As of July 13th, 2020, Michigan’s marijuana industry – including both medical and adult-use/recreational businesses – was licensed to grow 511,500 plants. This figure accounts for the quickly escalating number of grow licenses being approved in both markets. According to an mLive article, that translates to approximately 400,000 lbs. of usable marijuana.
Despite a high demand for adult-use cannabis that has only increased since Michiganders voted “YES” to recreational marijuana in November 2018, there are some issues that hinder the success of the industry. Below, we examine the main challenges of Michigan’s cannabis industry in depth, and how to succeed despite them.
1. Supply Vs. Demand
The adult-use supply is relatively low compared to the medical cannabis supply, due to a variety of reasons. This shortage is reflected in prices: In May, the average retail price for an ounce of flower in the adult-use market was $410, according to the latest monthly report from Michigan’s Marijuana Regulatory Agency (MRA).
However, the average price for an ounce is about $251 in the medical market.
The adult-use industry has maintained steady growth and sales since it officially launched on Dec. 1st, 2019. Between June 8th and June 14th, recreational marijuana sales totaled $10.02 million. This beat out the medical marijuana market’s $9.97 million in sales for the same time period. However, for long-term success, the adult-use supply must increase.
2. Caregiver Industry
The product shortage was only exacerbated by the sudden phase-out of caregiver supply to adult-use retailers in April of this year. In DeRuiter v. Township of Byron, the Michigan Supreme Court ruled in favor of Byron Township. The court held that it is lawful for a municipality to create and enforce an ordinance containing additional regulations for caregivers, as long as the ordinance does not conflict with the MMMA.
While caregivers can continue supplying Michigan’s medical cannabis market until October, this decision is causing large spikes in wholesale pricing and subsequently, the retail pricing for consumers. This will only drive consumers to the black market, which is still thriving. Until the supply can match the demand, the legal cannabis industry will continue competing with the black market.
3. Few Municipal Opt-Ins
The Michigan Supreme Court favoring municipalities leads to other issues within the industry. While there are now 111 (and counting) recreational provisioning centers in Michigan, there are only 145 municipalities in Michigan that allow medical marijuana businesses. There are even fewer that have opted-in to recreational marijuana businesses, as roughly 1,400 Michigan communities have opted out of the MRTMA (currently, the city of Detroit is opted-in to MMFLA, but not MRTMA).
There are many communities that have not opted-in nor opted-out, and are waiting on results of other similar communities that have opted in. With the highest concentration of adult-use provisioning centers in Southeast Michigan, this provides an obstacle for both consumers and operators alike.
If this trend persists, the market can easily become oversaturated and make it even harder for license-holders to drive profits and healthy competition. This municipal problem is only further complicated by the COVID-19 pandemic.
4. The Need for a More Robust Social Equity Program
On Jan. 28th, 2020, Detroit’s City Council issued a temporary ban on recreational marijuana sales through March 31st. With the COVID-19 pandemic, the ban still remains in effect until regulators can develop a social equity program and squash the black market.
While Michigan’s social equity program lowers the entry barrier for recreational cannabis business applicants, many industry experts say that the state needs to do more to help keep these businesses running. So far, Barton Morris, the principal attorney for Cannabis Legal Group, is “underwhelmed” with the social equity program in Michigan.
Rick Thompson, owner of the Flint-based Michigan Cannabis Business Development Group, proposed the suggestions below to Marijuana Business Daily on how to improve the social equity program:
- A break on real estate via a land bank.
- Payroll or accounting services provided to the applicants.
- Human resources and employment services.
- Free executive leadership training through a partnership with an established business to guide these new owners
Additionally, Barton would like applicants to be offered help on operational planning, odor mitigation and management planning, to name a few. For example, many caregiver applicants were not required to submit a plan on how they manage pesticide remediation.
5. Lack of Banking Access
As Barton stated in his appearance on Startup Nation’s “Inside Michigan Business” podcast, the biggest issue facing the cannabis industry is banking, and “financial institutions (largely) unwilling to provide financial services to the industry.” A majority of banks and financial lenders cannot offer loans and other financial incentives to businesses, due to federal law classifying marijuana as a schedule I controlled substance.
Barton Morris on Startup Nation’s “Inside Michigan Business” Podcast with John Gallagher and Jack Lessenberry, July 9th, 2020
However, The Secure and Fair Enforcement (SAFE) Banking Act of 2019 passed the House of Representatives this past September with bipartisan support. This marked the furthest advancement of access to banking and financial services for cannabis related legitimate businesses.
Though the bill passed by a vote of 321 to 103 in the House, it appears to have stalled in the Senate. And with a majority Republican Senate, COVID-19 and an upcoming presidential election, it is unclear what the future of this bill is.
How to Succeed in Michigan’s Cannabis Industry
As you can see, the five most significant challenges in Michigan’s cannabis industry both directly and indirectly relate to one another. By improving one of the mentioned issues, the rest (and much more) will also subsequently improve.
The good news? These issues can be easily navigated with professional assistance. There are over 100 recreational provisioning centers open in Michigan, and that number continues to climb.
Our law firm has helped hundreds of clients receive their cannabis business licenses. Because of this, we proudly hold a 95% success rate with Michigan license applications. Contact us today to learn how we can help navigate this complex yet incredibly exciting industry.