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Michigan’s cannabis industry has gone through some growing pains: What to expect in 2023

Posted By: Detroit Free Press on January 9, 2023.  For more information, please click here to read the source article.

Michigan’s still-young legalized recreational cannabis industry went through some growing pains last year. Prices of marijuana products rapidly declined and, as a result, cannabis companies struggled to survive.

At the same time, some of those companies continued to innovate, bringing new types and a wide variety of products to the market while prices dropped throughout the year.

In other words, 2022 was a good time to be a cannabis consumer. Expect that to continue in 2023, Michigan marijuana industry insiders say.

If a line of tents with prospective marijuana business owners camped out in order to get a license in the Downriver community of Riverview is any indication of interest in the industry, businesses are still eager to get their piece of a growing number of cannabis sales. For consumers, there have never been more options in terms of where to buy an expanding variety of marijuana products.

“The consumers in our state are getting the best quality product at the lowest price,” Robin Schneider, executive director of the Michigan Cannabis Industry Association, said in a January interview with the Detroit Free Press. “On the other hand, Michigan created a very free market with no limits on licensing. Because of that … growers have just grown far more product than what the consumers are reasonably able to absorb.”

There are 1.2 million active marijuana plants in the state’s legal market, according to the most recent data from Michigan’s Cannabis Regulatory Agency, up from 543,000 a year prior.

The retail price for an ounce of recreational marijuana flower dropped below $100 for the first time in the three-year history of recreational marijuana sales in Michigan. The average price was $95.12 in November, down 50% from November 2021.

These low prices, among other factors, are bringing more customers to legal dispensaries. The $2 billion Michigan cannabis market is growing, and is expected to be a $2.5 billion industry in the state by 2025, according to a recent analysis of the Michigan market by the market intelligence firm Headset.

That makes Michigan the second-largest U.S. cannabis market behind California, Headset said, and it also found that Michigan is one of only three markets in the country that have grown sales over the last year.

This dynamic is just one of several recent developments that could shape the future of the industry in the state.

Here’s what else to watch for in 2023:

Get ready for a wider variety of products and cannabis use at events

After an explosion of brands entered Michigan’s market after recreational cannabis was legalized in 2018, that number appears to have plateaued at about 700-800 total brands, according to the Headset analysis.

Some of the companies that are here, though, are continuing to bring new products to the market. Lume, one of the biggest cannabis companies in Michigan, is creating its own cannabis-infused beverage, which it plans to have in stores sometime in 2023.

Former NBA player Al Harrington’s cannabis company, Viola, recently launched a line of gummies available in dispensaries that include “Big Apple Dreamin” (green apple-flavored gummies with the slogan, “In a city that never sleeps, this will knock you out.”) and “Uptown Espresso,” which are coffee-flavored gummies that contain caffeine.

Schneider said that as cannabis use becomes more mainstream and more people attend large gatherings as COVID-19 becomes a part of daily life, expect more state-licensed social consumption lounges and state-licensed cannabis events.

“I really expect to see more consumer-facing events or existing venues embracing … cannabis use just like they would allow a beer tent” at a music festival, for example, she said.

Cities, including Michigan’s biggest, start recreational sales

Some of these new products, consumption lounges and events may be found in Detroit this year, with the city awarding 33 businesses a retail recreational marijuana license late last year. The city will award up to 30 retail licenses, 20 microbusiness licenses and 20 consumption lounge licenses in the second application round, which could open as soon as the end of January.

Detroit’s recreational marijuana ordinance — which took a long time to craft and faced several legal challenges — is unique in that it sets aside half of all the limited licenses for “equity applicants.” Equity applicants include people who live in communities that have been disproportionately impacted by marijuana prohibition and enforcement and those with certified Detroit Legacy status currently living in Detroit or another disproportionately impacted community.

Also unique is a public-private partnership between the city and the Michigan Cannabis Industry Association, called the Detroit HomeGrown Program, in which members of the association privately donated to fund programs for equity applicants to ensure they have access to education about licensing and running a cannabis business.

