Michigan’s cannabis industry is facing its darkest hour

A storm is brewing over Michigan’s once-vibrant cannabis industry. A green rush has turned into a relentless race to the bottom, leaving operators grappling with razor-thin margins and an uncertain future.

The numbers are stark: Cannabis flower’s wholesale price has plummeted to around $39 per ounce, a staggering decrease compared to a year ago. Fluctuating retail sales dipped from December through February before a slight recovery in March. These harsh market realities are colliding with an industry characterized by fierce competition for market share and an ever-expanding production capacity.

Then there is the proliferation of intoxicating hemp-derived products flooding retail shelves across the state, further depressing an already turbulent market. For many Michigan cannabis entrepreneurs, the question isn’t just about profitability anymore. It’s about survival.

Is this the worst of it?

The pervasive question echoing throughout the Michigan cannabis landscape is whether the downturn represents the nadir of the market’s struggles. Several indicators suggest that the pain may persist, though perhaps less drastically.

One crucial factor is the expansion of cultivation capacity. Michigan’s relatively low barriers to entry have fostered a highly competitive environment, with new growers consistently entering the market and existing ones scaling up their operations. This relentless increase in supply puts constant downward pressure on wholesale prices. While some anticipate a natural consolidation as less efficient operators must exit, this process can be lengthy and painful for those clinging on.

Another element is the evolving regulatory landscape. While Michigan has established a relatively mature regulatory framework, potential changes in state or federal laws could introduce new costs or restrictions for operators. Industry stakeholders fear Gov. Gretchen Whitmer’s recent proposal to tax marijuana wholesalers for road-repair revenues will squeeze already tight margins.

The impact of intoxicating hemp products also remains a significant wildcard. These products, often containing delta-8 THC or other psychoactive cannabinoids, operate in a regulatory gray area and are frequently sold in convenience stores and gas stations without the same taxes and compliance requirements as cannabis. While a Michigan sheriff recently suggested that marijuana legalization has reduced issues with unregulated hemp products, the sheer volume of these readily available and often cheaper alternatives continues to siphon consumer dollars away from the regulated cannabis market. The Legislature is considering regulating these products, but when and the impact remain uncertain.

A tale of two strategies

The challenges facing Michigan’s cannabis industry are impacting businesses of all sizes, but the dynamics can differ significantly between locally owned, Lansing-based companies and large multistate operators.

Local operators often pride themselves on their community ties, craft cultivation practices and a deeper connection to the “culture” of cannabis. They focus on higher-quality, niche products and authenticity. However, they often lack the economies of scale, access to capital and the sophisticated operational infrastructure of national companies. In a price-sensitive market, this can put them at a significant disadvantage. The current environment is particularly challenging for these smaller players who may not have the financial reserves to weather prolonged low profitability.

Multistate operators, on the other hand, typically benefit from significant financial backing, allowing them to invest in large-scale cultivation facilities, efficient processing technologies and extensive retail networks. Their size allows them to negotiate better wholesale prices, implement cost-saving measures and leverage brand recognition across multiple states. In a saturated market, MSOs can often employ aggressive pricing strategies to gain market share, potentially undercutting smaller, local businesses. Recent predictions suggest that MSOs are expected to continue consolidating their position in markets like Michigan through strategic mergers and acquisitions, further intensifying competition for local operators.

However, local, Lansing-based companies possess certain advantages. Their agility can allow them to adapt more quickly to local consumer preferences and market trends. They may also cultivate a loyal customer base that values their authenticity and community involvement. Furthermore, Michigan’s Cannabis Regulatory Agency has, at times, implemented rules aimed at streamlining licensing for small businesses and social equity applicants, potentially offering a slight advantage to local entrepreneurs. The key for Lansing-based operators will be to continue differentiating themselves through quality, unique product offerings, strong local branding and exceptional customer experiences to compete effectively against MSOs’ scale and resources.

Michigan’s standing nationally

Michigan’s cannabis market is unique and occupies an interesting position when compared to other states with legal cannabis. Despite being a younger recreational market than some pioneers like Colorado and California, Michigan has rapidly become a significant player in terms of sales volume. In fact, recent data has shown Michigan surpassing California in cannabis units sold monthly, a remarkable feat considering California’s significantly larger population.

One defining characteristic of Michigan’s market is its relatively low wholesale and retail prices compared to many other states. This is largely attributed to the state’s abundant production capacity and the lack of strict caps on the number of licenses. While this benefits consumers in terms of affordability, it contributes to the financial pressures on operators.

The state’s early adoption of medical cannabis also provided a foundation of experienced growers and consumers, contributing to the rapid growth of the adult-use market.

However, Michigan’s open-market approach contrasts with states that have implemented stricter licensing limits or higher barriers to entry. These states may experience less price compression but potentially also have less product availability and higher prices for consumers. 

Beyond cheap weed

For Michigan consumers, the immediate impact is undeniably lower prices. While this might seem like a purely positive outcome — “cheap weed, who cares who’s selling it?” — a deeper look reveals why the health and stability of the cannabis industry ultimately matter to the end user.

The long-term sustainability of a cannabis market relies on the viability of its operators. If businesses are consistently operating at a loss, the consequences can include:

• Reduced product quality and variety: Operators struggling financially may cut corners on cultivation practices, use lower-quality inputs or reduce their offerings to the most basic and cheapest products. 
• Closure of local businesses: Market pressures disproportionately impact smaller, local operators who often bring unique products, cultivation philosophies and a personal touch. The result is a more homogenized market dominated by large corporations.
• Loss of passion and authenticity: Many consumers were drawn to the legal cannabis market by the promise of being able to support local entrepreneurs with a genuine passion for the plant and its culture. A market solely driven by the bottom line risks losing this authenticity.

Ultimately, consumers benefit from a diverse and thriving cannabis ecosystem that includes both large and small operators committed to quality, safety and innovation. Supporting local businesses and responsible actors within the industry helps to foster a market that prioritizes more than just the lowest price. It cultivates a community built on shared values and a genuine appreciation for the culture and potential of cannabis.

While cheap weed might seem appealing in the short term, a healthy and sustainable industry ensures a better and more diverse experience for consumers in the long run.