The billion-dollar pot economy is coming — while Lansing dithers
|By Mickey Hirten|
In 2018, Michigan voters may, and likely will, approve a ballot initiative allowing the recreational use of marijuana, unleashing an economic surge in jobs, investment and tax revenue.
Based on the experience in other states, treating marijuana as a recreational drug will create a new and sprawling industry worth billions of dollars, and some communities already are angling for the economic gold rush.
Lansing isn't one of them.
For a city that sees itself as progressive, Lansing is weighing rules and regulations that will decimate its fledgling medical marijuana industry. Of 62 medical marijuana dispensaries operating in Lansing, all but eight would be zoned out of business if the City Council approves the current draft ordinance. And the region overall is hardly marijuana friendly. There are no medical marijuana dispensaries in East Lansing and few if any in cities and town surrounding Lansing. Among the region's political and business leaders, the approach to the emerging marijuana industry is often antagonistic, at best ambivalent, and uninformed.
If it chose to embrace marijuana in Michigan as an opportunity for economic growth and thousands of jobs, mid Michigan, and Lansing most notably, is uniquely positioned for a disproportionate share of the “neweconomy” marijuana business. It is centrally located, flanked by two interstate highways, allowing easy transport. Industrial properties are available at attractive prices. Housing is affordable. It is the seat of government for a product that will be highly regulated and very political.
The city-owned Board of Water and Light boasts electric rates lower than other regional utilities — ideal for power hungry grow operations. And the region is home to Michigan State University, one of the nation's leading agricultural research institutions, which has in the past shown interest in cannabis cultivation.
Also, it has standing in the fledgling cannabis industry. Michigan voters approved the use of medical marijuana in 2008, an initiative that the state's political leaders bungled from the outset. They provided minimal regulation to ensure quality, drug safety, patient protection, distribution, transportation, supply and other guidance sought by voters. Adding uncertainty and confusion to the burgeoning market, state courts found that dispensaries serving many patients were essentially illegal. It is only since September that lawmakers and the governor have approved meaningful policies to govern licensing, security, transportation and structure for the retail market.
The result of the state's laissez faire approach was that Lansing's medical marijuana industry prospered. Besides the dispensaries that proliferated, there are an unknown but substantial number of grow operations, many housed in residential neighborhoods.
They are operated by entrepreneurs seeking a share of a lucrative medical marijuana market that the no-partisan Michigan House Fiscal Agency projected at $837 million as the market matures.
To date there are at least 250,000 in-state residents with medical marijuana cards and 41,000 licensed caregivers. The Michigan Department of Licensing and Regulation reported that as of Jan. 1, 2016, there were 6,982 patients and 1,434 licensed caregivers in Ingham County. In Clinton County there were 1,018 patients and 232 caregivers; Eaton had 2,527 patients and 559 caregivers.
The vacuum of weak regulation by the state and city made Lansing an attractive location for medical marijuana businesses. The city's commercial real estate market, weakened by the Great Recession, left the region with hundreds of vacant buildings and storefronts, many of them n the southeast, along Cedar Street and Pennsylvania Avenue, and in the southwest along Martin Luther King Jr. Boulevard.
With low rents and easy access, these are ideal locations for medical marijuana entrepreneurs to set up shops. The potential market is larger than the 10,500 or so licensed patients from Ingham, Clinton and Eaton Counties. Lansing was established as a marijuana-friendly locale.
It attracted customers, that is, patients, from across central Michigan, particularly from the west, said James Barr, of Strata Business Services, a Michigan-based consulting and accounting business for the medical marijuana and healthcare industry.
“One third of the business for Lansing dispensaries is from places like Grand Rapids and Kalamazoo. Lansing has a primary market and a huge secondary market,” said Barr, who recently addressed city municipal leaders in Hillsdale about the marijuana market.
While it has no hard data to quantify medical marijuana tourism, Jack Schripsema, CEO of the Greater Lansing Convention and Visitors Bureau, said the staff believes the city is attracting marijuana day-trippers. “It's anecdotal, but it might make sense that they would come here,” he explained, noting the limited marijuana options elsewhere in Michigan.
