Michigan marijuana sales likely to surpass $3 billion, helped by record-breaking July:

posted on 08/21/2023 mlive

LANSING, MI — It seemed far-fetched when analysts in March 2020 projected the fledgling Michigan marijuana industry could eclipse $3 billion in annual sales within a matter of a few short years.

When the bold prediction was published, monthly recreational sales were just $22 million. At that rate, it would have taken more than eleven years to reach $3 billion.

Yet, here we are.

With a record-breaking July that saw $276 million in total marijuana sales, $8.9 million per day and $270 million of that total from recreational sales, the industry is on pace to sell $3.3 billion in marijuana flower, pre-rolls, edibles, vaping cartridges, concentrates and other products over the next 12 months. Michigan recorded $2.3 billion in sales during 2022.

Based on current monthly sales averages in 2023, the market would reap just under $3 billion by year’s end; however, escalating monthly sales and price trends, with the expected addition of 30 more retail shops in Detroit, indicate the final figure is likely to exceed that amount.

California has the largest cannabis market in the U.S., chalking up $5.3 billion in 2022 sales; however, Michigan has much higher sales, per capita.

California sales equated $135 per resident in 2022, compared to $229 in Michigan.

The early success of the market in Michigan is due, in part, to the way regulators set up the market with an unlimited number of available licenses, lower taxes than most other states and fewer rules that keep away entrepreneurs, some experts and insiders say.

“Michigan’s got relatively low barriers of entry at the state level and a relatively low tax rate,” said attorney Lance Boldrey, chair of the Dykema Law Cannabis Practice Group. “We also have the advantage of bordering a couple of cannabis deserts with Wisconsin and Indiana.”

Leveling out

While big-picture, industry-wide sales are bright, competition is also at an all-time high, cutting into profits, creating price wars and massive deals for consumers. It’s not uncommon to find high-potency marijuana flower being retailed for for under $100 an ounce, and frequently under $50. One ounce of marijuana can produce nearly 60 half-gram joints.

In July 2020, the first active year of recreational sales, the average retail price for an ounce of marijuana flower was $402, based on Cannabis Regulatory Agency monthly statistical reports.

Investors saw the potential for big profits and overpaid to enter the market, Boldrey said.

Prices plummeted over the next three years and bottomed out at about $80 an ounce in January, rebounding to $98.65 per ounce in July.

Boldrey said he watched as some investors overpaid, sometimes in excess of $10 million, to enter Michigan’s marijuana market.

You’ll “never, ever make that back,” he said, “it’s just not sustainable for a lot of these guys.”

Back in 2020, some Michigan growers were selling marijuana for $3,000 a pound and thinking “they’re going to get that all day long,” according to Boldrey.

“Nevermind that, at that time, you could look out to Colorado and see how wholesale prices had gone from $2,500 down to about $850 in the span of a few years,” Boldrey said. “A lot of these guys were out raising capital with numbers that just didn’t make sense.”

Michigan licensors don’t report wholesale marijuana prices, but the retail cost for a pound of marijuana in Michigan was about $1,500 in July.

Now we’re “starting to see a little bit of shakeout in the marketplace,” Boldrey said, referencing a growing number of businesses being consolidated or entering financial receivership.

As of March, Green Peak Industries, the parent company of retail chain Skymint, with nearly 25 stores and 600 employees, was sued by a Canadian lender over $127 million in debt and forced into receivership.

Boldrey said other smaller businesses have also closed their doors or been swallowed by larger companies.

The total number of Michigan cannabis retailers reached 704 in July, an increase of 71 stores since the year began and 163 more than in July of last year.

Cassin Coleman, the Lansing-based director of production for Highway Horticulture and a cannabis industry consultant, is less concerned with the plight of struggling businesses, but encouraged by record-setting July sales figures.

“It’s great that other consumers that haven’t been able to enter the marketplace,” she said. “These are retail numbers. That means consumers are purchasing products and those products are now affordable enough that more consumers can purchase them than ever before.”

The affordability and accessibility of marijuana is helping regulators achieve their goal of reducing the black, unregulated market.

“It used to be that you could buy a pound and then turn it around, that was the traditional market here in Michigan long, long before I ever moved here,” said Coleman, who’s worked in cannabis in five other states over the last decade. “Most of the people that I have met since I’ve been here in Michigan that were doing things like that are no longer doing it because the risk is no longer worth the rewards …

“But I don’t think it’s going away yet. There is still a lot of products in Canada and in the western states that is produced for cheaper than you can produce it here.”

What’s for sale?

Flower remains the product of choice in Michigan. When combined with shake and trim sales, often sold in pre-rolled joints, flower accounted for nearly 55% of all retail recreational sales in July, followed by vaping products, 19%, and concentrates, 10%.

Flower revenue also reached an all-time monthly high, thanks to some price increases, but not by total weight sold. Michigan consumers purchased 79,873 pounds of marijuana flower, a figure surpassed by March, April and June totals.

The sale of 84,694 pounds of flower in March remains the Michigan industry record.,

A new product segment this year is THC-infused drinks. Although monthly drink sales have increased almost 60% since January, their popularity has yet to blossom, in comparison to other cannabis products. In July, both infused powders and bottled drinks accounted for just $1.1 million in sales, about .4% of the entire market.

Looking forward

Boldrey doesn’t know how much further the market will expand, but said there’s still room to grow revenue. Revenue, however, can be deceiving, he said.

“Between July ‘23 and July ‘22, we had 56% growth in pounds of flower sold but 28% growth in revenue,” said Boldrey, “which obviously reflects the prices coming down

“I think the prices coming back up will actually be one of the drivers of the overall market appearing to get larger.”

Coleman said Michigan’s market structure seems to be working better than regulations in other states.

“I haven’t been in a lot of places that had unlimited open licensure like we have here in Michigan,” she said. “And I’m not entirely sure that all of the limits that states have put on in other places, accomplished what appears to have happened here, which is, you know, a lot of jobs.”

As of August, Michigan regulators reported more than 32,000 people employed by licensed marijuana businesses, in addition to 13,000-plus caregivers producing marijuana for registered medical marijuana patients.

But state regulations that allow for thriving markets like Michigan’s are in some ways fragile. Things could change drastically with decisions made by D.C. politicians.

“I think we’re all going to be really listening to what’s happening in Congress very shortly … ‚” Coleman said. “And we might be seeing some de-scheduling or rescheduling (of marijuana) coming down the pipe and that’s going to change things again.

“I’m waiting patiently.”

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