Budding marijuana leaves grow on Monday, March 22, 2021, at UBaked, a cannabis cultvation center in Burton, Michigan. Jake May | MLive.com
Like an awkward teenager entering puberty, Michigan’s marijuana industry experienced some growing pains in 2021.
There have been legislative battles, innovations, corporate expansion, market growth, dipping prices and a historic recall that continues to shake the industry.
Acne and all, It’s been a pretty successful sophomore year for the recreational marijuana market that opened in December 2019 and has grown into a nearly $2 billion-per-year industry, if medical marijuana sales and recreational are combined.
While the product is a plant, the market has thrived because of technology. Marijuana is more available than ever with innovations in online ordering, delivery and curbside pickup.
Even though sales plateaued through most of the latter half of 2021, the year was capped off with a record-breaking sales month and most believe the future of Michigan’s market remains bright, as marijuana becomes increasingly socially acceptable, affordable and accessible.
The pace of growth will depend on new cities — like Detroit, where recreational marijuana businesses remain illegal — entering the marketplace, Marijuana Regulatory Agency (MRA) Director Andrew Brisbo said.
“I think without additional municipal participation, we’re getting close to saturation,” he said.
Since January 2021, Michigan marijuana revenue surged 53% from about $110 million per month to $168 million in December, which also marked a monthly record for recreational sales, $135 million.
Total combined monthly revenue hit a record high in July, when sales reached $171 million. Since that time, medical marijuana monthly sales have decreased 23%. Recreational sales increased nearly 16%. If maintained, December sales put the market on pace to reach $2 billion over the next year.
Total recreational marijuana revenue, since the first licensed shops opened in December 2019, is more than $1.8 billion. That figure jumps to $2.8 billion with medical sales included.
Recreational sales reached $341 million in 2020, versus $1.3 billion in 2021. The state captured $31 million from the 10% recreation excise tax in 2020, in addition to about $15 million in application and other licensing fees, not including the 6% in sales taxes. The tax capture in 2021 is likely to reach $130 million, in excise taxes alone.
But the ceiling is a long way up, MRA Director Brisbo has said, predicting the market will grow to nearly 4 million customers spending $3 billion annually by about 2024.
Brisbo said the latest figures indicate Michigan’s marijuana industry directly supports nearly 33,000 jobs.
“We’ve seen a lot of our members, even small mom-and-pop retailers, expanding into new areas,” said Robin Schneider, director of the Michigan Cannabis Industry Association (MCIA), the state’s largest marijuana trade organization. “We’ve also seen a number of our retail members open their own license grows and processes this year and become vertically integrated. So, we’ve definitely seen a ton of expansion this year and expect to see that trend continue next year.”
Consolidation and expansion
While the market continues its trajectory, traits that accompany most evolving industries emerge, namely, corporatization, chains and consolidation.
There were 211 recreational marijuana retailers when 2021 began. That figure has more than doubled to 432 licensed retailers, with a growing share of belonging to chains. There were 12 owners that had chains with three or more locations when 2021 began. That number. By December had tripled to 36 by December.
Among them, Troy-based Lume Cannabis Company, founded by Robert Barnes and his brother, Donald Barnes Jr., owners of Belle Tire, is becoming among the most prolific in the state. Its first store opened in Evart in December 2019, and its 30th in Mount Pleasant just before the new year.
“When I first joined Lume Cannabis Co. in 2019, we had just 75 employees,” Lume President and COO Doug Hellyar said in October. “Fast-forward a little over two years and we now employ 1,000 people and counting in great paying jobs with high-quality benefits.
“Our explosive growth over the last two years makes Lume one of the fastest growing, privately owned companies in Michigan.”
Lume has dubbed itself the “nation’s largest single-state adult-use operator.”
“This year has been an amazing year of growth for Lume Cannabis Co. and opening our 30th adult-use store in Michigan — and second in Mt. Pleasant — is a great way to tie a bow on 2021,” Hellyar said. ““Lume is proud to call Michigan home, and our number one goal is to serve the cannabis needs of every Michigander, regardless of where they live. We are proud to give back to the communities we serve by creating jobs and providing much-needed tax revenue to local municipalities to help fix roads, hire first responders and support local schools.”