But the success of dispensaries, in particular, rankles the southeast and southwest neighborhoods where dispensaries have proliferated, prompting a belated, but serious effort by the city to curtail the marijuana trade with stringent regulations and restrictive zoning.
“We have an entire industry that is operating unchecked. We're experiencing the unintended consequences of the the drug trade,” said 3rd Ward Lansing Councilman Adam Hussain. “When we bring in investors and developers all they see is pot, liquor stores and predatory businesses.”
The South Lansing experience with medical marijuana colored the region's political and business leaders. Few, if any, are looking ahead to economic and business development opportunities offered by a legalized adult-use market for marijuana.
Tim Daman, president and CEO of the Lansing Regional Chamber of Commerce expressed the attitude succinctly. “If you are looking for Chamber support for the city to be the marijuana capital of Michigan it's not going to happen.” Noting that the chamber hasn't formally adopted a position on marijuana, Daman said the more pressing issue was to regulate the medical marijuana and it's impact on the city.
LEAP President and CEO Bob Trezise said the economic development partnership of governments and business simply hasn't addressed the issue or really thought about it. “LEAP is just beginning a five-year strategic planning process and I suppose this is one of the issues we need to contemplate.”He said LEAP recently had a major out-of-state developer inquire about a major marijuana distribution center. “We didn't know how to handle it,” Trezise said. “We don't know what the municipalities want.”
Andy Schor, a Lansing mayoral candidate who represents most of Lansing in the state House of Representatives, offered a similar perspective suggesting that looking ahead to legalized marijuana was premature. “We have to figure out the current law. That's the first priority, and I know the council is working on that.”
But he added that if elected he would look at studies and reports outlining job opportunities that would come with marijuana legalization.
Mayor candidate Judi Brown Clarke's position is unclear. The at-large Councilwoman did not respond to a request for comment.
If the Lansing region wants a share of the thousands of jobs and hundreds of millions of dollars in commerce that will come with legalizing marijuana, past and present experience is a poor indicator of the opportunities that will emerge in Michigan.
The Marijuana Policy Group's report on Colorado divides the marijuana industry into three segments: retailing, cultivation and manufacturing, each with different economic impacts. Its economic model integrating the legal marijuana businesses into Colorado's economy found that the industry in 2015 generated $2.39 billion in state output and created 18,005 new full time equivalent positions.
Its report said each retail dollar spent on marijuana generated $2.40 in state output. For manufacturing the dollar multiplier was $2.34 and for cultivation, $2.13. MPG compared these numbers with other business sectors: Business services, $2.13; general manufacturing, $1.94; and retail trades (including alcohol), $1.88. It acknowledged that while these figure apply to Colorado they may not reflect the experience of other states.
Marijuana retail sales in a legalized market is very different from the boot-strap sales medical marijuana dispensary business proliferating in Lansing.
“In 2016, cannabis sales averaged $1.98 million per retail location in Colorado's adult-use market and $896,000 per location in the medical channel,” Arcview Market Research, a marketing and investment services firm focusing on the marijuana industry, stated in its latest industry report.
Sales at marijuana retail stores in other state trail those in Colorado, but are significant nonetheless. In Washington, which has displaced medical dispensaries with adult-use outlets, 257 retailers averaged $1.55 million in sales per location. Oregon's 350 retail outlets had sales of nearly $672,000 per location and its 381 medical dispensaries experienced average sales per location of $294,000, Arcview reported.
Jobs associated with retailing include sales clerks, called budtenders, entry level jobs paying in the $10 to $13 an hour range, according to industry online jobs boards like 420 Careers. Other jobs included office administrate staff, maintenance workers and a range of accounting, legal and compliance services, positions normally associated with retail businesses.
State laws governing the legal marijuana market allow for different levels of growers. The legalization drive in Michigan divides producers into three classes: not more than 100 plants, not more than 500 and not more than 2,000. Also it allows individuals — with some limits — to grow their own.
In a deregulated market, large indoor growing facilities supply much of the local industry.
For indoor farms, some with thousands of plants, an analysis MPG finds that expenses are distributed broadly. Employee payrolls account for a quarter of cultivators' expenses. Jobs include trimmers, who nip marijuana buds from leaves, agronomists and back office staff.
