Michigan’s adult-use cannabis market presented a win-win for retailers and shoppers alike in August. For cultivators and wholesalers? Maybe not so much.
Not only did last month feature a record of $189.4 million in adult-use sales statewide, but customer wallets benefitted from an all-time low price of $116.84 per ounce on average for dried flower, according to data released Sept. 14 from the state’s Cannabis Regulatory Agency (CRA).
Through the first eight months of 2022, licensed adult-use retailers recorded $1.25 billion in statewide sales, representing a 56% increase from the same eight-month period last year.
An uptick in demand has been the main driver of that sales growth. For instance, in August 2022, licensed retailers sold more than 49,000 pounds of dried flower to adult-use customers statewide, representing a 186% increase from the 17,150 pounds sold in August 2021.
So, despite the average price per ounce at retail dropping more than 47% from August 2021 to August 2022, overall sales figures have increased by nearly 51% because more products are being moved across the counter and into the bags of those 21 and older.
But with prices dipping to record lows, smaller growers told state regulators during the CRA’s quarterly meeting Sept. 14 in Lansing that they worry larger operators are in a “race to the bottom,” which is making it more and more difficult to compete for certain industry players, MLive.com reported.
One of the complaints from commenters at the meeting was in regard to special “excess grower” licenses, which allow bigger businesses to exceed a 10,000-plant limit with an extra 2,000 plants. At the end of August, there were 125 active excess grower licenses held by 25 businesses that cumulatively were able to grow a total of 250,000 extra plants at one time, according to CRA’s monthly report.
Several commenters at the meeting called for a licensing moratorium on grow licenses in the 3-year-old market, including George Lynch, the owner of Simplicity Farms, a start-up in Niles, Mich., focused on small-batch quality cannabis from a 30,000-square-foot facility.
“It’s a race to the bottom,” Lynch said at the meeting. “There’s no end to it that we can see. It looks like it’s just going to get cheaper and cheaper and more and more flower every day.”
But commenters neglected to recognize that the total flower supply in the statewide inventory has actually decreased slightly in the past three months amidst the demand hikes at retail, according to data from CRA’s monthly reports.
And the increase in demand is not just for flower.
Licensed adult-use retailers sold nearly 4,800 pounds of vape cartridges—the second-biggest sales category in the state—in August 2022, representing a 173% increase from the 1,756 pounds sold in August 2021.
Also, dispensary operators sold nearly 210,000 pounds of infused edibles to adult-use customers in August 2022, representing an 82% increase from the 115,000 pounds sold in August 2021.
While Michigan is a newer adult-use market—with commercial sales launching in Dec. 2019—it has been well established in the space, as it was the 13th state to legalize medical cannabis after voters passed the Medical Marijuana Act in November 2008.
Ashley Hubbard, the director of cultivation of a fully aeroponic facility for Rair Systems, a vertically integrated Michigan operator, took time to dive into the make-up of the state’s consumer market during a recent webinar hosted by Cannabis Business Times.
“Being in a state that has been so well-established on the medical side, as well as being about three years in, four years into the adult use, you see two ends to the spectrum,” she said. “With that experienced style consumer, they are looking for specific things: the newest product lines and things that are maybe a little bit more concentrate-based or certain terpene profiles [or] specific products.
“While you have people that are new to the industry, you know, freshly legalized, you see a lot of consumers that are interested in entry-level things. So, we try to ensure that we have that full spectrum covered for anybody and what they might be looking for. I would say that that was something very unique here. I feel like you have a wide diversity of user experience.”
While that consumer diversity may (or may not) be attributing to the recent demand growth in the state, cannabis companies can take various approaches to increase retention and attract new clientele to their dispensaries, from creating a positive customer experience to product exclusivity and other marketing strategies.
At Rair, Hubbard said the key is keeping things “fresh.”
“We want to stay fresh in the industry but also understanding that as a grower and as a cultivation facility, you have to have specific timelines that you’re working on,” she said. “We’re working with living organisms. If you want to release a new strain, you’re looking at a six-plus-month timeline. So, if you’re trying to stay ahead of the game, you almost have to be predictive in what the next consumer desire is going to be, which sometimes you’re going to make it, and sometimes you’re going to have a miss.”
Predicting customer desires in 2022 has been a slam dunk at Michigan retailers based on recent buying trends.
But just because statewide sales figures are increasing year-over-year in newer adult-use markets like Michigan, Massachusetts and Illinois, doesn’t necessarily mean individual businesses are increasing their revenues. New store openings by competitors, among many other economic factors, impact that bottom line.
As of Aug. 31, 2022, there were 555 active retailer licensees in Michigan, 106 more than at the end of January 2022. That means retailers averaged roughly $341,000 in sales per dispensary statewide in August compared to roughly $277,500 in sales per dispensary in January.
Those increased run rates indicate new retail entrants haven’t necessarily created an overcrowded marketplace, but finding the balance between supply and demand doesn’t always go so smooth without the right licensing structure in place.
Behind the scenes in Michigan, the overall supply of cannabis flower—including at grow facilities, retailers and processors—hasn’t aggregated to exceed demand on a consistent month-over-month basis in 2022.
At the conclusion of February 2022, for example, the state flower supply included roughly 61,150 pounds at cultivation sites, 44,250 pounds at retail, 81,700 pounds at processor facilities and 133,900 pounds of fresh frozen flower at processor sites. The total supply equaled roughly 321,000 pounds.
That total flower supply rose to roughly 347,400 pounds in May, but then decreased slightly to 313,600 pounds in July and 313,100 pounds in August, according to CRA inventory data.
Based on current demand from August, there’s a healthy six-month supply in the state.
CBT Digital Editor Eric Sandy contributed to this article.