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Marijuana prices plummet in Michigan. Customers are happy, farmers worried

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LANSING — Michigan’s marijuana prices hit all-time lows in January, which is great for retailers and customers but has smaller growers sounding alarms.

Record marijuana supply is driving down prices so much customers are buying it at record rates. There’s 55 times more pot on the market and people are purchasing it at 16 times the rate since marijuana hit the market two years ago, state records show.

Prices are now lower than they were 30 or 40 years ago when pot was illegal: The average price for an ounce, 28 grams, fell 70 percent to $152 in January from $516 in December 2019.

 

Some dispensaries in Kalamazoo are selling an ounce for as low as $50, while the average price for a gram in Michigan is $5, less than half the national average. 

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“The buzzword right now about the market is growth, but I think we’re entering a stage where the prices and supply are meeting demand and it’s stabilizing,” said Andrew Brisbo, executive director of the Michigan Marijuana Regulatory Agency.

In all, Michigan has grown rapidly to become the fourth-largest marijuana market in the nation, with $1.8 billion in sales in 2021. Voters legalized recreational marijuana in November 2018, but it took the state another year to set up the licensing framework for sales.

While customers benefit from lower prices, small and mid-sized growers say they are struggling to match the prices of larger operations. 

Competition among marijuana growers is increasing as more cities allow operations: In the past year, the number of municipalities allowing marijuana businesses jumped to 118 from 87, while the number of licensed businesses jumped by nearly 150 to 1,238.

The prices entice customers like Haley Poag of East Lansing, who had avoided buying weed from dispensaries to avoid Michigan’s 10 percent excise tax on marijuana. 

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“I have accounts with a couple of the dispensaries here so I get texts when they’re having deals and that’s always when I buy,” Poag said. 

Justin Palmatier, who owns Lake Effect and Doja dispensaries in Portage, said retailers were able to buy marijuana at low prices and increase sales. When his dispensary dropped its price per gram to $5, competitors quickly matched it. 

When Lake Effect began selling an ounce for $100, or 28 grams, some competitors dropped their price to $75, Palmatier said.

“If a local competitor were to drop their prices, we have to match or beat them,” Palmatier said. “When prices drop, we start racing to the bottom.”

Brisbo said he’s not sure when the retail price will bottom out. Until prices start increasing, some growers say they’re struggling to make a profit.

Large marijuana growing operations are opening more regularly, squeezing out smaller operations, said Chris Krestchmer, general manager at Homegrown Cannabis Company in Lansing, which grows marijuana for wholesale and sells it at retail.

In two years, the number of growers has nearly quadrupled to 1,238, and more than a third of those — 458 — are classified as Class C, larger operations that can harvest 2,000 to 10,000 plants. 

In one year, the amount of recreational pot on the market jumped from 273,453 pounds to more than 1 million pounds, state records show, creating an oversaturated market.

“We knew it was coming, but it came quicker and more aggressive than anyone anticipated,” Krestchmer said. “It’s become a tough game for us.”

Operators of some farms —  such as a massive one planned in Lawrence in southwest Michigan — worked with communities to change ordinances that allowed them to combine multiple licenses to grow even more marijuana.

Krestchmer said farmers will continue to struggle until more cities allow marijuana shops to open or the state limits the number of licenses a grower can have at one time.

Nearly 80 percent of Michigan municipalities, 1,400 of 1,773, prohibit the sale of marijuana, while the state now allows local municipalities to regulate how much is grown in their towns.

Cities, especially struggling ones, have an economic motive to allow bigger operations. 

Michigan’s 10 percent sales tax on pot — which is paid atop the normal 6 percent sales tax — is on the lower end of the 18 states where marijuana is fully legalized. In Washington, for instance, tax is 37 percent tax, while it’s 16 percent in  Arizona.

Last year, Michigan collected an estimated $250 million taxes from marijuana sales. Cities and counties each get 15 percent of that excise tax. 

A small community like Lawrence — population 1,000 — can get $200,000 from a large operation, or twice its annual budget from marijuana.

“When you see larger (growers) coming in and growing thousands of square foot of product, (then) releasing it for lower prices, it forces everyone else to fall in line behind that price,” Palmatier said. 

“The smaller guys can’t compete at that price level and they’re not going to find that out till it’s too late. So, they might end up shutting down.”

Palmatier is concerned that when smaller grow operations shut down, large companies will raise their prices when the price bottoms out and limit the market.

“Eventually, I think we will see fewer options at higher prices from these larger companies,” Palmatier said.

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Palmatier and Krestchmer said Michigan is five years behind the marijuana crisis hitting growers in states like California and Oregon now.

In California, which has the lowest marijuana prices and largest market, small growers can’t compete with larger operations that can afford the state’s licensing fees and taxes, which include a 15 percent excise tax, 7.25 percent sales tax and local sales taxes of another 1 percent or more.

Shelly Edgerton, board chair of the Michigan Cannabis Manufacturers Association, said growers will work through the state’s marijuana market adjustments. The association is a lobbying agency for some of Michigan’s largest marijuana corporations.

“As with any business, lower prices in the cannabis industry can impact your business model,” Edgerton said in a statement Thursday. “Michigan’s cannabis industry is a viable marketplace and will continue to grow to serve the state’s patients and adult-use customers.”

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