Michigan wholesale marijuana flower prices soar on tight supply, lack of community approvals

(This is the seventh in a series of stories from Marijuana Business Daily examining wholesale prices in U.S. recreational marijuana markets. Part 1 covered Nevada, Part 2 Washington state, Part 3 Oregon, Part 4 California, Part 5 Colorado and Part 6 Alaska.)

A tight supply of wholesale recreational marijuana flower in Michigan, one of the youngest adult-use markets in the U.S., is leading to sharply higher prices as producers struggle to keep pace with growing demand.

Many of the state’s municipalities remain opposed to recreational marijuana commerce and strict testing standards are causing a bottleneck in the supply chain, both of which are exacerbating the shortage as recreational growers bring cultivation facilities online.

Marijuana business owners in the state report pounds of wholesale cannabis flower are selling for:

  • Low-quality indoor: $3,400-$3,600 ($2,400-$2,600 for medical marijuana a year ago)
  • High-quality indoor: $4,500-$5,000 ($3,500-$4,000 for MMJ a year ago)

“It’s a good time to be a producer,” said Vishal Rungta, president and CFO of C3 Industries, a vertically integrated cannabis company based in Ann Arbor. “Pricing is high and there’s demand for everything.”

Adult-use cannabis sales began Dec. 1, 2019, with totals reaching almost $6.5 million during the first month. Since then, cultivators have slowly increased production.

Recreational marijuana sales could reach $1.4 billion-$1.7 billion a year when the market reaches maturity, according to Marijuana Business Daily estimates.

The market is predicted to find its footing and increase supply, but that could be months away as production facilities take time to build out and growers need to dial in methods.

“The market is undersupplied,” Rungta added, and demand is still outpacing any increases in supply.

Michigan also has a robust program of medical marijuana caregivers who make up a significant portion of the flower supply and compete with the cultivation companies that work in both the medical and recreational markets.

“The caregiver market plays a huge role,” said Omar Hishmeh, president of vertically integrated cannabis company Exclusive Brands, based in Ann Arbor. “Without it there would be a huge shortage.”

More municipalities needed

When the adult-use rules were created in Michigan, regulators didn’t limit the number of recreational marijuana businesses but gave municipalities the choice of whether to opt in or not.

As of December 2019, nearly 80% of the cities, towns and counties (about 1,400 communities) in the state had opted out of allowing adult-use cannabis sales.

For example, Detroit, which could have roughly 50 retail locations, extended its ban of adult-use cannabis sales through March 31 until regulators could develop a social equity program.

But more municipalities are expected to come around in the near future, said Matt Ruhle, purchasing director for Utopia Gardens, a vertically integrated cannabis company in Detroit.

Until that happens, though, “we’re only going to see prices go up for the time being,” he added.

With fewer towns on board, there will be less flower supply, and consumers are willing to travel to the areas that allow adult-use sales.

The lack of cultivation companies is pushing the cost onto consumers, which creates a challenge for retailers, said C3 Industries’ Rungta.

“There’s a need for a lot of supply … because a lot of municipalities have opted out,” he said.

Although cannabis cultivation is not allowed in certain areas, strong enough demand still exists in the areas that permit recreational sales to strain the supply.

Rungta also expects to see more of the conservative areas come on board with cannabis sales.

Tough testing

According to several industry insiders, stringent testing requirements are slowing down the flow of the supply chain.

Rick Thompson, owner of the Michigan Cannabis Business Development Group that’s based in Flint, said the regulators have moved the “goal posts in regards to testing standards.”

The state added a test for vitamin E acetate after the vaping health scare broke out last year, leading to a recall of more than 9,000 vape cartridges from one Detroit dispensary alone.

It also recently included an expanded test for heavy metals.

According to Ruhle, multiple growers, both large and small, have failed testing and have been forced to destroy product.

One reason for that is Michigan has low limits for acceptable pesticides. Another is growers are still learning how to comply with the testing rules.

The industry is working to appeal to regulators to ease the limits somewhat, but that process is still ongoing.

“If you can pass the testing, you’re making prices that are unheard of for flower,” Ruhle said.

The tough testing requirements have even caused some investors to shy away from building larger grows (300,000-500,000 square feet), according to Hishmeh.

He said he’s waited as long as three weeks to get products through testing.

“It is a struggle right now to get product,” Hishmeh added.

Looking ahead

Thompson highlighted Michigan’s history for throwing cannabis-themed parties and festivals, and he expects to see more of those this year.

