Author: Dustin Walsh

Dustin Walsh is a senior reporter for Crain’s Detroit Business, covering health care with a focus on industry change and operations, as well as the state's emerging cannabis industry. He is also a regular columnist on all things health, labor, economics, and more.

Recent Stories by Dustin Walsh
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BusinessPrivate

Michigan Cultivator Sees More Demand For Outdoor Grows

Dustin WalshOctober 5, 202314min00

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh. 

Amid 120 acres of decaying cornstalks and scarecrows along County Road 665 north of Paw Paw, rows and rows of lush green trees rise into the sky. Expensive trees. Trees that make up the next crop of marijuana growing at Grasshopper Farms.

October, otherwise known in the cannabis industry as “Croptober,” is the annual harvesting of the state’s outdoor marijuana plants, and an estimated record 100,000 plants will be reaped this season. Croptober also means a product surplus that invades the market resulting in depressed prices for the industry and good deals for consumers. This lasts from late October through February the following year.

However, the industry is maturing and companies are deploying strategies to not only combat pricing but thrive from the annual outdoor harvest, preventing spooky season from being so commercially scary.

Cannabis plants are pictured at Grasshopper Farms in Paw Paw, Mich. on Oct. 2, 2023. (Nic Antaya for Crain’s Detroit Business)

“Growing outdoors is really hard,” said Will Bowden, a retired Lieutenant Commander in the U.S. Coast Guard, former Florida cop and now CEO of Grasshopper Farms. “People want to do something in a more controlled environment, without the pressures of weather. That’s why when you go into retail, you’ll find only one grade of outdoor flower. That is the discount shelf space.”

Outdoor plants tend to be viewed as being lower quality; indoor operations can simulate optimal conditions 24/7 compared to, well, nature. And cannabis grown outdoors generally fetches a smaller price on the market. Much of it ends up as biomass used to make distillate or edibles where the highest-quality flower isn’t as appreciated.

For Bowden, growing outdoors offers an opportunity to set his product apart.

“Growers generally put less care into their outdoor farms,” he said. “We don’t believe that and are trying to change that perception.”

Sun-grown flower

Whereas indoor marijuana grows can feel sterile and controlled like a pharmaceutical plant, outdoor grows look and feel like farming.

At Grasshopper Farms, 20 miles west of Kalamazoo, migrant laborers spent the first week of Croptober busily preparing and picking product. Spanish fills the air as the workers clip branches from the marijuana plants — which grow much larger outdoors than indoors and resemble Christmas trees at a distance — and load them into tubs 20 pounds at a time.

A farm foreman tells a line of workers hauling the marijuana-filled tubs to load them onto the trailer behind an aging Ram truck. The truck’s lights are covered in green tape, so when harvesting extends into the night, the lights don’t disturb the plants’ “sleep” cycle.

Outdoor grows are cheaper to operate, relying on the sun for photosynthesis as opposed to thousands of overhead lights that generate massive utility bills. Bowden said the farm required a total startup investment of $6.5 million for build out and operations. By contrast, the highly-automated Canapa Valley Farms in Vassar spent $40 million to build out its 60,000-square-foot indoor grow operation.

Workers harvest cannabis at Grasshopper Farms in Paw Paw, Mich. on Oct. 2, 2023. (Nic Antaya for Crain’s Detroit Business)

For Grasshopper, outdoor weed can overcome its quality stigma with better marketing and better smokable product, Bowden said.

Each of Grasshopper’s 6,181 total plants on the property are broken into thirds. The top third of the plant is used to sell as flower to consumers, the middle third for pre-rolls and the bottom third is used for biomass to sell off to processors.

Bowden markets Grasshopper Farms as “premium sun-grown flower” and sells the marijuana buds to dispensaries and even sells packs of pre-rolls under the farm’s name.

The plants, despite being outside in rows like a traditional farm, are not planted in the ground. They sit atop landscape fabric in massive pots filled with a proprietary soil blend, all connected to each other through plant netting and an elaborate irrigation network.

The 40-employee company flexes up to 140 workers during harvest, with most of the workers being migrant farm hands.

The truck will haul 18 tubs from the fields at a time to the farm’s drying rooms in a facility on the property. Grasshopper’s five drying rooms will hold 9,000 pounds of marijuana branches, resulting in 1,000 pounds of dried marijuana flower, that go through five cycles over the next 25 days to meet the harvest goal of approximately 25,000 pounds of total dried marijuana flower.

Benefits to a bountiful harvest

Since outdoor grows only go to market once a year, Croptober deeply impacts the market price of marijuana.