As recreational cannabis businesses continue to open in Detroit — Michigan’s most-populous city — it remains to be seen what impact that will have on the market. With a significant percentage of the state’s population living in metro Detroit, and still only a few communities that allow sales of recreational marijuana in the region, John Fraser, Michigan team leader for the Detroit-based law firm Dykema’s cannabis practice, calls more retail stores opening in this area a “wild card.”

“If I’ve been getting weed from my caregiver friend for forever, I’m not really going to change that to drive 45 minutes … to buy something that I can get for a comparable price on the illicit market,” Fraser said. “But if I’ve got a nice retail store with a huge product offering five minutes from my house, that’s a different part of the equation.”

Other metro Detroit communities that have marijuana businesses opening include Pleasant Ridge, which is located between Royal Oak and Ferndale, and Berkley, a community near Royal Oak and Birmingham in Oakland County, among others.

In Riverview, six tents were pitched outside city hall Thursday in anticipation of the city awarding licenses, with some prospective marijuana licensees waiting there since the end of December 2022.

On Friday, Riverview Mayor Andrew Swift said in an emailed statement that there were nine applicants who received a ticket as they entered the main door and their applications were dated, time-stamped and collected. Those applications will be reviewed next week, he said.

The Riverview situation highlights just how coveted these licenses are when there’s still a small percentage of communities that allow marijuana businesses.

Only 130 communities in Michigan have opted into allowing recreational marijuana businesses in their communities, while 1,377 have opted out as of November.

But, it’s going to be a tough year for cannabis businesses

Fraser said that if more communities continue to opt in and there’s an “explosion of new retail stores” the amount of product in the market may align better with demand.

“If you’re a retail store, you can’t buy up all the inventory that’s out there and have just a glut of inventory,” Fraser said. “When there are not enough retail outlets to service conveniently all of the folks in Michigan who would be consumers, that’s a problem.”

While it remains to be seen the impact more stores would have on the market, in the meantime, it will continue to be a challenging environment for cannabis companies to operate in.

Schneider is hearing from companies that they’re struggling to meet their payrolls and pay their electric bills, for example. As a result, companies will go out of business, sell or merge, she said. That’s already started to happen but will happen more in 2023, she predicts.

The price compression could also lead to regulatory or legislative changes, Fraser said. “There will be some market correction one way or another, either through government action or just through the marketplace.”

Michigan’s Cannabis Regulatory Agency gets a new leader

Heading into this potentially unstable period, cannabis businesses have a new state regulator. Michigan Gov. Gretchen Whitmer named Brian Hanna the executive director of the Cannabis Regulatory Agency in December after he had served as the interim director for three months.

Hanna has consistently said his mission is to find the illicit product in the legal market and “expose that and we want to make it known. … If there’s anybody cutting corners or cheating, we want to expose that and take a strong enforcement approach on that,” Hanna said at an October roundtable interview in Lansing with several members of the news media.

Some of that enforcement approach has been made public. For example, in November, the agency announced a summary suspension of Green Culture’s medical and recreational marijuana licenses after it found certain products sold by the marijuana dispensary Green Culture in Flint contained unacceptable levels of banned pesticides, heavy metals, mold and bacteria.

Moving forward, Schneider expects more licensed cannabis businesses will be cited for being out of compliance.

“But I also expect that there will be a simultaneous effort from the licensees to increase their compliance capabilities to avoid getting in trouble,” she said, such as spending more money and resources on hiring compliance specialists and making sure staff has better training.

Marijuana remains illegal at the federal level

As has been the case ever since marijuana has been legalized across an increasing number of states across the county, marijuana remains illegal at the federal level.

In October, President Joe Biden said he would pardon all prior federal offenses of simple possession of marijuana, urge state governors to do the same with regard to state offenses and ask the departments of Justice, and Health and Human Services to review how marijuana should be scheduled under federal law.

It’s unclear when marijuana could be rescheduled — Headset’s CEO and co-founder Cy Scott says it may not happen until 2024 — and the SAFE Banking Act, a bipartisan bill that would undo federal restrictions that make it difficult for cannabis companies to access financial services, failed to pass Congress at the end of last year.

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