As Michigan approaches the fifth anniversary of legal cannabis sales, Ohio has joined the growing list of U.S. states offering recreational cannabis. Ohio's market officially opened on Tuesday, August 6th, with 120 stores licensed to sell cannabis to adults aged 21 and over who present valid identification.
In its first five days, Ohio's cannabis sales reached $11.5 million, averaging nearly $2.3 million per day, according to data from the Ohio Department of Commerce. In comparison, Michigan's cannabis market is generating approximately $9 million in daily sales—more than triple Ohio's average.
Despite Ohio's noteworthy launch, the new competition has had little noticeable impact on Michigan's cannabis market, even for retailers near the border who rely heavily on sales to Ohio residents.
Camden Miller, a manager at Pinnacle Emporium in Morenci, Michigan, located near the Ohio border, expressed minimal concern about Ohio's entry into the market. "At the moment, we're not too worried about it," Miller said. "The supply and demand isn't there yet in Ohio, and just like Michigan ... until you get it oversaturated, you're not going to see prices come down. Within the next few years, I'm sure it will start having more of an impact."
Projections suggest Ohio's cannabis market could reach $1.5 billion in its first year, potentially bringing in nearly $150 million in new excise taxes. However, Ohio currently has only a few stores within a 30-minute drive of the Michigan border, including two in Toledo and one in Bowling Green. The Ohio Department of Cannabis Control has plans to license more stores in the future.
For now, Ohio residents appear willing to travel to Michigan for better deals and more extensive product selections. Miller noted that a significant portion of Pinnacle Emporium's business comes from out-of-state customers, including many from Ohio, who often place large orders. "We've already had customers coming in and saying the prices in Ohio are crazy right now," Miller said.
Price discrepancies between the two states are striking. Ohio stores are reportedly selling 1.6 grams of cannabis flower for nearly $50, while Michigan retailers offer eighths (2 grams) for as low as $8. In Ohio, the average price for an ounce of cannabis during the first week of sales was about $266, whereas in Michigan, the average price dipped to just under $80 per ounce in July, according to the Michigan Cannabis Regulatory Agency (CRA).
Harrison Carter, a manager and co-owner of NAR Cannabis in Monroe, Michigan, about 12 miles north of the Ohio border, emphasized the price advantage Michigan holds. "There is such a large price discrepancy with the abundance of supply that exists in Michigan and the under-supply that currently exists in Ohio that consumers are making decisions that are very much budget-based," Carter said.
Although Ohio's tax structure is slightly higher, with a 10% excise tax and a state sales tax of 5.75% (plus varying local taxes), compared to Michigan's 10% excise tax and 6% state sales tax, the higher product costs in Ohio may deter some consumers from shopping locally.
The Michigan Cannabis Regulatory Agency declined to comment on Ohio's market launch or its potential impact on Michigan. Meanwhile, Ohio officials have expressed satisfaction with the initial rollout of their recreational cannabis market. "The Division of Cannabis Control has been closely monitoring these first days of non-medical sales and has been extremely impressed with the level of seriousness and responsiveness the industry has shown in meeting the requirements," said Jamie Crawford, spokesperson for the Ohio Department of Commerce. "As we move forward, the division's top priority will remain on the safe and legal sale and regulation of both medical and non-medical cannabis for Ohioans who choose to use them."
Michigan's cannabis market, which has been growing since the first licensed businesses began operating in December 2019, benefits from a more flexible licensing program than Ohio's. This has led to significant growth, with Michigan stores having sold nearly $10 billion in cannabis products to date, including approximately $1.3 billion in medical marijuana sales.
The recreational market in Michigan is expected to surpass $3.3 billion in sales over the next year. As of July, Michigan had over 800 licensed stores, with grow and processing operations managing 1.7 million cannabis plants in the pipeline.
In contrast, Ohio's cannabis infrastructure is still developing. The Ohio Department of Commerce recently listed 46 licensed processors, 37 growers, and 120 stores with certificates of operation. Ohio's Division of Cannabis Control, established following a November 2023 ballot initiative passed by 57% of voters, oversees the state's cannabis licenses, similar to a state liquor control commission. Local municipalities in Ohio can impose zoning restrictions or moratoriums on cannabis businesses, further limiting market growth.
Michigan's less restrictive licensing approach has led to clusters of cannabis shops in municipalities that permit recreational sales, particularly along state borders. For example, Monroe, Michigan, near the Ohio border, is home to 18 licensed cannabis shops despite a population of only about 20,300. In Morenci, there is one cannabis shop for every 450 residents.
This liberal licensing has resulted in unique market dynamics in Michigan, including low prices and high competition. Nearly 20% of the retail licenses issued since the market's inception no longer exist, reflecting the market's volatility. Despite these challenges, Michigan retailers view the competitive environment as beneficial for consumers, offering them a wide range of options at low prices.
