Michigan's Booming $3 Billion Cannabis Industry Faces Pricing Challenges on 4/20
Michigan's Legal Weed Market Soars to $3 Billion, But Pricing Challenges Loom as 4/20 Approaches.
Marijuana has had a growing impact on the state and with the stoner holiday of 4/20 here, let's take a look at the state's legal $3 billion weed industry. It's bigger than ever, with prices dropping and people buying more and more.
This is the fifth year of legal recreational marijuana in the state; the first shop opened in December 2019.
Legal cannabis now averages about $90 per ounce, or about one-fifth what it was when Michigan residents were first allowed to buy.
The cratering price has posed challenges for the industry, even as shops continue to open at an aggressive pace: There are 20% more retail shops than last year, closing in on 800 stores.
High supply and high demand
There is plenty of marijuana supply, said Corinne Bodeman, a professor of entrepreneurship at Northern Michigan University, which offers several cannabis programs and courses.
She said the capital-intensive industry had a brief window for the first adopters to invest and spend big to get market share, while the supply was small and the consumer prices were high. Now that the prices have dropped and the supply is high, a lot of the industry is dealing with margins that are far smaller than some anticipated, Bodeman said.
Several dispensaries near Marquette have changed hands and a microgrower there went out of business, and at least some of those changes could be linked to the broader industry patterns, she said.
The companies that will succeed would have anticipated $100 ounces while the companies that planned on $300 prices will need to drastically change, she said.
"You can still make money," she said, "but it's getting more diluted."
The biggest potential issue for the industry, coping with an oversupply, would be a drying up of demand, Bodeman said.
That hasn't happened: Adult use sales were $240 million in March 2023 and $289 million in March 2024.
There has been a significant drop in the medical marijuana market, which was almost $10 million in sales in March 2023 and $2 million last month.
Michigan weed industry follows predictable pattern
The state's cannabis industry is following predictable patterns from earlier weed-legal states like Oregon, Washington and Colorado, said Christopher York, who is the vice president of marketing for Pure Options and who worked in the industry in those states.
"It's a self-inflicted race to the bottom," York said. "But that's just the natural evolution of each recreational market. We’re in year four here. If we went back to 2018 in Colorado or 2017 in Oregon, they had rapid expansions, not only in retail, but on cultivation and throughout. They will grow to max capacity, that's an increase in supply and it outpaces demand and so we see pricing compression."
Plenty of people entered the marijuana market expecting it would be an "endless source of wealth," but they didn't understand the costs and regulations involved, said Alan Yike, director of retail operations for Levels, which produces and sells marijuana at five locations, including Lansing. Yike said his company plans to carefully enter a half dozen new markets this year, including Grand Rapids and Mount Pleasant.
He said the industry's fundamentals remain strong and the business is becoming more mainstream, with seniors being increasingly comfortable with dispensaries.
"The biggest struggle, however, is the high level of competition and the fact that some cities do not place a limit on the number of licenses they grant," Yike said. "As a result, some dispensaries are forced to lower prices to the bare minimum, leaving no room for profit."
Cities, municipalities reap tax benefits
In February, the state distributed $87 million in marijuana tax proceeds to 269 municipalities.
Each city, township, village or county gets about $59,000 for each dispensary. The state tax money is pooled together from all the businesses, and that $87 million was distributed based on how many dispensaries exist, not proportionally based on sales at each shop.
Ingham County, the eighth-most populated county in the state, received almost $1.8 million, the fifth-highest county marijuana payment for its 30 stores, behind Bay and Kalamazoo counties (32 stores), Washtenaw County (45 stores) and Wayne County (59 stores).
Lansing has two dozen shops. Only Ann Arbor and Detroit, with 26 and 59 shops, have more retail outlets than the capital city.
Lansing got $1.4 million in tax dollars, with Leslie and Webberville each receiving a single share of $59,086 for their individual stores. East Lansing received $236,345 for four stores.
Clinton County has one location, in Bath Township. Eaton County does not have a licensed shop.
Marijuana shops will be offering sales and discounts on 4/20, which long has been considered a marijuana holiday.
