Six issues that define the Michigan cannabis market today

A Redbud Roots cultivation facility. (Courtesy of Redbud Roots)

Michigan regulators announced this week that legal cannabis sales topped $109 million in July, yet the market continued to operate as an anomaly from many other cannabis legal states: relatively easy to obtain a license, a light presence of multi-state operators, but with booming sales.

To better understand the Michigan market and its unique circumstances, Grown In interviewed  a series of cannabis industry leaders throughout the state and found six consistent themes.

  1. Prices may be dropping, but there’s still a supply crunch.

Michigan dispensary operators have been reporting lower wholesale prices for legal cannabis. Today, it is around $2,400 a pound for flower, much lower than the $4,000 a pound that was common three years ago, operators tell Grown In. But dispensaries not linked to a cultivator can have problems obtaining a wide range of product, and usually not as high THC levels for flower as you can find in other states.

“Cultivators will say I won’t sell to you,” says Ron DiGiacomo, an owner of dispensaries in Michigan, Illinois, and Colorado. For instance, Exclusive Brands was opening their stores when we opened ours and they decided not sell to ours.” Exclusive is a vertically integrated cannabis company based in Ann Arbor.

Generally, those in the industry think the problem will correct itself over time. 

“As more licenses are issued for growers and processors, the wholesale prices will decrease over time. It’s important to note that every state has struggled with supply and we are still in the infancy of our state-licensed program,” says Robin Schneider, executive director of the Michigan Cannabis Industry Association (MCIA).

  1. Vertical integration is a key to success.

Dispensaries are having problems with getting supply, ergo it makes sense to move upstream and own your own cultivation facility. It seems quite a few are thinking that very thing, since Michigan is approving cultivation licenses at a rapid clip, with 27 new medical cannabis “Grower C” licenses issued just in July, on top of the 210 already active licenses of that type.

“The name of the game is vertical integration. A lot of these businesses that are store-only are struggling to get product and consistent product,” says Dave Murray, CEO of Redbud Roots, a grower, processor, and retailer based in Buchanan, Michigan. “I think it would be a huge struggle for people that were dispensary only to make money. I think long term you’re going to see a lot of e-commerce come in here. In 10 years you’ll see it be like alcohol distribution. I don’t think dispensaries will be like they are [today] in 10 years.”

  1. State barriers for obtaining a license are low, but municipalities have lots of power.

Although Michigan cannabis company operators won’t say it’s easy to get a cannabis license in the state, those with experience in other states think it is considerably easier to get a state license in Michigan than some other states, like Illinois or Massachusetts. But in the Mitten, the real barrier is municipal approval. Because of the state’s two-step process – after state pre-qualification you need municipal zoning approval to obtain your final state license – individual towns exercise tremendous power over cannabis licensees. Also, relatively few municipalities allow cannabis licenses, bunching them up in small places. 

For instance, Muskegon already has three dispensaries in town, says DiGiacomo who operates there, and they are considering six more. 

“I think that it could be a great business, we’re doing O.K.,” says DiGiacomo. “But, I don’t want to see another five open up. I have no control over that unless I convince the city to not pop them up like 7-11s, so you get lots of stores all over the place like in Colorado.”

DiGiacomo also operates a dispensary in Colorado Springs where, “there’s 111 [other dispensaries] around me. I’d love to sell my dispensary to an MSO but they don’t want to go there because there’s too much competition. Maybe that’s where they think Michigan is going.”

  1. Everyone has a reason why Multi-State Operators are mostly staying clear of Michigan.

“Michigan has one of the most free-market licensing programs in the country with no limit on the number of licenses the state will issue,” says Schneider, of the MCIA. “This may play a role in making Michigan less attractive to MSO’s.”

Almost every other retail-legal state has a heavy presence of MSOs, and yet Michigan remains largely controlled by local companies. Everyone we talked to had a different reason, from the idea that MSOs didn’t think Michigan would be so successful, so they put their capital elsewhere, to the concern that it’s “too easy” to get a license in Michigan compared to other states. 

Whatever the reason, circumstances may be changing as Grassroots/Curaleaf has opened a group of dispensaries under the “Herbology” brand, and Livwell and Cresco Labs have both begun operations in Michigan.

  1. The history of caregiver sales alters everything.

“Michigan had a very entrenched medical system in the state, they needed to reconcile that,” says Kristi Kelly, Chief Strategy Officer of Sozo Companies, which operates a cultivation facility in Warren, Michigan. The law Michigan created, reflected that reality, and they are still working through it, says Kelly, an experienced player who built her first cannabis company in Colorado, which she exited in 2015.

The power of the medical market, which numbers 246,577 patients and 31,667 caregivers as of July 31, skews everything about the Michigan market. Because so many caregivers are able to grow and sell cannabis through cultivators, it alters supply chains and gives dispensaries access to strains they might otherwise be able to get.

“I feel like the product has not been to the standard that Illinois or Colorado has, because of the way they did not license enough cultivators in the beginning,” says DiGiacomo. “Then [state regulators] allowed caregiver cultivators to sell. Slowly but surely that’s sifting out. Only now I’m finding cultivators that can meet the demand.”

  1. It’s hard to get a bank account.

Like in Illinois, cannabis business operators tell Grown In there are only about four or five state chartered banks and credit unions in the state willing to bank cannabis. Some cannabis operators with experience in other states have been able to bring in their banks from Colorado or California, but those are few and far between. Cannabis operators also complain that their local banks tend to be smaller, with lower assets. Sometimes their business’ deposits add up to a significant percentage of the institution’s deposits, which can be unsettling. On top of that, some cannabis operators tell Grown In they have been asked to sign non-disclosure agreements by their financial institution because it doesn’t want more cannabis business.