Cannabis costs in Michigan fell to record lows in the first half of the 2022’s first quarter, which is excellent for merchants and consumers, but smaller growers are worried.
Customers are purchasing marijuana at historic levels as the cost of the drug is being driven down by an unprecedented amount of supply. State data reveal that since marijuana was legalized two years ago, sales have increased by a factor of 16 times.
When marijuana was prohibited 30 or 40 years ago prices were far higher: For an ounce, the price dropped 70% to $152 in January from $516 in December 2019, according to data from the Bureau of Labor Statistics.
Some Kalamazoo clinics are selling an ounce for $50, whereas the average price for a gram in Michigan is $5, which is less than half the national average.
When it comes to the market, “the term right now is growth,” says Andrew Brisbo, executive director of the Michigan Marijuana Regulatory Agency. I think we’re approaching a period where pricing and supply match demand and it’s stabilizing.
In all, Michigan’s marijuana industry is expected to reach $1.8 billion in sales in 2021, making it the fourth-largest in the country. In November 2018, voters approved the legalization of recreational marijuana, but the state’s licensing system wasn’t in place until the following year.
The decreased costs are good for consumers, but small and medium-sized producers say they can’t compete with larger enterprises’ prices.
As more communities legalize the production of marijuana, the competition among farmers is becoming fiercer. From 87 licensed enterprises to 118 in the past year, the number of licensed firms has increased by approximately 150 to 1,238.
Customers like East Lansing resident Haley Poag, who had previously avoided purchasing marijuana from dispensaries in order to avoid paying Michigan’s 10% excise tax on the drug, are drawn in by the lower rates.
One of the owners of Lake Effect and Doja marijuana shops in Portage, Justin Palmatier, stated that cheap costs allowed dealers to grow their sales. Competitors promptly matched his dispensary’s $5 per gram price cut.
According to Palmatier, several rivals cut the price of an ounce to $75 when Lake Effect started selling it for $100. On the other hand, as per Chris Krestchmer, the general manager of Homegrown Cannabis Company in Lansing, Michigan, where marijuana is produced for wholesale and sold at retail, large marijuana growing facilities are popping up more often.
Moreover, a third of the producers, roughly 458, are categorized as Class C, bigger businesses capable of harvesting 2,000 to 10,000 plants in only two years.
According to state data, the quantity of recreational marijuana sold in the previous year increased from 273,453 pounds to more than 1 million pounds, resulting in an oversupplied market.
As long as more communities allow marijuana stores to emerge or the state restricts the number of licenses a producer may have at once, Krestchmer predicted that farmers will continue to suffer.
Most of Michigan’s 1,771 towns and cities have banned marijuana sales, but state law now permits municipalities to control how much marijuana they cultivate in their jurisdictions.
Even in economically depressed cities, there is an incentive to enable larger businesses to operate. In comparison to the other 18 states that have legalized marijuana completely, Michigan has the lowest pot sales tax in the US, at 10%, on top of the state’s standard sales tax of 6%.