a third party now taking the cultivation risk."
The fate of Skymint's Harvest Park facility, owned by Innovative Industrial Properties, remains uncertain. However, its impact on the market, considering Skymint's modest production capacity, is expected to be limited. Lance Boldrey, a cannabis attorney, notes that Skymint's contribution to the state's overall cultivation was relatively minor.
Despite these industry challenges, Michigan's cannabis market has shown remarkable resilience. Consumer demand has remained strong, driving significant sales growth. The state recorded $258.5 million in marijuana sales in October, with projections indicating a rise to nearly $3 billion for the year, surpassing the previous year's figures.
Furthermore, the potential federal reclassification of marijuana from Schedule I to Schedule III holds promise for the industry. This change could alleviate the heavy tax burden currently faced by cannabis businesses, potentially leading to more robust growth and stability in the Michigan market.
In conclusion, Skymint's recent challenges and strategic shifts are emblematic of the broader trends in Michigan's cannabis industry. The sector continues to navigate the complexities of market supply and demand, regulatory landscapes, and competitive pressures, demonstrating both the risks and opportunities inherent in this evolving industry.
The Clark Street Investment Group Inc., operating under the name The Reef, has been subject to a formal complaint filed by the Cannabis Regulatory Agency (CRA) of Michigan. The complaint alleges multiple violations of the Medical Marihuana Facilities Licensing Act (MMFLA) and associated administrative rules by The Reef, a licensed medical marijuana provisioning center in Detroit, Michigan.
According to the CRA's investigation, The Reef was found to have engaged in several compliance breaches. These include selling marijuana products to individuals without medical marijuana cards and multiple instances of improper handling and labeling of marijuana products. During unannounced site visits, CRA investigators discovered numerous discrepancies in product tracking and inventory management. They found pre-rolled marijuana products without the required Metrc tags, which are vital for ensuring compliance with state tracking systems. In addition, the investigators uncovered instances of mishandling of marijuana products, including an employee licking his fingers while hand-rolling pre-rolls, leading to potential contamination.
The complaint also highlights the center's failure to securely lock areas containing marijuana products, a breach of state regulations requiring commercial-grade locks for security. Surveillance footage revealed employees consuming food and beverages in areas where marijuana products were stored, processed, or packaged, further violating state rules.
The CRA's complaint outlines numerous counts of violations, each pointing to a specific aspect of regulatory non-compliance, ranging from inaccurate inventory management to improper labeling and packaging of marijuana products. The Reef faces potential fines, license suspension, revocation, restriction, or non-renewal if these violations are confirmed.
The Reef has been given the opportunity to respond to these allegations and can request a hearing to contest the CRA's findings. This case underscores the importance of stringent compliance with state cannabis regulations and the ongoing oversight role of agencies like the CRA in ensuring safe and legal cannabis operations.
The ongoing legal saga between Michigan-based cannabis operator 3Fifteen Cannabis and Skymint, a fellow cannabis company, continues to unfold. Initially, 3Fifteen was set to be acquired by Skymint, but Skymint's financial woes complicated the process. Despite Skymint not completing payment for the acquisition, a court ruling denied 3Fifteen's request to terminate the deal and retrieve their assets.
Mitch Baruchowitz, an investor in 3Fifteen through Merida Capital, revealed that their appeal against the initial court decision has been approved. This development freezes the receivership status for four months, delaying any action until 3Fifteen's appeal is heard.
The acquisition agreement dates back to September 2021, when Skymint agreed to acquire 3Fifteen, which operated 12 dispensaries in Michigan. This move was expected to position Skymint as a dominant player in Michigan's burgeoning adult-use cannabis market.
In April 2022, Skymint announced the closure of this deal and appointed Baruchowitz to its board. However, the situation took a turn as Skymint began struggling financially, incurring substantial debt and monthly cash burn of $3 million. Bankruptcy wasn't an option due to federal cannabis laws, leading Skymint to enter receivership.
There are reported accusations against Skymint's former CEO Jeff Radway, involving misuse of company funds. These allegations were part of the reasons 3Fifteen sought to terminate the deal, though the court initially ruled against them.
Persisting with their legal fight, 3Fifteen amended their complaint and appealed. The revised complaint alleges that Skymint's lenders, SNDL and its joint venture with SAF Group, Sunstream, pressured Skymint to take over 3Fifteen's assets without full disclosure of relevant information about Sunstream's loans to Skymint.
The complaint further accuses SNDL of SEC violations, alleging non-disclosure of material details about Sunstream's governance and the joint venture agreement with SAF Group. It also highlights Skymint's financial losses under SNDL/Sunstream's guidance.
3Fifteen argues that the acquisition should not have proceeded due to the lack of accurate information and alleges that Sunstream aims to enhance its portfolio by acquiring the assets. The appeal seeks the return of all 3Fifteen dispensaries.
Baruchowitz commented on the prolonged timeline for resolution and drew parallels between this case and another investor lawsuit, suggesting a pattern in Sunstream's business strategy.
As the legal battle continues, the future of 3Fifteen's assets and the acquisition by Skymint remains uncertain, highlighting the complexities of mergers and acquisitions in the evolving cannabis industry.
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