High Days and All-Time Lows

Local cannabis leaders talk market saturation, product pricing, and more

By Craig Manning | April 15, 2023

After years of waiting, recreational marijuana is finally making its way to Traverse City, where the city government recently issued no fewer than 16 adult-use dispensary permits. That development has the potential to reshape the local market completely, not only putting recreational cannabis products within arm’s reach of TC residents and tourists alike, but also affecting shops in other local towns—from Manistee to Kalkaska—that have flourished in part because of the lack of Traverse City buying opportunities.

At the same time, good news and bad news is swirling around the Michigan cannabis industry, seemingly in equal measure. On the positive side, the state’s recent disbursement of tax revenues from 2022 recreational marijuana sales has brought tens of thousands of dollars to cities and counties throughout northern Michigan. On the bad side, tanking product prices and talk of an oversaturated market have led some to wonder whether Michigan’s “green rush” has already peaked.

Amidst the chaos, Northern Express convened a panel of four expert “pot people” to talk about the state of the market, the impacts of dipping prices and slimming profit margins, the future of medical marijuana, and more. Read on to find out what we learned.

Meet the Panel

- Daniel Caudill, Olean’s (Northport)
- William McKenzie, Authentic 231 (Manistee)
- John McLeod, Cloud Cannabis (Traverse City)
- Kelly Young, Torch Cannabis Co. (Central Lake)

Takeaway 1: There’s still excitement around the local market

It’s been more than four years since Michigan voters cast their ballots to legalize cannabis for recreational use. After all that time, we had to ask: Has the novelty faded? Or are locals still excited about this market?

Caudill thinks there’s still plenty of energy around cannabis in northern Michigan—perhaps even buoyed by the fact that many communities in the area were initially reluctant to embrace it.

In Northport, for instance, Caudill’s journey to opening his store was delayed a year when citizens mounted a ballot referendum seeking to overturn the village council’s adoption of a marijuana ordinance. That ballot measure ultimately failed, and Olean’s was allowed to open, but Caudill knew he was facing a community that had some reservations about cannabis. Those reservations, he says, have begun to fade away as he’s integrated his business into the community.

“I think a lot of the myths are laid to rest once you see what a cool, modern, experiential dispensary looks like,” Caudill explains. “At this point, I feel the community has been amazingly receptive and has embraced us, which has been really lovely.”

Caudill is even excited for Traverse City’s stores to come online—even if it means more competition. “I think it’s amazing that Traverse City is finally coming on board, because it’s continuing to normalize the use and sales of cannabis,” he says. “That will be a positive thing for the entire local market.”

Young concurs. “It takes time for that whole prohibition mindset to relax,” she explains. “The market isn’t just going to jump up to 50 percent of an area’s population going into stores and buying cannabis. It takes things like one person sharing a gummy with somebody else who has always said, ‘Oh, I’ll never ever try that.’ So I feel like there’s so much more potential for cannabis consumers to come to the market; we just have to give it time.”

Takeaway 2: Oversaturation is happening in the recreational cannabis market

Despite Caudill and Young’s shared optimism about the energy and growth potential of the local cannabis market, our panelists agree that saturation is happening in Michigan—and will likely have an impact on dispensaries sooner rather than later.

“There are definitely some cities that are oversaturated, and in those particular cities, some stores have closed,” says McLeod, whose Cloud Cannabis operates dispensaries in 10 communities around Michigan. “Cannabis is just like any other brick-and-mortar retail store based on supply and demand. In a few cities in Michigan—Bay City being the most notable—the market is dictating store counts and ability to operate successfully.”

Some of that, McKenzie says, is starting to happen locally. “I think that for the most part, local municipalities overshot the license count a little bit,” he says. “I think about Manistee, which is a town of less than 6,000 people, and we have five stores. One of them is closed for good, and another one has been for sale. At a certain point, the market decides how many stores there will be.”

Speaking of the market deciding, McKenzie expects that Traverse City’s big number of newly-licensed recreational dispensaries will have a ripple effect. “Stores in Kalkaska or Benzie could take a hit from that,” he muses, noting that many of those outside-of-TC stores have been able to grab local market share by offering product delivery into Traverse City.

Not every local market is at capacity. In contrast to Manistee or the Village of Kalkaska (which has eight operating adult-use dispensaries), Olean’s is the only marijuana shop currently operating in Leelanau County. Despite having that market cornered, Caudill isn’t taking anything for granted.

“It’s like any other business,” Caudill reasons. “People gravitate to where they get the best-quality products, or the best customer service, or the best price. Even in the restaurant business, one restaurant will be really busy but the one right next door may not have anyone. I think it’s very similar in cannabis. So that’s our focus … making sure that we are always giving the best quality experience and offering the best quality product that’s available.”

Takeaway 3: The medical marijuana market is fading away

One thing that fewer and fewer dispensaries are focusing on? Medical marijuana licenses.

While medical is the older market in Michigan—and was the entry point for many businesses in the industry—most of our panelists indicate that the ease and accessibility of recreational marijuana is effectively flattening cannabis commerce into a single market.

“Medical-only demand has tapered down incrementally for nearly two years now,” says McLeod, whose Cloud store in Traverse City has thus far had to make ends meet as a medical-only seller due to the city’s slow adoption of adult-use sales.

