Michigan's Marijuana Industry is Now the Top Market in the Nation. Here's Why.

This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh.

Weed. Jazz cabbage. Ganja. Jolly green. Righteous bush. Sin spinach.

Regardless of the name, Michiganders fully embraced marijuana’s legalization and commercialization.

Michigan is now the top marijuana market in the country — based on per capita spending.

Through the first seven months of the year, Michigan’s marijuana industry sold $1.7 billion worth of products ($58.8 million in medical marijuana and $1.644 billion in recreational), according to data from the Michigan Cannabis Regulatory Agency. Michigan weed is outselling distilled booze in the state and is on track to easily top $3 billion in 2023.

While Michigan won’t top California in overall sales, totaling $5.3 billion in 2022, it beats out the Golden State and other competitors, including the OG in legalization, Colorado, on per capita spending.

Sales in the Rocky Mountain State through June topped $782 million for a per capita spend of $134.03. California is less than $136 per capita. Michigan, however, topped $142.13 in per capita spending on marijuana products in the first half of this year.

So are Michiganders just more in tune with getting baked than Californians and Coloradoans? Probably not.

Don’t step on the grass, Sam

Michigan’s success in the marijuana game is correlated directly to the state’s regulatory, tax, and overall business framework.

Following the legalization of adult-use recreational marijuana by voters in 2018, Michigan’s framework solidified it into an unlimited licensure state with comparatively low taxes.

The unlimited licensure allowed businesses to get approved to operate grow operations, processing plants, and retail stores quickly. Yes, there were and still are problems with local municipality business licensure, but those roadblocks are eroding.

Michigan also taxes consumers among the lowest in the U.S. with a 10% excise tax on recreational marijuana sales. Colorado has a 15% excise tax on wholesale and retail sales. California has a 15% excise tax on wholesale and a per-ounce tax on fresh plants and cultivation. Other top players like Washington and Oregon have a 37% excise tax and 17% excise tax on retail, respectively.

It should be noted that Michigan crossed $1 billion in excise and sales tax revenue collected from the marijuana industry last month, the Michigan Department of Treasury confirmed. That’s a number that almost seems unbelievable given the low excise tax.

The low taxes resulted in the Michigan market maturating very quickly due to easy access to marijuana and prices that shrank precipitously — maybe too quickly for some.

Recreational marijuana sales were only $9.83 million in January 2020, the second full month of legal dispensary sales in the state. By July 2020, six months later, rec sales topped $57.4 million. In July this year, rec sales were north of $270 million.

No more illegal smile

And that’s all about cost. The average cost of an ounce of flower in July 2020 was $402.72. In July of this year, the average cost of an ounce of recreational flower was $98.65 — prices have stabilized since a low in January this year of $80.16 per ounce.

That price collapse, of course, has crippled several business operators — Skymint and at least six others are under a court-ordered receivership — a natural byproduct of any new industry wrangling supply and demand.

Businesses still struggle under the weight of operating at low margins, but it’s certainly helped demand. Low prices and abundant product has pushed more and more Michiganders into the legal marijuana market, according to 2022 data provided by Oregon-based Whitney Economics and published by the National Cannabis Roundtable.

According to the data, 75.5% of all marijuana sales are in the legal market, as opposed to the illicit market. California is only at 44% legal sales; Oregon at 74.8% legal sales; and Washington state at 61.3% legal sales. Colorado is the bright spot here, with Whitney Economics projecting 99.8% of all marijuana sales in the state are in the legal market.

That means it’s likely Michigan still has some runway to its total market potential, but also shows there is a peak. Whitney Economics projects the total market demand for marijuana in Michigan to top out at just over $3.2 billion, compared to $11.93 billion in California. Michigan is likely to come near that total in 2023.

The industry is yet to recognize any slowdown in the market. As of June 31, there were roughly 1.9 million marijuana plants actively being grown in legal operations for recreational sales, according to CRA data. That’s well up from the under 1.3 million plants in June 2022.

Passing the Dutch?

But whether Michigan remains a top marijuana state by any metric will likely be determined not by Michigan’s market, but by whether other states coming into the market follow Michigan’s lead and let the industry blossom under less restrictive rules or whether they cultivate a slower, more steady market. Illinois, for instance, limits how many marijuana dispensary licenses it issues annually, limiting the supply to prevent steep price declines like those seen in Michigan and elsewhere. Florida is still a medical marijuana-only state, as well as Pennsylvania. Texas still doesn’t have any legal marijuana.

Ohio will be the one to watch, alongside maybe Indiana. A ballot initiative in Ohio gathered enough signatures and received approval earlier this week to be on the November ballot.

It’s likely many Ohioans drive up to dispensaries in Michigan to purchase marijuana. But it’s still unknown if recreational legalization there would impact Michigan’s market.

Ohio is a more populated state and if the Ohio regulators get legalization right, we could see Ohio emerge as a dominant player in the coming years.

But until then, Michigan is tops for dope smokers, edible eaters, vape vendees, and those who serve them.

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