"We're very much focused on ourselves here in Michigan," said Carter of NAR Cannabis. "We're continuing to offer not only good service but good products at affordable prices ... We're very much in an oversupply moment, and we're able to hit certain price points that a lot of Ohio consumers are frankly used to at this point."
Agrify Corp. (NASDAQ: AGFY), a Michigan-based company specializing in cannabis cultivation equipment, reported a net loss of $2.8 million for the second quarter of 2024. Although the loss marks an improvement from the $6.8 million deficit reported in the same quarter last year, it comes despite a significant drop in revenue.
The company's quarterly revenue fell to $2.9 million, nearly halving from $5.1 million in the second quarter of 2023. However, this figure represents a slight increase from the $2.6 million reported in the first quarter of 2024. Over the first half of the year, Agrify's total revenue reached $5.5 million, down from $10.8 million during the same period in 2023.
CEO Raymond Chang, in a recent press release, hinted at the company's precarious financial position, revealing that Agrify had just $53,000 in cash as of June 30th. Chang acknowledged the need for additional capital, particularly after the collapse of a proposed merger with Nature's Miracle in May, which had the potential to provide much-needed financial relief.
"2024 continues to present significant challenges, with the cannabis industry cautious about future investments due to regulatory uncertainties and limited access to capital," Chang stated. "Despite our ongoing efforts to cut costs and manage payables, our limited cash reserves remain a significant barrier to growth. The company will therefore continue to explore all strategic options to maximize shareholder value."
Agrify faced the threat of being delisted from the Nasdaq exchange last fall. In May, the company converted $13.8 million of its debt into equity, enabling it to comply with Nasdaq's requirements and maintain its listing.
As of the end of the second quarter, Agrify reported total assets of $39.6 million, which includes the $53,000 in cash, against total liabilities of $30.8 million. The company also carries an accumulated deficit of $264.3 million, highlighting the significant financial challenges it faces as it seeks to navigate the turbulent cannabis market.
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The competition between Michigan and California in the cannabis industry extends beyond regulated recreational sales. Michigan's operators also rank high in terms of unpaid invoices, posing significant financial challenges within the market. According to Brett Gelfand, managing partner at Cannabiz Collects and founder of the Cannabiz Credit Association, Michigan is emerging as one of the most problematic states for unpaid debts in the regulated cannabis industry.
Gelfand noted that while Oregon and Colorado were previously significant markets for debt collection, many companies in those states have been "weeded out," leading to a decrease in collection activity. However, new markets like Michigan are increasingly contributing to the issue.
Whitney Economics, an Oregon-based cannabis data and research company, forecasts that delinquent payments in the U.S. cannabis industry could exceed $4 billion in 2024.
A primary factor contributing to unpaid invoices in the cannabis industry is the lack of access to traditional banking and capital. Unlike other businesses, cannabis operators often cannot obtain credit cards or standard operating capital. This forces them to rely on trade credit, effectively making them act as banks without the necessary expertise or safeguards.
When cannabis companies extend net-15 or net-30 terms, they take on the role of financial institutions but without the recourse available to banks, such as credit checks or liens. This puts them at a disadvantage, as they feel compelled to extend credit to secure sales, risking financial instability.
The retail sector is most notorious for nonpayment, triggering a domino effect across the supply chain. Retailers' unpaid debts affect producers and brands, which in turn delay payments to testing labs and other service providers. Larger ancillary companies, such as grow-supply and lighting businesses, are generally more cautious and less likely to extend credit freely due to their experience in the industry.
To mitigate financial risks, cannabis companies should implement several best practices:
Dedicated Collections Role: Assign someone responsible for collecting payments to ensure accountability and follow-through.
Clear Policies and Procedures: Document and enforce a comprehensive policy for managing accounts receivable.
Customer Analysis: Evaluate a company's creditworthiness before extending credit terms.
Onboarding Agreements: Use legally reviewed agreements with default clauses to protect against nonpayment.
Personal Guarantees: Secure personal guarantees for significant credit extensions to safeguard against default.
With many retail chains struggling financially, vendors are often left with little recovery, emphasizing the need for these protective measures.
Many cannabis operators hesitate to report default accounts to collections due to concerns about their reputation. They fear being perceived negatively in the industry. However, Gelfand argues that this mindset needs to change. Not fulfilling payment obligations can lead to severe consequences for other businesses, potentially causing them to fail.
Operators must also be cautious about informal reporting through Facebook or WhatsApp groups dedicated to exposing delinquent companies. While well-intentioned, these groups can violate antitrust laws, especially if they deter sales to specific businesses. It's crucial for industry participants to share information in a regulated manner to avoid legal repercussions.
Pinckney moved forward with plans for two recreational cannabis businesses on Monday, but not without some hesitation from local officials.
The Pinckney Planning Commission re-approved the final site plan for The Means Project, a cannabis retail, growing, and processing facility located at the former Pinckney Elementary at 935 M-36. Additionally, the commission gave preliminary approval to Essence, a proposed marijuana microbusiness that will include a retail showroom, grow room, storage, and processing facility. This development is planned for a vacant plot at 1268 E. M-36, between Wendy's and Taco Bell. Essence will need final site plan approval in the future.
