A Snapshot of America's Medical Marijuana Marketplaces: Michigan

Michigan is a relatively new entrant to the adult-use market. While most states to legalize adult use see their medical market dwindle, the future remains uncertain in The Wolverine State.

Many communities in the state — including Detroit — opted out of the recreational program as its rollout neared in late 2019. In the months since, some major cities remain uncertain about their cannabis laws.

The medical market, legal since 2008, has been lucrative in its own right.

Michigan generated $958 million in medical sales in 2018, according to ArcView Market Research and BDS Analytics.

The state reported nearly 277,000 patients in 2019 and fewer than 38,000 caregivers. 

While Michigan's medical space is expected to drop to $590 million by 2024, it combines with an anticipated $893-million adult use space to add up to a state that is a major player in marijuana. 

With nine-figure medical market sales expected to trend downward, operators in the state have varying views on the future. 

Adult Use Impact Remains Minimal 

For the most part, respondents in Michigan say the adult use market hasn’t impacted the medical sector in a significant fashion yet.

The reports stem from the state's underperforming recreational sales and the withdrawal of many municipalities from the market. A surge in wholesale flower prices occurred around March amid supply shortages. 

"With recent regulatory shifts, we’re seeing the price of medical products drop, while adult use pricing is on the rise," said Curaleaf Holdings Inc. CURLF Director of Operations Chris Ramos. That said, Ramos told Benzinga he expects medical-only options to dwindle over the next 12 to 18 months as the adult use market matures.

Greg Maki is president and owner of Agri-Med, the parent company of three provisioning centers in the state. Maki reported little impact in Western Michigan to date, but said he does expect more of an effect to as local governments decide on their market participation.

Looking at trends in other adult use states, Maki said he does expect a medical market downturn in time.

"I expect that as more recreational zones are created, and licenses are issued, that medical will start to suffer and possibly go out of business."

While some expect a downturn in the medical market, others praise opportunities created by Michigan's changing cannabis regulations. 

Narmin Jarrous, executive vice president of business development at Exclusive Brands LLC, said adult-use further decreases stigma while providing further business benefits.

"Adult-use has supported the medical market in many ways, including giving the medical companies additional sources of revenue to help make their entire companies stronger."

Others echoed similar sentiments.

Michael Pavlak, CEO of the Michigan-based cannabis RFID technology company Stashstock, said his company hadn't seen much of an impact from adult use to date. Instead, Pavlak reported a surge in medical cultivators and provisioning centers applying to grow adult-use products.

Calling the state's testing standards "some of the toughest in the nation," the CEO said adult-use rules are slightly more lenient, allowing growers to sell products more efficiently.

Concerns Around Michigan's Maturing Market

Both Agri-Med's Maki and Curaleaf's Ramos brought up the need for business adaptability in light of frequent regulatory changes on the state and municipal level.

Maki, who noted an uptick in patients in West Michigan, said his company has had to rely on an agile business plan while opening Muskegon’s first dispensary, which remains the city’s only adult-use shop.

"Our business has had to adapt to the increased volume of customers and following two sets of rules for how we do business, that’s been challenging."

Michigan's "ever-changing" regulatory landscape means businesses must pivot fast and stay nimble, said Curaleaf's Ramos. 

"hose businesses that are able to move swiftly can take advantage of gaps in the marketplace and win big."

Recent regulatory changes include the ending of caregiver-sourced cannabis sales in March 2020. In April, the state Supreme Court sided with local governments, stating that local zoning laws override state regulations.

Jamie Pearson, president and CEO of Bhang Corp., an edibles brand sold in Michigan, forecasted supply and demand concerns with the end of the caregiver program.

"The agency's order will result in shortages of marijuana products for recreational use until Michigan’s licensed growers have the ability to keep up with the growing demand."

Stashstock's Pavlak pointed to licensing issues for cultivators as another area of concern.

Calling the licenses "complicated and confusing," the CEO said inventory management conflicts with the 1,500-plant cap on Class C licenses.

"When grow operations have multiple licenses, it becomes a challenge to manage inventory across multiple licenses,” said Pavlak. "This makes managing strains difficult [and] having to package and sell products under the appropriate license gets complicated."

Despite these pain points, Pavlak and others support the direction of the marketplace.

Exclusive Brands' Jarrous said state rules enacted during the medical market are "more than adequate."

"The state of Michigan’s regulators have done a fantastic job” in ensuring patients have their medicine, she said. 

Ideas For Michigan's Cannabis Future 

Looking ahead, companies discussed several reform ideas for Michigan. 

Curaleaf's Ramos mentioned a more fluid process for testing during R&D as well as B2B purchasing.

Stashstock's Pavlak would like to see growth at the state's Marijuana Regulatory Agency so that needed changes to licensing can come to fruition.

"We have customers in different regions of the state, and based on the region, we see the same processes done differently based on direction from the state," he said. 

“We hope over time, the state will progressively start making suggestions to improve the rules and not wait for everyone to endure the frustration."

Related Links:

Michigan Abruptly Cuts Off Caregiver-Grown Cannabis In State's Recreational Market

Michigan Marijuana Regulatory Agency's Latest Weekly Licensing Report

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