There are high-paying executive positions that fit comfortably with MSU agriculture expertise. For example, Colorado Product Services is seeking a director of cultivation who would be “solely responsible for complete oversight of all areas in the cultivation facility. Job responsibilities would include correct propagation, vegetation, dry, cure, oversight and distribution of all flower.” The posted salary is posted at $100,000 to $130,000 depending on experience. Jobs like assistant growers to oversee and manage plant feeding cycles pay between $20,000 and $40,000. Trimmer jobs pay $500 a week, based on performance.
Cultivators spend about 25 percent of their budgets on electricity — a boon for utilities. There are large expenses for heating, cooling and ventilation services, rent security and administrative services.
Manufacturing is perhaps the least understood sector in the marijuana industry. MPG offers this snapshot of the business: “Infused product manufacturers purchase marijuana trim and flower as the primary input to production, followed by other food products, then machinery rents, payrolls, warehouse rental (or imputed rent), security and cash management services, and chemicals.”
As with other segments of the industry, MPG noted that manufacturers pay rents, need security, electricity and administrative staffs. But they also hire specialized trade-skill positions. Manufacturers and edible companies hire “chefs” in addition to factory floor staff while concentrate manufacturers hire machine operators. Employee payrolls and marijuana flowers are manufacturers' two largest expenses.
And in all three segments, the real estate industry has been one of the winners.
Said MPG of the Colorado experience: “Warehouse space that was previously underutilized is now highly demanded by cultivation operators and manufacturing companies. Retail sales locations have created additional upward pressure for commercial real estate, construction, and related services. In 2015, some office spaces have become available as exclusive “marijuana business incubators” in the Boulder and Denver area, which has inspired the moniker for Colorado’s Front Range as “Cannabis Silicon Valley.”
To date eight states (Alaska, Colorado California, Maine, Massachusetts, Nevada, Oregon and Washington) have legalized sales of recreational marijuana and 28 approve sales for medical use. As it evolves, the marijuana industry generally is generally consistent from state to state. What differs is the scale. California, which approved adult-use marijuana in 2016, will dominate the industry.
For Michigan, the success of its medical marijuana market suggests a strong roll out for legal sales for starting in 2020. The economic activity unleashed by legalization is projected at $2 billion, according to Barr's Strata Business Services analysis.
Arcview's report on Michigan is more conservative, but still forecasting a vibrant new industry.
“The strong support for medical cannabis in the state suggests that adult use will be approved within the forecast period (starting 2020). Arcview's forecast for this market includes an assumption that medical sales will decline in 2020, when adult-use sales are expected to begin. The adult market is forecast to launch with $440 million in sales in 2020, growing to $939 million in 2021. The addition of adult-use market will bring total legal sales to $1.6 billion.”
State-level control of cannabis creates a highly localized industry, said Arcview. “Almost all spending on marijuana flows to workers and businesses within the state.”
For the Lansing region, the potential of the marijuana economy is likely to emerge as the legalization drive advances and the opportunities for jobs and revenue become more apparent.
Even vigorous opponents of Lansing's medical marijuana industry like Adam Hussain acknowledge that the city should look at the legalization possibilities. “It's a conversation that deserves our full consideration.”
East Lansing is taking a tentative approach to legalization according to Mayor Mark Meadows. It expects to pass a reworked ordinance within the next that he said reflects the community's longstanding acceptance of marijuana while attempting to navigate the tangle of state regulation and its own poorly drafted laws.
“Because of a new statutory framework for what is coming, we can authorize growing in East Lansing. We can authorize the sale of marijuana in East Lansing. Business can submit permit fees,” Meadows said.
He believes that communities desperate for revenue will embrace marijuana enterprises and that greater Lansing will have to compete hard for businesses.
We want to recognize that it will happen, to take a jobs and economic approach,” Meadows said. Reflecting on his East Lansing's opportunities he added: “There is some farmland in the city. We could have growers up there in the north tier.”
The Coalition to Regulate Marijuana Like Alcohol lists as members these organizations:
– MILegalize – The Michigan Cannabis Coalition – The National Patient Rights Association – Michigan NORML – The American Civil Liberties Union – The Drug Policy Alliance (lawyers representing the Marijuana Law Section of the State Bar of Michigan).