A National Oversupply Of Weed Is Affecting Prices To Drop And Putting Businesses At Risk!

To put it simply, there is an abundance of marijuana in the state of Michigan. In the previous year, there has been an over 100% increase in the quantity of cannabis grow operations supplying the state’s recreational market. There are already more than 1.2 million Marijuana plants in cultivation or about six times as many as in 2020.

A recent study suggests that Michigan could produce three times as much cannabis as the state’s consumers are currently purchasing, and that’s not even factoring in the massive criminal market, which, by all accounts, accounts for a significant portion of sales.

The situation in Michigan is representative of the entire country and explains why the sector has been struggling even as legalization spreads: False hopes that a Democratically controlled Washington may relax the drug’s decades-long limitations have given rise to a market glut and plunging costs, putting dozens of firms at risk of going under.

According to BDSA, a cannabis analytics company, costs in Colorado have plummeted by 51 percent over the past two years. Based on data compiled by LeafLink, which monitors wholesale transactions, the price of a pound of pot has dropped by 36% in Massachusetts and 46% in Missouri over the past year.
In Michigan, the decline in prices is even more dramatic.

The price of Marijuana on the recreational market has dropped by more than seventy-five percent in the past two years, from about $400 an ounce to less than $100. Michigan’s business is in such a shambles three years after the state’s recreational market’s inception that some officials are pushing for a freeze on new cultivation permits.

Beau Whitney, an economist who specializes in the cannabis industry, has remarked, “With the glut of supply, and with so many licenses, it’s setting firms for failure” in the Michigan market. The percentage of people making money in this field is quite low across the country. Despite the fact that annual sales are predicted to hit around $30 billion this year, which is more than double the volume of sales three years ago, the market dynamics are worsening an already bleak financial picture for marijuana enterprises.

In this system, corporations are taxed as much as those who deal drugs illegally. As a result of the recent failure of a bipartisan effort in Congress to make it simpler for marijuana firms to obtain basic banking services, these companies will continue to be subjected to extremely high-interest rates when borrowing money to fund their operations. Even with the Republicans’ newfound power in the House, this trend isn’t expected to reverse anytime soon.

Pot buyers have emerged as the clear winners from the recent market turmoil. “What you’re seeing is the market working,” said Michael DiLaura, the chief business officer of House of Dank, which operates 10 stores in Michigan. “Michigan consumers may now get what is arguably the world’s finest cannabis at the most affordable costs anywhere in the globe.”

Lack of Enforcement

The legal marijuana industry in Michigan has been very successful. The adult-use industry is expected to generate $2 billion in revenue this year, which is four times as much as the sector generated in its first year of 2020. The total number of dispensaries across the state, where customers must be at least 21, has increased by over 50 percent in the past year, to nearly 600.

The state of Michigan’s Cannabis Regulatory Agency reports that as of the end of November, about 30,000 people had been certified to work in state-licensed cannabis enterprises. In spite of this, it appears that the state has had a hard time putting an end to the thriving black market. Anderson Economic Group conducted a report for the Michigan Cannabis Manufacturers Association revealing that just 30% of cannabis sales in 2020 were made through regulated retail locations.

This included both medical and recreational sales. The remaining business was performed either covertly or through the “caregiver” industry that had emerged to assist medicinal patients in the state before recreational legalization. Most analysts agree that the introduction of illegal cannabis from other states onto the market is the most pressing issue. It is commonly believed that illegal goods sold in Michigan’s cannabis shops originate in either Oregon, Oklahoma, or California.

CEO of Galenas, a cannabis cultivation and retail company that began operating in Michigan last year, Geoff Korff, claims that “a lot of out-of-state stuff” makes its way into shelves in Michigan dispensaries. Defeating a black market is a challenge faced by many states, not only Michigan. Nearly five years after California legalized recreational use, the majority of sales still come from underground markets.

A National Oversupply Of Weed Is Affecting Prices To Drop And Putting Businesses At Risk!