Marijuana prices had been on the decline since 2020, but Croptober sank prices at a faster rate than prior declines last year. The average price for an ounce of adult-use recreational marijuana flower in September 2022 was $109.88. By January 2023, it had sunk to $80.16 per ounce. In August of this year, the most recent available data from the Michigan Cannabis Regulatory Agency, the prices had recovered more than 17 percent to $94.16 per ounce.

“There are almost 2 million more plants in pots (indoor and outdoor) at this time this year versus last year,” said Miles Baker, a cannabis attorney at Detroit-based Dickinson Wright. “It’s very possible Croptober shows some price compression like we’ve seen in the past. Historically, people have thought of Croptober as crashing the market. But we’re also seeing a price recovery and it will be interesting to see how much of a price compression happens and whether growers and retailers really absorb the influx.”

Mike Elias, CEO of Marshall-based indoor grower Common Citizen, one of the largest cannabis operations in the state, believes companies are more stable in 2023 and Croptober’s impact will be muted.

“While there are 40% more plants in production compared to last year, the increased demand, which has risen by 66%, has led to a 32% increase in sales,” Elias told Crain’s.”This suggests the market has become more diversified with indoor and greenhouse operations producing year-round. Consequently, Croptober may not have the same massive impact on pricing as before.”

Elias said last year outdoor-grown marijuana would be on the wholesale market for as low as $300. This year, he expects the low end to be between $400- and $500 per pound with some growers seeking as high as $700 per pound.

305 Farms in Lawrence, an indoor grow 14 miles southeast of Grasshopper Farms that produces several licensed vape brands including Rohan Marley’s Lion Order, is hoping for the low prices Croptober generates.

305’s products are typically expensive and categorized in the “top-shelf” market of cannabis. The 25-acre campus can only produce about 40% of the company’s distillate needs, said founder Jan Verleur. The company relies on the oversupply and lower prices Croptober produces.

“If you have brand loyalty around strains and you’re focused on top-shelf cannabis, there’s not a lot of outdoor that competes with you. Less than 10% of what comes out of October will directly compete with top-shelf products,” Verleur said. “We can’t grow enough on our farm to meet our current output needs, so we have to buy in the open market. Because of Croptober, there will be buying opportunities for us in Q4 to lower our cost of goods.”

Verleur, who also owns operations in California, said Michigan consumers are more price-conscious, seeking value more than peers in California.

“This is a bang-for-your-buck type of state,” Verleur said. “The value market is like 60% of the market at least. I can only operate in about 15% of the state’s stores. So it’s beneficial to us to have that outdoor product to supplement and keep our costs contained.”

Stopping seasonality

Grasshopper, however, battles the price seasonality with standard wholesale pricing, allowing it and its customers predictable accounting. Grasshopper wholesales its flower within a range of $500 to $700 per pound, or $31.25 to $43.75 per ounce.

“Our value proposition is that we’re going to have a price all year round,” Bowden said. “We don’t lower our prices due to market supply, but we also don’t raise the prices in the summer. We’re a fair price the whole time.”

Marcelo Vazquez carries a bin of harvested cannabis at Grasshopper Farms in Paw Paw, Mich. on Oct. 2, 2023. (Nic Antaya for Crain’s Detroit Business)

Those higher prices, if it can sustain them, allow Grasshopper to reinvest. Bowden said the company analyzes the market and tries to keep its production 5% below what the total market demand is for its products to maintain pricing.

With demand rising, the company is ready to expand on its 160-acre property — it currently allows neighboring farmers to plant and reap corn on its acreage, though this might be the last year it does.

“We think our demand is about 40,000 to 42,000 pounds a year,” Bowden said. “We’re at about 20,000 to 25,000 pounds right now. So either next year or the following planting season, we plan to double to 80 acres.”

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BusinessPrivate

Treated ‘Like a Coke Dealer’: Cannabis Workers Lose Out On Mortgages, Loans

Dustin WalshSeptember 5, 202320min00

This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh. 

Vixen Yerock earned a degree in plant molecular biology from the Rochester Institute of Technology in New York. She’d spent the last 15 years, though, as a manufacturing engineer specializing in process efficiencies.

But in early 2022, Yerock was given an opportunity to return to working with plants after being hired by one of Michigan’s largest marijuana firms, Common Citizen. Accepting the job meant moving from Oklahoma to the Marshall area where Common Citizen operates its 200,000-square-foot cultivation facility.