Lume isn’t alone in its meteoric expansion, although its biggest competitors expanded a little differently: through massive buyouts.
Skymint, which already operates at least 13 branded stores statewide, in September announced the $78 million purchase of 3Fifteen, a retail chain with about a dozen locations. With the acquisition and continued expansion, Skymint aims to have have about 30 Michigan locations by the end of 2022.
Gage Cannabis announced the opening of its 18th retail location in Ann Arbor earlier this month, recently secured a $55 million loan for retail expansion in the state and is the target of an in-progress, $545 million acquisition by Terrascend, a multi-national cannabis company with licenses or operations in four states and Canada.
Schneider of the MCIA said it’s also a matter of funding that’s leading to more chain ownership. It’s an “expensive industry,” which makes it more difficult to “get you foot in the door,” she said. With the financial barriers at the front end, successful businesses that make it and seek expansion will become increasingly attractive to big-money investors.
Rick Thompson, a legalization pioneer and the president of the state chapter of National Organization for the Reform of Marijuana Laws (NORML) said consolidation within the marijuana industry nationally has been taking place for several years. He’s not a fan and worries that it creates vulnerability with less competition.
“But here in Michigan, it’s just now started to take place,” Thompson said. That’s because Michigan, unlike other states, has an uncapped license system. Each community creates its own licensing allotment and structure. Thompson said big corporations prefer the stability in states, like Illinois, where there are fixed numbers of licenses regulated at the state level.
While most within the industry don’t yet look at marijuana as a product to be commodified, Steve Linder, a longtime Republican lobbyist and director of the director of the Michigan Cannabis Manufacturers’ Association (MCMA), which represents some of the largest marijuana players in Michigan, said it’s inevitable to some extent. But there will still be room for the “little guy,” he said.
“You look at any other industry. You’ve got Walmart and Meijer stores, but you’ve got lots and lots of convenience stores and grocery stores,” Linder said, “As long as there are customers and as long as there are businesses that can provide good product, good service at good prices, there’s room for everybody in the marketplace.”
Linder and his association’s big-business interests have become the enemies of many longtime marijuana pioneers who were around when Michigan first voted to legalize medical marijuana in 2008. With passage of that law, Michigan established a caregiver system. Caregivers are state-registered growers who are currently allowed to grow 12 plants each for themselves and up to five patients.
Caregivers were created to grow on behalf of patients, who might not be knowledgeable or physically capable enough to do it on their own, and to provide them with medicine. Beyond registering with the state, caregivers are not regulated by the MRA, but the MCMA and some politicians think should change.
The MCMA and Linder are behind a legislative push to do away with caregivers as they exist and bring their function within the fold of the regulated market.
Dubbed the Michigan Cannabis Safety Act, the laws would limit caregivers, currently allowed to grow up to 72 plants, to 24. It would also reduce the amount of harvested marijuana they may possess from from 15 ounces to five.
The proposed law creates a new “specialty grower” license that mimics some of the functions a caregiver provides, but with much more regulation and oversight. Holders of the specialty license would submit applications, pay fees, register their grows, record plants and products in the statewide computer tracking system and submit their harvested marijuana for costly safety compliance testing, which currently isn’t required for caregivers.
Linder and the MCMA most frequently cite public safety as the impetus for their lobbying, but most within the industry believe it’s about eliminating competition.
Since the average marijuana user doesn’t consume the amount of marijuana produced by 12 plants through up to three harvests a year, most agree that at least some excess caregiver marijuana makes into the vast and difficult-to-quantify black market. The current law allows caregivers to charge patients for their costs and give away excess, but doesn’t allow them to sell for profit.
The distinction between a caregiver following the rules and supplying patients medicine, versus a grower wearing the caregiver moniker to sell marijuana outside the commercial market, is where the battle lies.
The MCMA commissioned from the Anderson Economic Group a study that estimated about 70% of the $3.2 billion worth of marijuana purchased in Michigan in 2020 came from outside the licensed market, including product from caregivers and illegal sellers.