Those consumption-heavy events could strain the supply of flower even further, he added.

Rungta said some large greenhouses are in production, and he also figures a lot of multistate operators will plant their flags in Michigan in the future.

Hishmeh said his company went from 60 employees to 175 in less than 60 days, mostly because of the demand for manufactured goods.

His company is adding another 22,000 square feet of production for processing and manufacturing, effectively doubling the size of that portion of the facility.

“The demand is very high,” Hishmeh added.

Bart Schaneman can be reached at [email protected]

4 comments on “Michigan wholesale marijuana flower prices soar on tight supply, lack of community approvals
  1. Big D on

    The prices for legal cannabis in Michigan are ridiculously high and unsustainable. As of today, an ounce of flower costs between $360 to over $600 depending on the quality, before this recent increase in wholesale prices. The licensing apparatus surely doesn’t cost the state that much, yet a retail license for either medical or recreational will cost you well over $40K and likely near $100,000 before you even sell your first gram. Community lockouts to the marijuana business, and the slow rollout of licenses wasn’t a bug in the legislation, it was a feature, inserted by conservatives, and as the old adage goes, kill two birds with one stone, hamper those who would like to participate in this new business opportunity and thwart the will of the voters of Michigan. How many communities ban alcohol sales? None I am aware of. How many communities were even given that option? How many ban cigarettes sales? None I know of. Legal gambling? It’s widespread in Michigan. The major objectives and benefits of legalizing marijuana was to regulate it, gain a new tax revenue stream, and fight cartels and drug gangs. But the way the system was setup in Michigan, it’s almost as though it was planned to fail. I am happy Michigan protects the citizens from tainted product, like when they removed vape carts found to contain vitamin E acetate, but some of the standards set go far beyond what is necessary. If they regulated the food industry like they do marijuana, we would all starve, or be much healthier. In the upper peninsula there is only one recreational outlet and that is well over a hundred miles from where I live. Without competition, this system guarantees monopolies and high prices. I don’t buy marijuana from either of the two illicit groups, cartels or drug gangs, or anyone who is affiliated with them. I do buy from a friend I have been dealing with since before Michigan legalized medical or recreational and I will continue to do so when my own crop doesn’t fulfill my family’s usage. At $175 for an ounce of top shelf varieties from a friend right in my town, why would I take four hours of my time driving, and spend $400 – $600 for legal marijuana? It’s an easy choice for me until the prices for legal marijuana can compete with the illegal trade.

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  2. WADE T KIDDER on

    This is exactly what big money wanted. The big companies lobbied for this. Against the caregivers who actually made the market what it was. “Never have so many been plundered by so few”

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  3. Jeff b on

    Big D and Wade- you are exactly right. What a messy Michigan disaster. They made up laws for the benefit of the rich and took it away from the developers of the markets- caregivers!

    Reply
  4. Laura on

    This has been ridiculous since day one. Purely and utterly ridiculous. We voted on legal recreational marijuana, and now the state is SEVERELY regretting giving us that vote simply because it passed…so now they’re doing EVERY SINGLE THING they can possibly come up with to ensure that recreational marijuana ultimately fails in the state of Michigan. We’re pretty much the only rec legal state that I know of which took OVER A YEAR after legalizing to open it’s first rec store. And don’t even get me started on the absolutely ABYSMAL joke that was our opening day for sales. Our totals were so grievously low compared to every other state.

    I REALLY want to know what on earth possessed the people in charge to allow communities to opt out of sales. OVER 80% OF THE STATE OPTED OUT! That’s insane. Totally insane. So now what good did our vote do? To a person living in Plymouth – I have to take a nice little hike out to Ann Arbor…and pay ridiculous prices, deal with crappy traffic, and limited supplies of product. I’m not a fan of driving, so that makes it even more of a daunting task.

    The way they have this all set up it’s just BEGGING for the black market to continue to thrive. And boy is it. Unless you’ve paid into buying your medical card – there’s still no reasonable way for you to acquire cannabis unless you decide to grow you own, or you have some friends who do…and anyone with a hint of knowledge on that subject knows it’s not easy, and it takes quite a long time, with a lot of uncertainty of whether you’re even going to end up with female plants (if you’re not buying feminized seeds).

    Shame on our state for handling this so poorly. Shame on them for severely undermining the will of the people who went out and voted for legalization. I say it’s time for the actioners to stand up again and petition petition petition their butts off to get this iron fist off our backs. This IS NOT what we voted for. Not in the slightest.

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