Michigan cannabis operators’ face shrinking margins amide falling wholesale flower prices and a glut of supply — and the state’s regulatory agency wants to figure out how to help.
In a quarterly public meeting notice, the Michigan Cannabis Regulatory Agency put out a list of questions to solicit feedback from attendees. These included:
- Would you support a change in the law to place a moratorium on the issuance of grow licenses? If so, under what conditions? If so, for what period of time?
- Should the agency eliminate the excess grower license?
- Should the agency permit an individual to hold an interest in more than five marijuana growers (or in more than one marijuana microbusiness)?
Between July 2021 and July 2022, the number of active grower licenses has surged by 65 percent, and the number of active retail licenses has risen 34 percent.
According to the agency, the average retail price for an ounce of flower has fallen 48 percent in the medical market (from $213.89 to $110.72) and 44 percent in the adult-use market (from $217.94 to $121.58) in that same span of time.
The most recent monthly report pegs the average cost of an ounce of flower in the Great Lakes State at $109.42 in the medical market and $116.84 in the adult-use market through August.
Sales have fallen sequentially as well, sparking concern. In August, the state reported $18.4 million in total sales, down from July’s total sales of $21.1 million and June’s total sales of $21.4 million.
Shelly Edgerton, who chairs the Michigan Cannabis Manufacturers Association, posited that correcting the market should involve addressing the lack of stock that have opted into the program.
She added that there is a plethora of factors to compute when issuing a moratorium.
“I think there’s a lot of work to be done if the state wants to pursue that,” she told The Green Market Report. “I mean, obviously that has to be done legislatively, and would certainly need a three-quarters vote in order to do it.”
Along with Edgerton, Allison Arnold of Cannabis Attorneys of Michigan said at the Sept. 14 meeting that the CRA should enact greater enforcement of the illicit market and work with law enforcement to clamp down on illegal products making their way into the legal market.
“And until we have enough retail establishments throughout the state, it’s probably premature to consider a moratorium,” she said.
But meeting the challenge of the illicit market could be difficult, according to Rick Thompson, executive director of NORML’s Michigan chapter. He said that cracking down on those who are not licensed by the CRA is not under the authority of the agency.
“That is a function of the Michigan State Police, and it’s a misdirection of resources,” he said. “Every conversation had about the illicit market with the CRA is just a waste of time.”
The Michigan Cannabis Industry Association, which is the largest cannabis industry association in the state, said that most of its members support putting a moratorium on grow licenses based on a spring member survey.
Robin Schneider, executive director of the MCIA, said that there should also be a way for the agency to begin reissuing licenses if supply levels fall and retailers face depleted stock on store shelves.
“Our industry isn’t like other industries; we don’t get subsidies,” Schneider said. “It’s not like you can just go and get a loan to pay your pay your payroll for a minute when times are down.”
John McLeod, CEO of Michigan-based Cloud Cannabis, pointed to widespread concerns over greater corporate consolidation by large MSOs.
“I think the excess grower license is what causes most people some anxiety, you know, and we’re talking about (operators) that have super large-scale cultivations,” he told The Green Market Report.
McLeod also added that proximity to out-of-state customers coming from cannabis deserts can boost margin in the state’s patchwork regulatory landscape. Those in the Upper Peninsula have the benefit of having some sales traffic from Wisconsin.
“From everything I’ve heard and seen, they’re doing very well up there,” he said. “And good for them, you know?”
Similarly, McLeod said that one of his stores in Ann Arbor reported that Ohio residents made up around two-thirds of its customers at one point.
Thomas Lavigne, a managing partner at Cannabis Counsel Law Firm, said the excess grower license is beyond the scope of the original statute.
Lavigne said that his firm and other fellow attorneys “stood down” upon hearing that the excess grower license was being challenged at one point, “only to find out that later, that challenge was summarily, voluntarily dismissed and kind of misled us all into not joining in the challenge.”
“The sooner the excess grower license gets changed the better,” he said. “We don’t have to wait until the end of the year given that it’s an illegal license in the first place.”
Lavigne said the firm was against the moratorium and believes the landscape will “even out” as more retail opens.
Fewer than 130 has opted into the program so far while nearly 1,400 have opted out, according to the CRA’s most recent count.
Smaller operators have pointed to the lack of sustainability in supply chains with cannabis megafarms.
Steven Timmerman, of Rio’s Happy Tree, said that a more diverse set of cultivators allows for a more robust market, should a cultivator run into issues such as mold or infection.
“Smaller farmers prevent that from happening,” he said. “Whether it’s a mold issue, or whatever it may be, you can quarantine that and still have a supply for the rest of the market.”
Others have called for options such as setting a minimum price for a pound of cannabis flower, giving operators tax breaks and setting a moratorium for only one calendar year while excluding social-equity applicants and Native American tribes from the pause.
“I don’t think there’s any concrete answer,” Edgerton said. “It’s always easy to say, ‘Hey, we want a moratorium.’
“Well, to me, the devil is in the details.”