A national weed glut is causing prices to plummet and imperiling businesses

Michigan is emblematic of what’s been happening year-round across the country — and why the industry is in even as legalization spreads: Incensed hopes that a Democratic-controlled Washington might loosen decades-old restrictions on the drug have led to The increase in the market and the drop in prices put many businesses at risk of collapse.

In Colorado, prices have fallen 51 percent in the last two years, according to BDSA, a cannabis analytics company. According to LeafLink, which tracks wholesale transactions, the price of a pound of weed has dropped 36 percent in Massachusetts and 46 percent in Missouri in the past year alone.

The price drop in Michigan is even steeper. Over the past two years, the price of weed in the recreational market has dropped 75 percent — from nearly $400 an ounce to less than $100.

Fox is so complicated in Michigan that some industry officials are calling for a moratorium on farm permits three years after the state launched a recreational market.

“With so much supply, and with so many licenses, it’s setting the business up for failure,” Beau Whitney, an economist who focuses on the cannabis industry, said of the Michigan market. “Nationally, very few people are making a profit in this industry.”

These market dynamics are undermining an already bleak financial outlook for weed companies even as sales are expected to reach nearly $30 billion this year — more than double the sales volume of three years ago.

Companies face sky-high taxes because they are treated as illegal drug dealers. And yes failure of a dual effort A bill in Congress this month to make it easier for marijuana businesses to access basic banking services means they will face higher rates to raise money to run their operations. As Republicans retake the House, that dynamic is unlikely to change anytime soon.

There is one big winner in all the market upheavals: weed buyers.

“What you’re seeing is that the market is working,” said Michael DiLaura, chief operating officer for House of Dank, which has 10 retail stores across Michigan. “Consumers in Michigan now have access to the world’s best weed at the world’s best prices.”

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Lax enforcement

The Michigan weed market is a resounding success in many ways.

Sales in the adult-use market are expected to reach $2 billion this year — about four times the sales volume in 2020, the first full year of operation. In the last year alone, the number of retail stores where anyone at least 21 years old can buy weed has increased by 50 percent, to nearly 600 stores across the state. About 30,000 workers have been approved to work in the state’s licensed cannabis businesses since the end of November, according to the Michigan Cannabis Regulatory Agency.

But anyway, the state also tried to crack down on the still alive illegal market. According to a study by Anderson Financial Group, commissioned by the Michigan Cannabis Growers Association, only 30 percent of cannabis sales will be through licensed retail outlets — whether medical or recreational — in 2020. came The rest of the transactions were made either through illegal channels or through the state “care” market that developed to serve medical patients before recreational legalization.

Most observers say the biggest problem is illegal cannabis entering the market from other states. Oregon, Oklahoma and especially California are often cited as sources of illegal products that end up in Michigan weed shops.

“There is a lot of out-of-state product that is making its way onto dispensary shelves in Michigan,” said Geoff Korff, CEO of Galenas, a cannabis cultivation and sales company that started operations in the state. last year.

Michigan is alone in the struggle to fight illegal market. In California, the majority of sales still come from illegal sources nearly five years after the state established its recreational market. New York has seen a massive proliferation of illegal sales as it prepares to resume adult-use sales. Citizens, Finance Whitney estimated that 75 percent of US cannabis sales were illegal in the year 2021.

Michigan officials are now vowing to crack down on cannabis scams. In September, Democratic Governor Gretchen Whitmer appointed Brian Hanna as the new head of the state’s Cannabis Regulatory Agency. Hanna’s background is in law enforcement, including as an intelligence analyst for the Michigan State Police and as a deputy sheriff for Kalamazoo County.

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He revealed that cracking down on fraudulent businesses is the No. 1 priority. 1 is

“We heard [about] a lot of illegal market materials make it into the regular market,” Hanna said in an interview. “We want to recognize it and we want to find it and expose it.”

To ease that strain, the regulatory agency is in the process of hiring 11 more employees, including six investigators.

But some industry officials are calling for a more drastic tactic: a moratorium on new cultivation permits. The CRA held a public meeting in September to discuss the possibility, and many business owners expressed support for the idea.

“What you tend to see at this point in the market is a race to the bottom,” said Narmin Jarous, executive director of the Michigan Cannabis Business Association, which has not taken a position on a potential moratorium. “What people do is they just try to beat each other.”

But the prospect of an agricultural moratorium anytime soon seems remote. The regulator says it needs legislative authority to even adopt a temporary moratorium on farm permits. It would require approval by three-quarters of lawmakers in the House and Senate, and Democrats control both chambers.

“The idea of ​​a moratorium is out there, but I don’t necessarily know that it’s urgent,” said Shelly Edgerton, president of the Michigan Cannabis Growers Association, who has served for 16 years. State Senate. “Democrats haven’t been in control for years — 40 years — and so they’re going to have a lot on their agenda, maybe outside of cannabis.”

Democratic state Sen. Jeff Irwin, who previously served as political director for the 2018 recreational legalization campaign, argues that the industry’s struggles in Michigan have drawn too much attention for a market that’s only three years old. He is concerned about illegal products flooding the market and the lack of consistent product testing, but doesn’t think major changes are needed at this point.

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“We’re operating on a market that was completely illegal for decades and decades and decades,” Irwin said in an interview. “I think sometimes we forget how much progress has been made in growing the legal market in the last few years.”

Breaking the market

Michigan’s weed boom will reshape the industry in the coming months. Struggling businesses will likely collapse or be taken over by larger, better-financed competitors.

“We’re starting to see a lot of people who want to sell,” said Corbin Yaldoo, president of C3 CRE, a real estate firm based in Bloomfield Hills that focuses on commercial cannabis properties. “And for well-financed and good operators, there will be many opportunities for them to recruit people cheaply.”

The common citizen is among the entrepreneurs who are looking to take advantage of that opportunity. The company currently operates an approximately 200,000-square-foot cultivation facility in Marshall and seven retail stores serving the medical and adult-use markets.

Common Citizen CEO Michael Elias predicts the company will look radically different a year from now as it looks to go on a buyout spree. It expects revenue to double this year, mainly due to acquisitions, and projects that it will more than double in 2023.

“I really like the fact that it’s so sad, because I’m carrying the store for a fraction of the price it was a year ago,” Elias said. “It’s a buyer’s market.”

A similar dynamic is expected across the country, with analysts predicting a wave of mergers and acquisitions in 2023, given that there are so many struggling businesses, from mom-and-pop retailers to large commercial enterprises. general ones.

“More consolidation is coming, and we’re going to see an acceleration of that next year,” said Jonathan DeCourcey, an analyst at BTIG who follows the cannabis industry.

Elias and many others remain bullish on the Michigan market in the long run. Most market observers believe there is still significant room for growth, especially with some of the state’s largest cities – especially Detroit – still not allowed any recreational businesses.

“Anyone who has the stomach for it, this is the time to enter,” Elias said.

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