“We did an extensive amount of polling and the public is very supportive of these bills,” Linder said. “First of all, the public didn’t realize that caregiver product is not tested. That was a shocking revelation. We don’t want to put anybody out, we just want everybody to have to abide by the rules.”
Opponents of the bills say they will deprive ill patients of the inexpensive, custom-grown marijuana they need, and destroy the personal relationships they’ve developed with caregivers, transforming them instead into new customers for big business.
“We don’t have an official position on it,” MRA Director Brisbo told MLive. “I think it’s something to be analyzed, because there are some pretty broad changes taking place there. We’ve heard out both sides of the issue, but that’s not been a legislative priority for the agency.”
The MCMA-spearheaded laws have passed out of committee and are awaiting a vote by the state House of Representatives. If approved, they will head to the Senate. Linder hopes the laws will pass in 2022.
While market has a lot of growth ahead of it, according to projections, it’s becoming quickly diluted, partially because so many communities are opting not to allow marijuana business in their jurisdiction.
As of January, only 117 of Michigan’s 1,773 cities, townships or villages have formally opted into recreational marijuana, a requirement for licensure from the state. Nearly 1,400 have opted out, according to the MRA data.
While large holdouts, like Grand Rapids and Saginaw, joined the industry through the last year, Michigan’s largest market, Detroit, remains on the outskirts, only allowing medical marijuana businesses. Efforts to enact an ordinance that gives preferential licensing to longtime Detroit residents was met with a federal lawsuit that is still pending and delaying progress.
Still, there’s a lot of marijuana in the state. The number of grow licenses issued in Michigan nearly tripled from 451, with an allotment of 1 million plants on Jan. 1, 2021, to 1,130 licenses capable of growing 1.75 million plants at a given time by Dec. 14.
With up to four or more grow cycles a year, and figuring a minimum of a pound of flower per plant per harvest, Michigan’s licensed business could theoretically grow 7 million pounds of marijuana a year.
The market was on pace to sell about 30,000 pounds of marijuana flower annually in October.
As the supply grows, prices fall. The average retail price per ounce of flower peaked in February 2020 at $285.50 per ounce, cost $252.04 in January and decreased to $184.90, as of December.
“Prices and supply are sort of leveling out to create what I think is a more stable marketplace,” Brisbo said in December. “When I say stable, I guess it wasn’t unstable before. It was just growing so rapidly, so things were kind of moving all over the place.
“Now I think we’re reaching a place where it makes for some easier, predictive metrics, in terms of where things are heading and better, informed decision making.”
Thomson, the director of NORML in Michigan, points to the recent massive recall that touched nearly every retail location in Michigan, as an example of why corporate consolidation within the industry is troubling.
Viridis Laboratories operates two labs that perform safety testing for marijuana representing nearly 60% of the state’s total supply. On Nov. 17, the MRA determined the test results weren’t reliable and issued a recall on most of the marijuana Viridis tested between Aug. 10 and Nov. 16. The MRA contends Viridis was not performing safety tests properly, resulting in contaminated product making it to market.
Viridis fought back in court and maintains it has highly accredited methods that set “the standard for accurate, ethical cannabis testing.”
Viridis won a legal battle with the MRA in the Court of Claims that significantly reduced the scope of the recall, but the MRA believes Viridis-tested product poses a threat to public safety.
Since the recall was issued, at least 18 customers have reported negative health effects, up to hospitalization, that they’ve attributed to consuming product tested by Viridis during the recall period.
While the full recall was in effect, some businesses obtained retesting on marijuana in an attempt to clear it for sale. But a portion, at a rate of 26%, according to the MRA, failed subsequent testing for yeast and mold, total coliforms or the presence of aspergillus, a type of mold that is potentially harmful for people with weakened immune systems or lung diseases.
Despite some of the previously recalled product failing safety tests, the MRA on Dec. 14 released it for public consumption, indicating that it was forced to do so in order to comply with the Court of Claims ruling. The MRA filed a motion to have the judge reconsider his ruling and allow the contaminated product to be removed from store shelves. It was denied.