But while the wait for rec sales has been a money-losing proposition for Cloud and other TC stores, McLeod says he’s still sad to see the medical market go. A former Detroit police officer, McLeod credits cannabis with saving his life after the prescription pain medication he was taking to help with a knee injury negatively impacted his life.

“As one of the 200,000-plus medical card holders in Michigan, I will always ensure patients are taken care of at Cloud,” McLeod vows. “That being said, so many customers that are considered ‘recreational’ are people who use cannabis for medicinal purposes—for example, to help them manage anxiety or get a good night’s sleep. If you went to a doctor wanting to get help with those issues, you would most likely be prescribed something. So ultimately, as the product selection dwindles on the medical side, we must educate people that we have options for everyone.”

McKenzie is one of the players getting out of the medical market. “We actually didn’t even renew our medical licenses in our stores, because the medical sales were so low that they didn’t even cover the licensing costs,” he says. “And that comes from a trickle-down effect: As medical patients don’t renew their cards and start shopping in the rec market, that shrinks the patient count, which affects the sales in stores. And then as those in-store sales shrink, those retailers buy fewer medical products, which means that producers start producing less medical product.”

The good news, McLeod says, is that the fading of the medical market just means that a lot of the products that used to be exclusive to that space are coming to the recreational market.

“For example, in the past, a product you could only get on the medical side was a 200mg gummy,” he notes. “Because medical stores are letting their licenses go in favor of adult use, this product was hard to find for some patients. In response to that, the CRA now allows a 200mg gummy to be sold on the adult-use side.”

Takeaway 4: Marijuana pricing is out of control

If you’ve stepped into an adult-use dispensary in the past year, you’ve probably noticed something surprising: Pot is cheap!

According to Cannabis Benchmarks, a marijuana data research firm, Michigan wholesale prices for cannabis flower dipped from an average of $2,750 per pound in January 2021 to $925 per pound in October of last year. The price compression has hurt marijuana businesses statewide by cutting into profit margins and making it harder to make ends meet. But why are prices cratering, and is there relief on the horizon?

“We’re actually seeing some market correction right now, at least on the wholesale side, and it should trickle down into retail at some point in the next few months,” McKenzie says of the current pricing situation.

The problem, he explains, was caused by a simple culprit—a huge surplus of product—but in a way that most people might not expect.

“The Cannabis Regulatory Agency (CRA), the state department that runs this market, was not doing any enforcement,” McKenzie claims. “And there has been so much black-market product coming into the state from saturated markets like California and Oklahoma that we have never actually seen a true picture of what the state supply looks like.”

Some shops in Michigan, McKenzie tells Northern Express, have been buying product from other states because it’s cheaper and provides an opportunity to pad profit margins. But until recently, he says, the CRA has not been doing its due diligence in revoking those stores’ licenses, which has allowed black-market activity to continue.

“A normal cannabis market has an annual cycle,” McKenzie continues. “In October we harvest and prices drop, because the market gets flooded with product. But then around May, prices start climbing back up again as people run out of product. We never saw that here in Michigan. Ever since the market opened, the prices have ticked steadily downwards. And I’ve always been of the opinion that that was due to black-market manipulation.”

Things are getting better: McLeod says that the price of wholesale flower “remains low but seems to have stabilized over the last six months.” Caudill, meanwhile, notes that the Michigan market seems to be settling into a more predictable ebb-and-flow cycle as it matures.

For his part, McKenzie credits the change to Brian Hanna, a former Michigan State Police officer who has taken on leadership of the CRA—and who has started cracking down on black-market cannabis.

“[Hanna] has been suspending people’s licenses,” McKenzie says. “And as a result, in the last few months, we’ve seen that wholesale distillate—which is the base product for most of what you buy in the store that isn’t flower, from edibles to vape cartridges—has risen in price from $1,000 a liter at the beginning of the year to $3,400 per liter today. That’s a direct result of enforcement action from the state. I think in the next few months, we will get a true picture of what the state supply looks like.”

On the consumer side, that uptick in enforcement will likely lead to higher product prices at all dispensaries. On the business side, the shift will help profit margins—albeit, maybe not enough to solve some of the other problems that our panelists say are making it difficult to survive in the cannabis market.

“The tax structure is really difficult,” Caudill admits. “We work really hard to make it work, but it’s definitely a struggle being a small independent store at the end of a peninsula.”

Young, meanwhile, noticed during the pricing pinch just how hard her business was getting hit by license fees. “At one point, the state had said that license renewals wouldn’t be as expensive and would be based on your sales,” she says. “That never happened. So as a small business operator, not only do you have the price compression, but then you have the excessive renewal fees for operating that take no consideration of actual performance or sales. Across the board, everybody pays the same. I don’t think that’s fair.”

All the economic issues combined are leading to talks of consolidation throughout the Michigan cannabis market. McKenzie says local consumers should absolutely expect the trend to transform the face of northern Michigan marijuana in the years to come.

“My business has already been involved in a number of merger and acquisition talks, in terms of absorbing smaller companies that maybe just have a couple stores and aren’t going to survive on their own,” McKenzie says. “I think you’re going to see a lot of that over the next 12-24 months, because the way that the retail market has evolved, prices have gotten so low that there’s no way you can just be a standalone retailer and sell product and afford and pay your taxes.”