As the state of New York readies itself to begin selling to adults, there has been a dramatic increase in the number of underground shops. According to Whitney Economics, by 2021, illegal sales of cannabis made up 75% of the market in the United States. Local authorities in Michigan have vowed to begin strictly enforcing cannabis regulations.

Brian Hanna was named the new director of Michigan’s Cannabis Regulatory Agency by Democratic Governor Gretchen Whitmer in September. Hanna has worked in the police force before, both as an intelligence analyst for the Michigan State Police and as a deputy sheriff for Kalamazoo County. He has stated categorically that the elimination of shady companies is his top objective.

A lot of materials from the black market are making their way into the legal market, Hanna said in an interview. Our goal is to “find it, name it, and shame it.” The regulatory agency is bolstering its ranks with eleven new hires, including six investigators, in preparation for this crackdown. Some in the business, however, are advocating for a more drastic measure: a freeze on the issuance of any further licenses to grow the substance.

A National Oversupply Of Weed Is Affecting Prices To Drop And Putting Businesses At Risk!

Many company owners expressed their approval of this idea during a public meeting hosted by the CRA in September. Cannabis Business Association of Michigan executive director Narmin Jarrous stated, “What you tend to see at this point in the market is a race to the bottom.” The association has not taken a position on a prospective moratorium. “Everyone is basically trying to one-up each other,” said one observer.

However, the likelihood of a ban on cultivation occurring anytime soon is quite low. The governing body claims it needs legislative approval even for a temporary suspension of crop licenses. That needs the support of two-thirds of the House and Senate to pass, and the Democrats are set to take over both chambers in the near future.

“The moratorium notion is out there, but I don’t really know that it has momentum,” said Shelly Edgerton, chair of the Michigan Cannabis Manufacturers Association and a 16-year veteran of the state Senate. To paraphrase, “The Democrats haven’t been in control for years — 40 years — and so they’re going to have a lot of things on their agenda, presumably outside of cannabis.”

Former political director for the 2018 recreational legalization campaign and current Democratic state senator Jeff Irwin says the industry’s troubles in Michigan have gotten too much attention for a market that’s only three years old.

Although he worries about the introduction of counterfeit goods and the lack of uniform product testing, he does not believe that radical reform is required at this time. Irwin stated during an interview, “We’re working on a market that was absolutely illicit for decades and decades and decades.” I believe that there are occasions when we fail to recognize how far the legal sector has come in the last several years.

Market shakeup

In the coming months, the business will undergo significant change due to the weed surplus in Michigan. Companies that are having difficulty will likely fail or be acquired by more powerful firms with more resources. “We are starting to see a lot more people wanting to sell,” said Corbin Yaldoo, president of C3 CRE, a real estate business in Bloomfield Hills that deals specifically with commercial cannabis assets.

And there will be plenty of chances for well-financed, good entrepreneurs to pick up individuals inexpensively. One company hoping to cash in on this trend is Common Citizen. Its present operations include a cultivation facility in Marshall measuring around 200,000 square feet, as well as seven retail stores catering to both the medical and adult-use markets.

Michael Elias, CEO of Common Citizen, thinks the company will look very different in a year as it plans to go on a massive buying spree. It forecasts that its revenues will more than double between now and 2023, largely as a result of acquisitions. I like that it’s distressed because I can buy it at a fraction of the price it was a year ago, Elias remarked.

This is a buyer’s market. Due in part to the fact that there are so many struggling businesses, from mom-and-pop stores to large publicly traded corporations, analysts forecast a wave of mergers and acquisitions in 2023. According to BTIG analyst Jonathan DeCourcey, who studies the cannabis market, “further consolidation is coming,” and 2019 will bring an acceleration of this trend.

Long-term optimism in Michigan’s market is shared by Elias and many others. As some of the state’s largest cities, most notably Detroit, have yet to license any recreational firms, most industry watchers believe there is still tremendous space for expansion. Elias advised those with “the stomach for it” to jump in now.

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