- Michigan cannabis businesses suffer from extremely low prices as the market is oversaturated with supply
- Some urge lawmakers to put a cap on licenses
- The industry’s loss is a win for consumers, however
Michigan cannabis prices are the lowest they have been in years and the industry is suffering. But the combination of an oversupply and ultra low prices has been a win for customers.
Many businesses, especially small and minority owned businesses, are barely making a profit because production costs have increased even as the price for recreational marijuana has fallen.
We spoke with some industry experts about the dynamics at play:
Cheap prices for consumers
Michigan marijuana stores made over $128 million from recreational use in February 2022. Total sales for marijuana increased, with stores making over $200 million as of February this year, according to a report by the state cannabis regulatory agency.
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However, as revenues rose for recreational use, the price of marijuana has plummeted. The average price of an ounce of recreational marijuana was $160.10 in February of last year compared with $86.00 this February.
Experts say one reason the price for marijuana is constantly decreasing is to encourage more consumers to buy it legally, rather than from illegal sellers.
“Even though prices are falling, there’s more people buying in the legal market [and] that’s what’s driving the increase in overall revenue,” said Beau Whitney chief economist for the National Cannabis Industry Association.
Others say oversupply is driving down the price of marijuana.
The Michigan cannabis industry started to become oversaturated with products about a year ago, causing prices to decrease, said Corbin Yaldoo, founder of Corbin Ventures, a commercial real estate development and investment firm in Bloomfield Hills that specializes in cannabis real estate.
“The larger operators have more capability of selling products at a cheaper price,” he said. Because larger operators are able to do this without taking a loss, they ultimately have control over the market.
“Michigan is in its consolidation stage right now, so larger operators are acquiring smaller operators or they’re merging together,” he said.
There isn’t anything that can be done immediately to help suffering businesses, but Yaldoo said lawmakers should limit how much cultivation space they allow growers.
The state currently has 753 active licenses for class c marijuana growers, who can possess up to 1,500 plants according to state law.
Stabilizing the industry
While consumers are getting more bang for their buck, growers and retailers are struggling.
“There’s way too much supply and so sellers are dropping their price so that they can get on the shelves of the retailers,” Whitney said. Equipment, labor and production prices have all increased, leaving “less room for any profit,” he said.
People in the cannabis industry have suggested the state limit how many licenses they issue to people who want to get into the industry.
The state issued 84 new licenses for recreational marijuana this February, in addition to the 1,946 active licenses.
“The damage is already … done but one solution would be to not issue more licenses or put a cap on licenses,” Whitney said. “What regulators need to do is … take a look at how much supply they have, how many consumers there are and how much supply the consumers need.”
On the other hand, costs associated with regulating marijuana make it even harder for businesses, which is a factor Whitney said the state should adjust as businesses struggle.
Compliance costs, application fees, federal taxes and high interest rates are some of the regulations Whitney said should be loosened to make the industry more “business friendly.”
“The regulators and legislators’ policy for the longest time has been to get consumers to participate legally,” he said. “That was a good policy early on but because so many businesses are hurting the regulators and legislators need to loosen up the control.”
The future of cannabis sales in Michigan
Since the price of marijuana has steadily decreased over the years, businesses may not be able to recover until 2025, Whitney said.
“Those businesses that can’t get enough revenue … to cover their cost, they’re going to go out of business unfortunately. And other people are not going to be able to go into business because it costs so much.”
He also predicts bigger corporations will try to buy smaller businesses that are struggling and monopolize the market.
“The big multi-state operators and big corporations will buy distressed assets and consolidate the market,” Whitney said. “Instead of having hundreds of licenses there will be substantially less than that.”
How strange after thwarting the law since my teenage years. Now we have this new marajuana dilemma. I wish to sell some from a card tabletop in front of my house.
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