Michigan's Green Gold Rush: Booming Sales, Falling Prices

Michigan's cannabis industry experienced a significant milestone in July, with sales surpassing the $276 million mark, encompassing both recreational and medical uses. These figures, reported by the Michigan Cannabis Regulatory Agency, suggest a promising trajectory for the state, with projections indicating that revenues could eclipse $3 billion for the first time this year. Should this trend continue, Michigan is poised to become the second-largest cannabis market in the country, trailing only California.

Despite the booming sales, challenges persist for retailers, many of whom grapple with thinning profit margins. One of the main culprits? A continuous decline in marijuana prices, despite a modest recent uptick.

The regulatory framework in Michigan allows the Cannabis Regulatory Agency to grant new licenses for growers every month. According to Beau Whitney, a senior economist at the National Cannabis Industry Association, this frequent licensing is a significant factor causing the current struggles for retailers. Whitney describes the situation as a "race to the bottom," where the sheer volume of competition is driving prices to unprecedented lows, a trend that is unsustainable in the long run.

In a detailed breakdown of July's licensing, the state processed 97 applications, granting 87 new licenses. A significant portion, 17 licenses, went to class C growers, who, under state regulations, are permitted to possess up to 1,500 plants.

Currently, Michigan boasts 2,080 active licenses for recreational cannabis. Intriguingly, over half of these licenses belong to class C growers or retailers.

Jerry Millen, proprietor of The Greenhouse dispensary located in Walled Lake in western Oakland County, provides further insights into the challenges the industry faces. He highlights the struggles of smaller, independent retailers facing stiff competition from major corporate entities, which, armed with deeper pockets, can afford to engage in aggressive pricing strategies, often to the detriment of smaller establishments.

Green Peak Industries stands as a testament to these market dynamics. This Dimondale-based cannabis company, with its Skymint-branded dispensaries scattered across the state, is known for its competitive pricing – typically below the average $99 per ounce as indicated by the Cannabis Regulatory Agency's report. However, despite their aggressive expansion, having opened over 20 locations since their debut in Ann Arbor in 2018, the company currently finds itself under receivership, with allegations of a staggering $127 million debt.

Following the legalization of marijuana in Michigan in 2018, a 10% excise tax was introduced, compounded by an additional 6% sales tax. This, coupled with high production costs and an oversaturated market, paints a complex picture for retailers – albeit a favorable one for consumers. For instance, consumers now enjoy a reduction of $23 on the price of an ounce of recreational marijuana compared to the previous year.

Interestingly, while prices have shown a general decline over the past year, they were slightly higher in February, when sales reached a remarkable $200 million.

It's worth noting that Michigan's marijuana market typically demonstrates seasonality. The warmer months often see a surge in prices, largely due to the increased costs of cultivating marijuana in indoor greenhouses compared to outdoor farms. As summer concludes, the predominant supply available for sale is the more costly, indoor-grown cannabis. However, this expected price hike hasn't been as prominent this year.

As harvest season looms, characterized by typically cheaper prices, retailers bear the brunt of cannabis taxation. They're left striving to innovate and collaborate with suppliers to ensure profitability.

Millen emphasizes a necessary paradigm shift for retailers: "Rather than obsessing over undercutting competitors, retailers should prioritize customer service, education, and mainstreaming marijuana." He nostalgically adds, "This race to out-price one another isn't in line with the original spirit and culture of the marijuana industry."