“This motion by the MRA is yet another example of its lack of transparency and a clear attempt to harm our reputation without providing details or explanations to back them up,” said Greg Michaud, a founder and CEO of Viridis. “The failed retests have no bearing on the accuracy of our initial laboratory results. Once a sample has cleared point-in-time testing, the associated product goes through a variety of uncontrolled environments from transportation to processing/packaging, and finally to the provisioning centers where the product is handled by staff and customers.
“Contamination can and does occur at any part of these handling processes.”
The long- and short-term impact of the recall is not yet clear.
“Helping out members navigate the recall was a huge undertaking, as far as complying with retests and the financial burden on our members,” said Schneider of the MCIA. “But they did a really good job of complying … and getting most of it back on the shelves.”
The owners behind the Liberty Provisioning Center marijuana dispensary on Ashley Street in downtown Ann Arbor have plans to open a cannabis consumption lounge in the pink house next door.Ryan Stanton | The Ann Arbor News
The New Year
Heading into the new year, some Michigan marijuana industry participants are looking beyond state lines.
While marijuana remains an illegal schedule I drug in the eyes of the federal government, pressure is mounting to remove those barriers, since most states have some form of legal marijuana.
One of the first efforts to gain momentum at the national level is the Secure And Fair Enforcement (SAFE) Banking Act that would allow national and international banking institutions to work with marijuana companies. Currently, some of the largest banks and financiers are shunning the industry due to their connection to the federal government and out of fear that they could face consequences for dealing in something the government deems illegal.
The law has passed in the House but remains stalled in the Senate.
“Once the federal government, hopefully, passes the SAFE Banking Act, you will start to see more commercial lenders in the space,” Linder of the MCMA said. “Right now, commercial lenders can’t be in the space because it might jeopardized their federal charters.”
The new source of large-scale investment could mean more access to the industry, since currently it’s coming predominantly from private investors, Linder said.
Schneider of the MCIA is looking forward to the growth of community marijuana events in 2021. There were about five held this year, in part due to socializing restrictions imposed by the coronavirus pandemic.
“We expect the trend (of more events) will continue next year as the pandemic is winding down,” Schneider said. “And the events are getting larger as people are getting more comfortable gathering. They’ve typically been surrounded by music, gathering, retail locations and providing cannabis on site, so it’s been really neat to see that language that the voters voted for coming to fruition this year.”
It’s also expected that a new marijuana product segment, the THC-infused beverages, will grow in the coming year.
Schneider said the “biggest obstacle” for manufacturers has been creating consistent shelf stability.
“We expect to see a number of new products hitting the shelves next year,” she said. “We’re going to have some that — there’s no alcohol in there — but there’s going to be champagne, things like that. It’s going to be a whole new way to consume.”
One license type that was created by the 2018, voter-passed recreational marijuana law that has not come to be, yet, is the consumption lounge, a place where people can socialize and use marijuana.
While public plans for consumption lounges located adjacent to retail locations have been proposed in Ann Arbor and Kalamazoo, no licenses for such a business have been issued by the state.
Brisbo said he’s excited about efforts to expand industry inclusion through social equity programs.
“In the coming year, we’re going to be focused on improving consistency and efficiency of the regulatory environment, legislative efforts to consider tribal operations, right-sizing the agency budget … as well as considering the intersection of hemp-derived products with marijuana-derived products,” he said. “We’re going to look to sustain and support Michigan’s position as a leader in policy changes looking at sustainability investments and focus on academics and research … and looking at ensuring that Michigan is considered as there’s an increased focus on cannabis policy at the federal level.”
More on MLive:
How Michigan marijuana became $2 billion industry
Marijuana recall blamed for 18 health complaints
Viridis fights back in court
Viridis claims ‘bureaucratic’ abuse
Michigan issues $200 million marijuana recall
Pinconning Paralyzer podcast
Pregnancy tests, VR goggles among marijuana research purchases
Research grants to be announced in August
Caregivers at odds with corporate cannabis
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Budding marijuana leaves grow on Monday, March 22, 2021, at UBaked, a cannabis cultvation center in Burton, Michigan. Jake May | MLive.com