Michigan wholesale marijuana prices stabilize for now after steep drop

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Image of Calyxeum COO LaToyia Rucker and CEO Rebecca Colett in a grow room

Rebecca Colett, right, CEO of Michigan cannabis cultivator and processor Calyxeum, and Chief Operating Officer LaToyia Rucker pose in a grow room. (Photo courtesy of Calyxeum)

Wholesale marijuana flower prices in Michigan have leveled off and ticked upward in recent months, offering cause for cautious optimism among producers who suffered as prices plummeted during the past few years.

Michigan is a key state market for legal marijuana, projected to rank second only to California this year in terms of annual recreational and medical cannabis sales.

Industry insiders attribute Michigan’s modest wholesale price stabilization trend to several factors, including:

  • Absorption of last season’s glut of outdoor cannabis.
  • More municipal governments permitting retail sales.
  • Authorities cracking down on illicit activity in the licensed market.

If some players are “bringing in product that is not legal, not compliant, and selling it for pennies, essentially, it really has this really rough effect on the market, on pricing, (on) everything from flower to distillate,” said Narmin Jarrous, chief development officer at Livonia, Michigan-based vertically integrated cannabis company Exclusive Brands.

However, other factors are expected to continue putting downward pressure on prices: Michigan’s marijuana market remains home to significant outdoor production during the warmer months.

Also, Michigan has no statewide cap on the number of cannabis business licenses, making it uncertain whether the wholesale price stabilization will last.

Michigan’s adult-use market launched in December 2019, and in the early days, a pound of cannabis flower commanded an impressive premium propped up by tight supply and growing demand.

At the pinnacle of wholesale prices in February 2020, the average price per pound of flower was $3,883, according to sales data provided by New York-based cannabis wholesale platform LeafLink.

Michigan wholesale prices have yet to return to such lofty heights.

By February 2021, the average per-pound price for flower had crashed by 61% to roughly $1,510, LeafLink’s data shows.

Prices fell another 29% to $1,075 by February 2022, then slipped 27% year-over-year to $789 by February 2023.

For now, flower prices are on the upswing: The average per-pound wholesale price grew to $832 in April, $907 in May and $963 in June.

Still, memories of rock-bottom prices left a lasting impression on Michigan cannabis producers such as Rebecca Colett, CEO of Detroit-based cultivator and processor Calyxeum.

"Many cultivators were consolidating and closing, there was just so much surplus of weed on the market that cultivators were selling for $500 a pound, even $400 a pound - very crazy prices," Colett said.

"And a lot of people couldn't keep up."

Shifting supply-demand equation

Legal cannabis retail sales in Michigan totaled $2.3 billion in 2022.

The 2023 MJBiz Factbook projects 2023 sales could be worth as much as $3.1 billion, including $220 million in medical marijuana sales.

With no statewide cap on the number of cannabis business licenses, Michigan has experienced "explosive license growth on both the supply and the demand side," LeafLink strategist Ben Burstein said.

Burstein said a significant amount of cannabis retail came online in early 2020, alongside new cultivation licenses.

However, it took time for those new cultivators to "dial in their yields," Burstein explained.

Wholesale prices stayed high for a time.

Meanwhile, the outbreak of the COVID-19 pandemic in early 2020 helped boost marijuana sales across the nation to record levels.

As capital flowed into Michigan's legal marijuana market during the optimistic days of 2020 and into 2021, the number of cannabis business licenses swelled, Burstein said.

Meanwhile, existing cultivators were improving their yields and improving production capacity.

By late 2021, when the outdoor harvest came in, Burstein said Michigan "didn't have enough demand to absorb that outdoor harvest. … And that's when you see prices really start to fall."

That wholesale flower price decline continued through 2022, once again exacerbated by the outdoor crop.

"(Michigan) didn't have enough retail to internalize all of that additional supply of flower that came on during the outdoor harvest at the end of 2022," Burstein said.

Some manufacturers turned that glut of flower into cannabis distillate and other derivative products, extending the oversupply issue to other product formats, he said.

Prices stabilizing, for now

The leveling and upward trend in Michigan's wholesale flower prices for the past several months has different possible explanations, according to Burstein.

It has been months since the previous outdoor harvest, and much of that flower has been made into distillate.

Plus, some of the existing glut of flower has been bought up by consumers, he said.

Meanwhile, Burstein said, the volume of demand has increased relative to supply, in part because of seasonality but also as some local governments opt in to permitting cannabis sales and new retailers open.

Michigan's most populous city, Detroit, launched recreational marijuana sales in January.

Another factor could be playing into the changing wholesale price trend in Michigan, according to Exclusive Brands' Jarrous, who believes prices are "starting to stabilize."

"And I think that's in large part due to the increased enforcement action by the CRA," she continued, referring to Michigan's Cannabis Regulatory Agency.

"They've shut down several operators who had some illicit conduct that really affects the market and the pricing of the market."

Calyxeum's Colett observed that Brian Hanna, who was permanently appointed CRA chief in December 2022, is prioritizing enforcement.

"I do think one of the reasons that the prices dropped so drastically is because of some illegal activity that the CRA was not enforcing, and this new administration is just very enforcement-based," she said.

Looking to the future

When wholesale flower prices were dropping, Michigan cannabis producers were forced to adapt to survive in the face of shrinking margins.

"We had to very quickly figure out how we can grow the same quality weed for cheaper," Colett said.

For Calyxeum, the solution involved installing some automated production systems to help keep payroll expenses low and reducing packaging costs by seeking new vendors, ordering in bulk and investing in packaging machinery.

During the wholesale market's lowest point, Colett said Calyxeum had to lower flower prices, "but we couldn't cut them to $500, $700 a pound - we never went lower than $1,000," Colett said.

These days, Colett said she can wholesale bulk pounds of flower for $1,000-$1,200 per pound and prepackaged eighths for $1,600-$1,700 per pound.

"I think the summer is really going to be a great time for cultivators to really make some money, because a lot of the outdoor grows got started late this year, just because of the weather," Colett said.

"… I think there's going to be a little bit of a (production) drought this summer, which is going to allow us cultivators to charge a little bit more premium, like we did during the pandemic."

Looking forward, Exclusive's Jarrous hopes that as Michigan's still-young market matures, "we do see people stop panic-lowering their pricing, panic-reacting to the market."

"I think once people feel more comfortable and confident in the industry, things will stabilize, as long as we continue to see support from the state agency," she said.

Highlighting the seasonal nature of cannabis supply in Michigan, LeafLink analyst Burstein said he expects another hefty outdoor harvest later this year.

Plus, he said, the state has issued more cultivation and processing licenses since last year.

"With these newer licenses, you're probably going to have higher plant counts, and again, you're probably going to have really high supply relative to demand towards the end of the summer this year," he said.

Even with more retailers open to sell that supply, Burstein expects that, with "one to two years of supply in the market, (retailers) just simply can't go through (it) in a short enough amount of time, and prices are going to go back down."

"So it's seasonal in the industry, especially in markets with a lot of outdoor capacity exposure, for prices to start going back up around this time," he said.

Colett said Calyxeum is "excited to start to improve our margins, but we're still going to operate very lean, because I don't know what's going to happen in the fall - so we're just trying to be very conservative right now."

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.