Almost three years since adult-use cannabis sales began in Michigan, retail sales reached more than $195 million in September - the state’s highest-ever one-month total.
The month’s total recreational and medical cannabis sales topped the previous record of nearly $210 million set in July. The figure includes $16,629,957 in medical marijuana sales, according to the Michigan Cannabis Regulatory Agency (CRA).
July’s high figures came despite declining wholesale recreational marijuana prices in Michigan, where cannabis can be purchased wholesale for $1,000 a pound, according to MJBizDaily. In September, the average cost of an ounce of retail flower was $109.63, according to CRA figures.
A tax revenue windfall
Despite declining prices, Michigan’s legal marijuana market has been a tax revenue windfall for the state. In March 2021, Michigan’s Department of Treasury announced that more than $42.2 million will be distributed among 163 state municipalities. Another nearly $100 million will be allocated to public schools and a transportation fund.
There are currently 1,781 active marijuana licenses in Michigan, including 569 for retailers and 924 for growers. And a little over four years after the state licensed its first medical cannabis dispensaries, more than 195,776 patients in Michigan, more than 70% of whom list chronic pain as their qualifying health condition for medical marijuana.
In November 2018, Michigan voters approved recreational cannabis legalization, becoming the first state in the Midwest to do so. The state’s first day of recreational cannabis sales came in December 2019. As of mid-2022, the state is home to 540 medical marijuana dispensaries in the state, and there are nearly 500 recreational cannabis dispensaries in Michigan.
In addition, the state's first two legal cannabis consumption lounges opened this year in Hazel Park and Kalkushka. In October, MLive reported that Ann Arbor is expected to open its first consumption lounge. A total of 19 municipalities across the state have opted into allowing cannabis lounges, MJBizdaily reported in July.
Legal cannabis in Michigan “has been quite the success”
“We learned from the states that came before us, and we’re pleased to see the states that came after us learning some additional lessons,” Travis Copenhaver, a partner in cannabis law firm Vicente Sederberg LLP’s Michigan office, told Rootwurks.
Copenhaver said he believes that Michigan's legal cannabis market “has been quite the success” and has done a good job of creating a system in which many Michigan-based cannabis companies have been able to thrive.
“It would have been nice to get more diversity in early cannabis ownership, but it was a pretty good system for a lot of people who wanted to believe in this program and invested their time and efforts into it,” Copenhaver said.
He added that “a lot of small groups got their shot. It’s capitalism; some lost, but at least you’re at the table.”
“We’re Going Through a Kind of Saturation”
Copenhaver described how Michigan's licensing system allows municipalities to approve cannabis retail businesses - and the ability to decide which type of cannabis licensees to allow.
“The gatekeeper opportunity is your local municipality. They can cap and prohibit but as long as you have a qualifying location then there’s no limits at the state level. The process at the state level is still involved to make sure that you’re going to operate successfully.”
Copenhaver did note that he wished the state cannabis system “was more business friendly” but added that “as long as you go through the motions with the state and put their minimum requirements in place, you’re going to get a license.”
Copenhaver described the state’s distribution of cannabis tax revenue as an economic success, especially in small rural communities. But such revenue can be subject to falling cannabis prices.
“We’re just now getting into kind of a saturation with the price per pound dropping. It’s a challenge for the Michigan industry as a whole, but I don't think that’s a unique issue to Michigan. We see similar challenges in other states and we’ll weather it the best we can.”
How are Michigan cannabis companies dealing with compliance issues?
According to Copenhaver, as the legal cannabis market, many Michigan cannabis businesses have had trouble balancing compliance with the host of other concerns that come with running a cannabis company.
“They got in, they took risks, they opened and went 90 miles an hour. I think the biggest challenge for most of these businesses is when they finally have a chance to catch their breath and look backwards to see how they’re operating and the structures they put in place, a lot of them grew too big too fast.”
Copenhaver said that as Michigan cannabis companies scale up and extend themselves more and more, they often don’t plan enough for the tough times and don’t necessarily keep enough staff on hand to handle their expansion - much less compliance.
“Regulators ask them why didn’t you do this or do that. Well, because you were so busy expanding and opening stores, you weren’t looking internally to make sure that your staff and team were appreciating the rules in place.”
He added that now that regulators are no longer as focused on new markets and licensing, they have more time to focus on operational issues - including compliance adherence.
Copenhaver said he advises his clients to identify possible regulatory programs and to get in front of them “before the CRA has their eyes on you.”
Moving forward, Copenhaver said there is some discussion about putting a moratorium on some of the manufacturing prices to deal with low prices.
But overall, cannabis will never be independent of the factors affecting the broader economy.
“I think we’re bouncing around while things stabilize. I’m expecting things to bounce back into healthy operations next year, but you have to compare our industry to the economics of the entire country. It’s not exactly booming business for any industry, let alone cannabis.”
