Race to the bottom? Plummeting Michigan marijuana prices great for buyers, bad for business

The ongoing free fall in retail marijuana prices in Michigan is great for customers and tough on business.

Profit margins appear to be getting even bigger, at least in the short term, as a surplus of newly harvested marijuana enters both legal and illegal markets during what’s known in the marijuana industry as “croptober,” harvest time for outdoor farms. Croptober drove the price per ounce down from $30 per month in 2020 and $13 in 2021.

In an economy that is experiencing significant inflation – food prices have risen 13% in the past year – marijuana is an anomaly.

Marijuana insiders point to the growing abundance of marijuana being produced by companies that are currently licensed for nearly 1.5 million plants in a state where only about 200 of the 1,773 communities have chosen to allow recreational sales.

“That’s what’s causing the race to the bottom,” said Harry Barash, who runs the 8,000-member Michigan Cannabiz Professionals Facebook page and works as a cannabis industry specialist for Southfield-based NAI Farbman real estate firm. “If you can’t lower your price per pound to a number that is economically viable, you’d better have a much higher quality product to compete.”

He believes Michigan’s marijuana industry is moving toward beer and spirits, offering customers low-priced products produced by huge, deep-pocket manufacturers, as well as top-shelf specialty liquors sold in smaller quantities at higher prices. prices are bottled.

In some ways, he said, it’s already there. “I estimate maybe 60% to 70% from the bottom shelf, maybe 10% from the middle shelf, and 20% from the top shelf.”

According to the latest data provided by the Michigan Cannabis Regulatory Agency (CRA) in September, the average selling price for an ounce of marijuana — enough to pack a pipe 56 times — was about $110.

That’s a 73% drop in price from $393 an ounce of cannabis flower in September 2020, and a 46% drop since marijuana sold for $394 an ounce a year ago.

Check the shelves or online menus for most pharmacies and it’s not uncommon to find prices even lower. Our marijuana with names like Vanilla Gorilla, Cheesequake and many other potent strains approaching 20% ​​THC can be had for $100, sometimes less.

Also Read :  California Age-Appropriate Design Code Act

While prices are falling, total sales are still rising. The state reported a record $195 million in recreational sales in September, a pace that, if maintained, will approach $2.5 billion in the coming year, including sales of medical marijuana.

How far will prices fall?

Barash does not believe the price of marijuana has bottomed out and said prices could still fall. Retailers MLive spoke to said the wholesale price per pound of marijuana flower, which was close to $3,500 two years ago, now ranges between $1,000 and $1,500. At $1,000, the wholesale cost for an ounce of marijuana is about $36.

“The benchmark for many indoor crops is producing flowers for about $500 a pound,” Barash said. “So there really is so much room for a producer to make money.”

At $500 per pound, the cost of producing an ounce of marijuana is about $18.

Barash said falling prices make growing marijuana less attractive, ultimately translating into less production and price stabilization, as seen in other states, such as Washington and Oregon, with older markets.

“Based on today’s cost of entry, it takes much longer to recoup your investment, which really doesn’t make it such a great business model anymore,” Barash said. “Washington and Oregon have already kind of bottomed out and are on the rise.

“Those markets are now a lot more stable. We are a little behind them. It gets worse, then it probably gets a little better and stabilizes.”

Despite less revenue going to companies, there has not been a wave of companies that have disappeared from the market.

One of the victims is Grand Rapids-based Terrapin, a growing and processing company that opened a 35,000-square-foot facility in 2020 and was eventually licensed to grow up to 10,000 plants. In July of this year, the Detroit Free Press reported that the company was operating a skeleton crew after laying off nearly 42% of its workforce. The company is now closed and the licenses will expire.

Lume, which is growing and one of the largest retail chains in the state, closed four stores in July but said plans to open retail locations in three new cities were still on track.

Also Read :  NYC faces a potential fiscal cliff with a nearly $10B deficit by 2026

“There’s been a lot of layoffs in the industry,” Barash said, “and there’s been a lot of consolidation. People are trying to figure out how to lower their costs.”

Optimism

Barry Goodman, the owner of Freddie’s business with a retail location, seven-acre growing and processing facility in Clio, thinks the market is bottoming out.

He said that at the moment, growers are consistently lowering their prices in order to compete. There are too many growers and too few retailers to sell it, he said. But that may soon change.

“Detroit, for example, is going to opt for 60 recreational licenses,” said Goodman, who also owns Southfield-based law firm Goodman Acker. “That will take away some of the surplus that lowers the price.

“And then other cities in the state will enter the market. They see that it’s actually a blessing because there’s more money for public safety, there’s very little crime, and the appeal is high. They look like Starbucks, jewelers, that kind of things.”

Detroit’s plan to allow recreational sales has been upheld in court since 2020 after multiple lawsuits accused the program of unfairly treating longtime Detroit residents. The city now expects to begin licensing retail marijuana in 2023.

Goodman said other marijuana business owners he speaks to agree “we’ve bottomed out.”

“I think by the spring, when there are more pharmacies, I think the price will go up by 30%,” he said. “So instead of $1,000, $1,200 (per pound), I’m guessing somewhere between $1,200 and $1,800, depending on the quality.”

Enforcement

In addition to the visible market forces, there is an unlicensed marijuana market that is pushing prices through competition that is nearly impossible to quantify. According to a 2021 study by the Anderson Economic Group, it is estimated that only a third of all marijuana purchases are made through licensed commercial sales.

“There’s so much outdoor cultivation that’s done illegally by a million different people,” Goodman said. “I think law enforcement would help address this issue, but they don’t seem to be getting involved in the illegal growth.”

Also Read :  Dow futures fall 170 points to start week with key inflation data, earnings ahead

However, there is evidence that law enforcement and regulators are stepping up their efforts to eradicate black-market marijuana from the illegal and licensed markets.

The CRA this month fined and suspended a Detroit medical marijuana store after an inspector observed backpacks and duffel bags full of unlabeled marijuana in the store in May 2021; and state police raided a cannabis farm and CBD store in Grand Traverse County on suspicion that it was operating as an unlicensed marijuana company.

Numerous industry insiders called for more enforcement at the CRA’s quarterly meeting in September.

At that meeting, Allison Arnold of Cannabis Attorneys of Michigan said there are not nearly enough growers in the licensed market to supply the amount of marijuana distillate available on the shelves, indicating some of it is coming through the black market.

“Illegal sales continue to be the primary means by which Michiganders obtain their cannabis” and “there is also a growing number of licensed cannabis operators supplying illegal or untested products,” Shelly Edgerton said in a statement from the MCMA after the quarterly meeting. “We can help address these two pressing issues by cracking down on the illegal market and stepping up enforcement across the state.”

Despite difficulties, Barash said the industry is “not going to do anything”.

“The Michigan market is likely to mature with a $3 billion industry is what the CRA is telling us, but it will definitely undergo a lot of corrections and adjustments,” he said. “People are going to have to keep evolving, turning and getting creative to be efficient because we all know profit margins aren’t what they used to be.”

More about MLive:

State police raid CBD company suspected of being an illegal marijuana dispensary

Marijuana reformers praise Biden

Michigan poised to ramp up marijuana enforcement

Company suspended after bags of marijuana were found

Marijuana is legal in Michigan, but moms can get a CPS screening if they use it

Michigan marijuana ‘shocked’ by director’s departure

Source

Leave a Reply

Your email address will not be published.