Michigan's cannabis industry turns 5 this year: What to expect

Michigan's cannabis industry sold $3 billion in both recreational and medical marijuana in 2023, making the state the second biggest cannabis market in the U.S. behind only California.

Prices remained relatively low for consumers and sales show no sign of slowing down in 2024.

But cannabis companies struggled last year. One prominent company, Green Peak Industries (which operates under the brand name Skymint), entered receivership in March. Several other companies also found themselves under the control of a court-appointed receiver, in part because the price of marijuana flower rapidly declined, causing margins to narrow.

This year, as Michigan enters its fifth year of legal recreational marijuana sales, expect more of the same, cannabis industry insiders say.

"I really think that's the leading edge of what's going to be a much bigger trend of business failures, followed by business disputes, litigation between investors and companies," Lance Boldrey, a cannabis attorney at the law firm Dykema in Michigan, said in an interview in December. "We're seeing more and more of that now. I think that's only going to continue" in 2024.

Here are six predictions for the Michigan cannabis industry in 2024.

An oversupply of cannabis will continue to cause problems

Some of those business failures stem from an oversupply of cannabis in Michigan's market, which leads to lower prices and slimmer margins for retailers. The average retail price for an ounce of recreational marijuana flower was $95.08 in December 2023, a 73% decline from the average price of $350.88 in December 2020, when the recreational cannabis industry was still in its early days, according to data from Michigan's Cannabis Regulatory Agency.

Michigan has been one of the most oversupplied markets in the U.S. over the past year, Ben Burstein, a data analyst at LeafLink, a cannabis wholesale market that works with thousands of cannabis brands and retailers, said in an email. Retail licensing acceleration should help improve wholesale pricing, upstream profitability and consumer accessibility to cannabis, Burstein said.

More retail stores will help ... but are they coming?

Retail growth, a key component in reducing oversupply issues, has been stagnant over the past year. There were about 1,000 active medical and recreational marijuana provisioning center licenses in both December 2023 and December 2022 (one store could hold two licenses), according to CRA data.

Overall, fewer than 10% of municipalities in Michigan allow recreational marijuana businesses.

In November, voters in four upscale metro Detroit communities — Grosse Pointe Park, Keego Harbor, Rochester and Birmingham — said no to allowing recreational marijuana sales in their communities.

But there were some bright spots. Detroit, Michigan's largest city by population, began sales of recreational marijuana at the very beginning of last year. Sales of recreational marijuana began in Berkley and Southfield, two communities in Oakland County, in mid-2023.

More on Michigan's cannabis industry: Michigan's cannabis industry has gone through some growing pains: What to expect in 2023

More on these communities: Metro Detroit communities allowing cannabis sales using tax revenues in variety of ways

Boldrey expects more communities will allow recreational marijuana businesses this year.

"I think you'll see people realizing that it's just not a threat to your community," he said.

Existing companies will change hands

Don't expect to see many out-of-state companies coming in to build new grow or processing facilities in Michigan communities, Boldrey said. He predicts there will be more consolidation this year as companies in receivership reorganize and others adjust their strategies to be more competitive.

The industry has already seen some of that play out in the early days of 2024. The Mount Pleasant-based, vertically integrated cannabis company Stash Ventures — the parent company of Timber Cannabis Co., High Minded and High Minded Creations — acquired Cloud Cannabis Co.'s 11 retail locations throughout Michigan.

Scott Moorehead, CEO of Stash Ventures, said in a news release that the acquisition allows for High Minded and High Minded Creations products to be sold in more retail outlets. Meanwhile, John McLeod, cofounder of Cloud Cannabis, said in the news release that the move enables Cloud Cannabis to "sharpen our focus on our established wholesale operations."

Enforcement will continue to shore up distillate prices

Another reason that cannabis businesses have been struggling is the "complete cratering of pricing on the distillate side," Boldrey said. Distillate is a liquid extract of a cannabis plant that is commonly used in vape cartridges and edibles.

Boldrey said the price for it in Michigan in the first quarter of 2023 was lower than it cost to produce it. He attributed the price drop to "a flood of product coming in from out of state or from illegal production and being folded into the legal marketplace."

Brian Hanna, the executive director of Michigan's Cannabis Regulatory Agency, has consistently said his mission is to find illicit products in the legal market.

Boldrey said Hanna, who began working on this issue first as interim director in September 2022, did a great job getting a handle on illicit product that made its way into the legal market and sent a strong message through enforcement actions such as revoking the license of the mid-Michigan cannabis processor Candid Labs — which does business as Layercake Farms 2 — after agency staff observed untagged jars that were filled with what appeared to be illicit distillate, for example.

New products will show up, and even at mainstream events

As Michigan's cannabis industry matures and recreational use of cannabis becomes normalized, an increasing number of product options will make it to shelves for consumers.

For example, the national cannabis brand Kiva plans to bring individually wrapped marijuana fruit chews to Michigan that can fit in a pocket. While that may seem simple, it's a difficult and expensive product to make, Kristi Palmer, cofounder of California-based Kiva Confections, said in an interview in October 2023, because products can't be manufactured in one state and shipped to another. So in each state Kiva wants to sell these products, it has to find manufacturing equipment that's the right size for the amount of edibles it sells in each state.

"It ends up being very expensive, time-consuming and resource intensive to get your products (to have) a nationwide presence," Palmer said, explaining why it's taken the 14-year-old company this long to roll out a product like this.

Cannabis use was welcomed at a few more mainstream events in 2023 — like at Arts, Beats & Eats in Royal Oak, where the retailer House of Dank set up shop for attendees to buy and consume marijuana.

Expect more of that in 2024. For example, the cannabis-friendly music festival Cannabash is moving to a permanent venue where event organizers plan to offer both cannabis and alcohol to attendees for consumption.

More on Field of Greens: New music venue that plans to offer both cannabis and alcohol coming to west Michigan

Federal legal status will remain an issue

Many of the industry's challenges will remain in 2024 because marijuana is still illegal at the federal level. In August, the U.S. Department of Health and Human Services recommended moving marijuana to Schedule III (drugs with "a moderate to low potential" for dependence) from Schedule I, which are drugs with no accepted medical use that have a "high potential of abuse," according to the Drug Enforcement Administration. The DEA has the final authority to reschedule a drug but it's unclear when that will happen.

Contact Adrienne Roberts: amroberts@freepress.com.

This article originally appeared on Detroit Free Press: Michigan cannabis industry in 2024: Sales, business predictions