Cannabis sales hit record high but profit is another story
The Michigan Cannabis Regulatory Agency reports record-high revenue, but there is little profit to show for it.
According to the most recent monthly report from the Michigan Cannabis Regulatory Agency, Michigan cannabis sales reached a record in July, recording $276 million in sales, with the lion’s share of sales coming from adult-use cannabis. Local cannabis businesses say they aren’t making much in profits, however.
The state will likely surpass the $3 billion mark in revenue for the first time in 2023. It reinforces the importance of the state’s cannabis market. If the trend continues, Michigan will become the second largest market in the nation after California.
But insiders say making a profit in this industry is an entirely different scenario, nearly impossible for businesses following the rules. In addition, the constant flow of new licenses is increasing competition to unworkable levels.
“It’s kind of a race to the bottom, as they call it,” Beau Whitney, senior economist for the National Cannabis Industry Association, told Bridge Michigan. “Prices are going down, down and down because there’s so much competition, but at some point, prices won’t be able to go down any further.”
Some locals say the current system won’t work for long under the current circumstances.
“I think that big corporate stores thought they could throw money at this and just keep throwing money at it, and it would work and it’s not working. That’s why most of your major dispensaries … are for sale,” said Jerry Millen, owner of The Greenhouse, a dispensary located in Walled Lake.
The incoming flow of new licenses doesn’t seem to be helping existing businesses much. During the past month, Michigan received 97 applications for adult-use use licenses, and issued 87 new licenses. Seventeen of the licenses were designated for class C growers, with a limit of up to 1,500 plants, per state regulations.
A 10% excise tax was imposed on retailers in addition to a 6% sales tax after adult-use was legalized in Michigan in 2018. Thanks to high production costs and oversaturation of the market, consumers are happy but businesses are not.
That average price of $99 for one ounce of adult-use cannabis is much cheaper than it was this time last year. The price for an ounce of medical cannabis is only slightly higher.
A Boon for the Michigan Economy
While small businesses aren’t likely making much profit, local governments, however, are loving it. Tens of millions of dollars in revenue are being allocated to local governments across Michigan as a result of the state’s adult-use cannabis industry.
According to FOX 2 Detroit, “Only 30% of total adult-use sales go to local governments, with the other 70% going to schools and roads. When contributions from last year are paired next to figures from 2021 and 2020, they show an industry that shows no signs of slowing down.”
Michigan voters legalized adult-use cannabis in 2018, when they approved Proposal 1, which made it legal for adults 21 and older to consume cannabis, and paved the way for a regulated cannabis market that launched in 2019.
But despite strong sales numbers, Michigan, like other regulated cannabis markets, has become oversupplied with pot.
Illegal cannabis sales continue to thrive in the state, and Michigan regulators are taking action. Last October, The Detroit News reported that Brian Hanna, the acting director of the Michigan Cannabis Regulatory Agency, told assembled media that “the agency is planning actions that will expose bad actors and serve as a warning to other regulated businesses.”
