(This story has been updated to delete a reference to an affiliation between C3 Industries and Cloud Cannabis Co.)
Michigan is the latest state where marijuana retailers are charging manufacturers and brands for premium shelf or display space – a practice expected to gain prominence nationwide as new recreational markets open and others expand.
Local advocates contend the practice of charging extra fees for coveted space is simply a cost of doing business and both partners benefit, particularly in Michigan’s close-knit, heavily vertically integrated industry.
But opponents counter that so-called slotting fees are just another economic squeeze, a pay-to-play ploy that could price out small operators, especially minority-owned companies and social equity licensees.
Slotting fees, common for decades in traditional retail, are a relatively new trend in cannabis.
California and Nevada retailers started implementing them within the past few years.
“As much as I hate to say it, this is a normalization of cannabis in the mainstream retail market model,” said George Sadler, co-owner of Gelato, a San Diego brand that sells cannabis products in Michigan.
“Grocery stores and retail outlets have established this practice for years. It is unfortunate, but it is a reality.”
Larger chains driving trend
Troy, Michigan-headquartered Cloud Cannabis Co. is among the companies weighing far more slotting-fee proposals these days from local retailers interested in offering the operator’s wholesale Mitten Extracts and Wonderbrett brands.
All the pitches are from larger state retailers – those with more than six locations – that want to lock in these fees across their retail network, according to Nic Shafer, vice president and director of marketing.
“Zero percent of them are mom-and-pop shops,” he said. “It’s all the larger chains.”
The company has slotting fee agreements at more than 25 outlets.
Deals are structured differently at nearly every store.
Flat monthly fees for premium placements, minor store renovations or build-outs in exchange for floor space as well as in-kind product and service tradeoffs are all part of the mix.
Most slotting fee contracts in Michigan, typically for three or six months, cost around $3,000 on the low end but can run as high as $25,000, according to industry sources.
Shafer said he has no problem paying slotting fees, which are typically on the lower end of that spectrum.
“These are all premium partner stores that purchase large orders on a monthly basis,” he said. “We’re working with them.”
Retailers ‘have leverage’
C3, which operates 11 stores in Michigan, was one of several retailers who told MJBizDaily it doesn’t charge slotting fees.
Neither does Cloud Cannabis at its dispensaries or Lume Cannabis, a major retail chain with more than two dozen locations across the state.
Troy-based Lume declined to comment beyond that, joining several other state operators who wouldn’t discuss the topic with MJBizDaily.
C3 co-founder and President Vishal Rungta doesn’t regard slotting fees as a sign of industry maturation.
He views them as a leverage play.
“Retailers know they have leverage,” he said. “Producers are desperate, and supply is high in the market.”
Wholesale recreational marijuana prices in Michigan have plummeted this year, a consequence of oversaturation as more cultivators enter a market with uncapped business licenses.
That has led to big price cuts on consumer products and fierce competition among brands and manufacturers to capture the attention of buyers in-store.
Industry chatter has also picked up recently regarding under-the-table slotting-fee deals, where operators pay cash off the books for store access.
“I don’t think there’s necessarily an even playing field in that regard,” Rungta said.
Competing for shelf space
Exclusive Brands, a vertically integrated cannabis company based in Ann Arbor, operates four dispensaries in the state.
None of them charge slotting fees, instead opting for a more traditional sales model.
“We bring a brand in – if it sells, we keep it on the shelves,” Chief Development Officer Narmin Jarrous said.
“If it doesn’t, we kind of phase it out. That’s worked well for us.”
Jarrous, who also serves as the executive director of Cannabis Business Association of Michigan, expects more retailers to start charging slotting fees, and she’s concerned smaller and minority-owned companies won’t be able to compete for shelf space.
“There are a lot of women-owned brands, people of color-owned brands, brands that were built in Black and brown communities, these communities that have been disproportionately impacted by marijuana prohibition,” she said.
“I hope they just take that into consideration. And they make exceptions in some cases.”
Chris Casacchia can be reached at firstname.lastname@example.org.