After a halting start and a pandemic-fueled spike in sales, Michigan’s one-year-old recreational marijuana market is growing strong.
Between Dec. 1 and Nov. 22, nearly $440 million of marijuana has been sold in the state on the “adult-use” market — also known as recreational marijuana, separate from the state’s longer-standing medical marijuana market. For the effort, the state and participating local municipalities have collected $73 million in excise and sales taxes from the market alone.
Sales late last year were initially muted as only a handful of marijuana dispensaries were licensed from the state as well as set up locally. The majority were in Ann Arbor as the Michigan Marijuana Regulatory Agency worked to license more cannabis businesses. Sales were also held back by a majority of the state’s municipalities opting out of allowing adult-use sales — of note was Detroit, which just last week passed its ordinance allowing adult use sales.
Then, the COVID-19 pandemic hit, causing immediate concern whether the record-setting layoffs across the state in the spring would mute sales.
Spoiler alert: They did not.
Recreational cannabis sales rose to $5.8 million the week before Gov. Gretchen Whitmer’s shutdown order on March 24 from $1.8 million during the first full week in January. Sales dropped $1.2 million the following week as it’s likely consumers stocked up on product fearing their stores would close as the pandemic surged in the state.
But federal stimulus checks, $1,200 payments to Americans to buoy the economy during pandemic closures, began to hit bank accounts the week ending on April 19, one day before the cannabis culture’s biggest holiday, 4/20. Recreational sales surged to $7.2 million during that week from $4.8 million a week prior.
Coincidentally, many medicinal marijuana patients must have faced a sciatica flare-up as medical sales increased to more than $8.6 million for the week ending April 19, compared to less than $6 million the week prior.
But the sales never came back down, largely thanks to the governor allowing dispensaries to remain open and the agency fast-tracking curbside pickup and delivery.
Adult use sales topped $13.5 million for the week ending Nov. 22.
“I think the team at the MRA, in terms of licensing, got things set up and quickly issued licenses,” said Andrew Brisbo, executive director of the agency and a Crain’s 2019 Newsmaker of the Year honoree. “We’ve seen a lot of extremely quick growth, in terms of sales. We weren’t really sure what to expect but sales really took off. Even during the early days of the pandemic, they went up and now leveled off but at a higher than expected number.”
Ann Arbor-based C3 Industries opened four dispensaries, called High Profile, across the state during the coronavirus pandemic — in Ann Arbor, Grand Rapids, Detroit and Grant.
“It’s been a surprisingly good year,” said Ankur Rungta, CEO of C3. “I could have seen a scenario where sales fell off during COVID, but they haven’t. Everyone has done a really nice job keeping the industry going.”
C3 will finish 2020 with revenue of about $30 million and consolidated earnings before interest, taxes, depreciation and amortization margins of 45 percent, Rungta said.
Rob Nusbaum, founding partner of Farmington-based marijuana cultivation and dispensary firm Pincanna, credits the state’s “best-in-class” regulatory environment for the success of the first year.
“They (regulators) learned from the mistakes of other states and allowed the market to mature slowly,” Nusbaum said. “Michigan has, right now, a good balance of supply and demand for the industry to get off the ground. The supply is very low and that’s commanding high prices. That will ultimately even out as more suppliers come on line but the industry will be more stable by then.”
Pincanna operates a cultivation facility in Kalkaska near Traverse City that produces 26,000 pounds of cannabis annually; a dispensary, also in Kalkaska; and is currently constructing another dispensary in Easy Lansing.
The supply constraint is also dictated by the municipality constraint. Only 84 of the state’s 1,764 municipalities allow adult-use recreational marijuana sales. The limitation of available real estate has crimped the industry’s ability to grow, but Brisbo said that is slowly changing.
“At the state level, we had the benefit of having to get (regulations in place) under a specific time, per the law,” Brisbo said. “The concept of legalized marijuana is still a divisive issue, but it’s becoming less so.”
There are currently 191 adult-use recreational retail outlets open in the state. Nusbaum predicts 100 more will come to market in 2021.
“Right now, we can’t produce it fast enough,” Nusbaum said. “Product at our cultivation facility stays on our shelves for 24 hours before it’s being distributed. We have at least another year before the market levels off.”
C3 will invest in at least four more dispensary locations next year, in Kalamazoo, Muskegon Township, Flint and a second Grand Rapids location.
Brisbo said the adult-use market will continue to swallow the state’s strong medical marijuana market in 2021.
Earlier this month, the MRA rescinded a rule that limited recreational marijuana businesses to only existing medical marijuana operators. The result is new entrants into the market and more medical marijuana license holders allow that license to expire and focus solely on adult-use.
“With the removal of that restriction, I think we’ll get to a place where we’re sowing supply and more adequately meeting consumer demand in the areas where there is mature businesses,” Brisbo said. “As well as the development of new businesses and new products and, hopefully, more diversity in the industry.”