Initially, the commission voted 4-2 against The Means Project without explanation, with Vice Chair Joe Hartman and Council President Linda Lavey voting in favor. Later in the meeting, Hartman encouraged a re-vote after discussing some commissioners' concerns, resulting in a 5-1 vote to approve with contingencies. Chair Christine Oliver voted "no" the second time.
The previously approved site plan for The Means Project expired due to construction delays and a legal dispute, with no changes made to the plans in the interim.
Jacob Kahn, an attorney for The Means Project, was surprised by the initial denial, citing that village officials had already extended a special land use permit, which was a prerequisite for final site plan approval.
"We are not actually allowed to vote 'no'; that would be illegal," Hartman explained later in the meeting.
"It would probably get us sued," added Lavey. "I also hate that marijuana has come to town, but people voted, so it's here. It's a legal business. They have a site plan that was already approved. So, what's stopping us tonight?"
Commissioners Oliver and Alex Smith expressed concerns about the project's completion, given its history of delays.
"Given the history and the track record, that's where my concerns come from," Smith noted.
Commissioner Trisha Wagner cited traffic concerns as her reason for initially voting "no."
Village Zoning Administrator Julie Durkin reminded the commission that The Means Project has a new general contractor and a performance guarantee in place. She also noted that the Michigan Department of Transportation oversees traffic on M-36.
The commission then voted to approve the project.
Marco Lytwyn, representing Pinckney Developments, LLC, proposed Essence, a 3,200-square-foot Class A microbusiness. In Michigan, such microbusinesses can grow up to 300 plants on-site to process and sell.
While some commissioners expressed reluctance, the commission approved the proposal with a 5-1 vote, with Smith voting against.
Commissioner Deborah Grischke voiced concerns about traffic, questioning a report predicting about 100 vehicles a day. She also sought more information about potential impacts on the watershed after public concerns about nearby Honey Creek.
Lytwyn must address contingencies, including a third-party traffic study and county approval of a drainage plan, among other conditions.
The Motor City Rockers, a professional minor league ice hockey team based in Fraser, Michigan, are thrilled to announce a new partnership with Cloud Cannabis for the upcoming 2024-25 season. As the tenth team to join the Federal Prospects Hockey League, the Rockers continue to enhance their fan experience with exciting new collaborations.
Cloud Cannabis, known for its eleven locations throughout Michigan, offers the nearest store to Big Boy Arena in Utica. Fans interested in learning more about Cloud Cannabis locations, their Rewards Program, or placing an order online are encouraged to visit their official website.
Through this partnership, members of the Cloud Club Dispensary Rewards Program can enjoy exclusive benefits, including discounted tickets to the Rockers' game against the Prowlers on Saturday, December 14th. Additionally, the Rockers and Big Boy Arena are proud to introduce a new "Smoking Lounge Presented by Cloud Cannabis," which will be conveniently located just outside the Box Office at the entrance of Priority Rink 1.
John McLeod, co-founder of Cloud Cannabis Co., has announced plans to invest approximately $1 million to open a new dispensary in Grand Rapids. The dispensary will be located in a former credit union office on the city's northeast side. McLeod acquired the property, located at 600 Plymouth Ave. NE, on February 1st, 2023, and intends to transform it into a processing and retail facility operating under The Bloomery brand.
McLeod, who sold Cloud Cannabis Co.'s 11 retail stores to Stash Ventures earlier this year, now serves as the director of new markets for The Bloomery. As one of Michigan's largest cannabis retailers, Cloud Cannabis Co.'s sale marked a significant shift in McLeod's career, leading him to focus on new ventures.
The new Grand Rapids location presents a unique challenge due to its relatively small size of 2,500 square feet. "We really wouldn't look at a store this size, but we just feel it's a unique opportunity in an area not served by cannabis," McLeod stated. He emphasized the need for creativity and efficient use of space, given that only 625 square feet can be allocated for retail operations due to the property's industrial zoning.
The plan for the dispensary has already received special land use approval from the city. The remaining space will be utilized for processing activities. The dispensary, potentially branded as a "Bloomery Express" or an outlet-style store, will undergo significant renovations, including the removal of an existing vault. Metric Structures, a Grand Rapids-based company, will oversee the project as both the owner's representative and general contractor. The project is expected to be completed by the end of the year.
McLeod expressed his enthusiasm for expanding The Bloomery's presence in Grand Rapids. "We love Grand Rapids, the people, and the city, so it was important for us to get another store there after we sold the Cloud stores," he said. He highlighted the importance of adaptability in the ever-evolving cannabis industry.
This investment is part of McLeod's ongoing commitment to the West Michigan cannabis market. Besides his role at The Bloomery, McLeod also heads new markets for Mitten Distro, a grow and processing facility in Kalamazoo. Despite fluctuating cannabis prices, retail sales continue to show slight growth year over year, encouraging further investment in the industry.
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