Despite numerous companies jumping into the cannabis space in the Great Lakes State, operators say Michigan’s early success in the legal adult-use market has them anticipating even more positive days to come.
A Growing Cannabis Market: Many in the industry say they’re optimistic about Michigan’s booming legal market, launched in December 2019, as its strong performance shows no sign of slowing down.
Data from analytics firm Headset shows that cannabis revenue for March 2021 alone had reached $115.4 million, setting a new record for the Wolverine State.
Josh Genderson, founder and CEO of vertically integrated Holistic Industries, said that Michigan has been big on cannabis for some time, pointing out that medical marijuana was legalized in 2008. He called Michigan’s successful industry the closest thing to the California market in the Midwest.
Genderson, like many, draws a connection between Michigan’s revenue growth to its successful adult-use program.
Vinnie Celani, co-founder of High Life Farms, gives credit to the state’s long-running cannabis supporters and buyers. “The consumers are already there,” he said.
Fabian Monaco, CEO of Gage Cannabis Co., pointed to the state’s consistently strong performance, including its medical patient enrollment and annual sales revenue.
Another plus for the market is the limited MSO presence typically found in uncapped markets, he said.
“Since the Michigan market is highly competitive, MSOs are still targeting limited license states where competition is low and easy,” Monaco said, adding that the MSO void enabled his company to build its presence in Michigan, which he also views as one of the top five markets in the nation.
Many credit Michigan’s Marijuana Regulatory Agency for establishing a successful market.
Meredith Mahoney, president of cannabis brand Lantern, called the MRA innovative regulators who are “very willing to help businesses get up and running, and provide resources for entrepreneurs.”
She also highlighted the availability of licenses that enable small and large businesses to take part in the market.
“[The MRA] has also allowed for the flexibility and balance required to have a safe, regulated product and positive consumer experience,” Mahoney said, adding that delivery has been a positive example of this approach.
PSI Labs COO Elisabeth Berry, agrees.
“Michigan has worked hard to provide structure and support to stimulate smart growth, including offering excellent resources for startups and not limiting the number of licenses available.”
She commended the state for allocating tax funds toward medical research.
Competition And Local Opt-Outs: An uncapped market brings about a wealth of competition as the market continues to switch from strictly medical to adult-use cannabis.
Genderson said legalization of adult-use cannabis led to a “180-degree shift in the old regime. There’s a murky period for a year or two where things change,” following legalization and the regulations that follow.
Celani concurred, noting that problems are to be expected in expanding marketplaces where there are “ups and downs and very fast impacts that can affect consistency.”
The market might be a concern to investors who “typically like consistency and predictability, and rapid rule changes may harm predicting the future,” he said.
The depth of competition in the uncapped market also seems to be causing concern, though some have figured out how to resolve it.
Monaco, for example, partnered with brands like Cookies to help position Gage as a market player, noting a $164 average basket size in 2020.
Brad Rogers, chairman and CEO of Red White & Bloom Brands Inc. (OTC: RWBYF) said his company acquired approximately 35% of Michigan’s vape market through the acquisition of Platinum Vapes.
In many cases, municipalities prohibit any competition from starting through local opt-out laws. When the market began in 2019, four in five municipalities had opted out.
“It is really up to the local municipalities that hold the power to grant the license to operate in their respective cities,” Monaco explained.
While the state tries to make it relatively easy for new entrants, Monaco said, local laws often make it challenging to secure real estate and permits.
Detroit’s residency-focused licensing requirement, which prioritizes those with 10 or more years of residency in the past 30 years, is being challenged in federal court.
Despite the ongoing challenges, many industry participants view Michigan as high on the list of considerations for investors and operators.
“With consumers and patients embracing legalized marijuana and the state doing the right things to support development, we see Michigan as one of the country’s top-tier markets,” PSI Labs’ Berry said.
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