Yerock secured a home loan from an FDIC-approved bank and was set to close on a new home in March — that is before the bank discovered she was soon to receive paychecks from a major weed supplier. Gateway Bank, who underwrote the mortgage, notified Yerock two weeks before closing on the home that they would not service her loan due to who was signing her paycheck.

Yerock worked quickly to find a new lender, a credit union out of Kalamazoo and was able to close on the house. But not without excessive cost.

“When we secured the mortgage (through Gateway), that was the best interest rates we’d seen in a long time,” Yerock said. “We were left to pivot and quickly found a new bank, but with a much higher interest rate. That’s going to cost me $150,000 more over the life of the loan.”

Yerock is one of thousands of marijuana employees in the state who are facing precarious personal banking relationships due to their employment. Weed is still an illegal Schedule I narcotic to the federal government and banks face major regulatory restrictions that make it challenging to provide even basic banking services to those in the state’s legal industry. Financial institutions face federal money laundering and fraud charges for banking with those conducting businesses in the industry, so they perform what is called “de-risking” their bankrolls by removing accounts that could be linked to illegal activity.

Efforts to ease banking for those employed by legal cannabis operations have been slow to materialize.

Congress has spent more than three years kicking around the SAFE Banking Act, which would provide certain protections to banks that choose to provide financial services to the legal marijuana industry. The law passed the U.S. House of Representatives in 2021 but has advanced no further.

The law is most commonly discussed to end exclusive cash use by the industry, which is forced to move millions of dollars of cash around daily, creating unsafe and untenable situations for marijuana companies. But it’s the personal banking relationships held by employees that are most vulnerable.

“Most stories we’ve been hearing around SAFE Banking is on the corporate need,” said Jenn Zielinski, government affairs manager for Common Citizen. “The narrative focuses on the cash and the crime. But, in reality, that’s not really an issue. We are no more crime-ridden than any other retail location. The lack of banking is really a burden to the industry’s workforce.”

Living or laundering?

In 2009, the U.S. Department of Justice, responding to states that were legalizing medical marijuana — Michigan legalized medical marijuana in 2008 but didn’t prop up a recreational industry until 2019 — sent a memo noting that marijuana remained an illegal narcotic from the federal perspective. But the feds targeting cancer patients and caregivers, those who grew and supplied marijuana to those patients, was “likely not an efficient use of federal resources.”

As more and more states began the commercial sales of marijuana — Colorado and Washington state began selling recreational marijuana in 2014 —the Federal Financial Crimes Enforcement Network (FinCEN) issued a memo clarifying how banks could operate with marijuana businesses.

The memo created a set of guidelines so banks could remain in compliance that involved arduous record keeping, including filing Suspicious Activity Reports for every marijuana-related transaction. However, the feds would remain diligent, according to the memo, in prosecuting money laundering and fraud claims if any bank failed to comply.

In Michigan, a handful of local credit unions and banks saw an opportunity in banking marijuana business, believing they were able to handle the labor-intensive compliance reporting for a small stable of marijuana clients.

Mason-based Dart Bank and Fraser-based Live Life Federal Credit Union were early adopters in the state. Flagstar Bank is also known to bank cannabis here.

Live Life Federal Credit Union, which built a growing business banking marijuana by 2019, was slapped with a cease-and-desist order in February 2021, the first known federal crackdown on marijuana banking. The U.S. National Credit Union Administration issued the order alleging Live Life failed to comply with reporting procedures. Life Live was barred from opening new accounts until April 2021 and faced no other repercussions.

Dart Bank did not respond to inquiries about its marijuana services. Flagstar Bank declined to comment.

“There is a robust number of banks and credit unions across the state that are banking cannabis and cannabis businesses,” said Patricia Herndon, executive vice president of government affairs at the Michigan Bankers Association. “Whether an employee or a business, those accounts can still be considered a money launderer. There can be repercussions there. But there are banks that have made the investment to have compliance in place and they are the best matches for these employees.”

Large national banks have avoided marijuana banking because the size of their operations likely makes rigorous compliance much more difficult.

For mortgages, they are split into two camps — Freddie Mac and Fannie Mae, federally-backed home mortgage companies that guarantee mortgages issued through lenders. Freddie Mac primarily works with large banks and Fannie Mae with smaller institutions. Freddie Mac will not back a mortgage involving cannabis employees, but Fannie Mae will, said Kelli Peterson, a loan originator for PrimeLending in Portage. Owners of marijuana companies are completely barred from mortgages from both institutions, Peterson said. She helped Yerock quickly secure a mortgage when Gateway balked at the loan.

Cutting the mortgage industry in half is costly for employees, Peterson said. For instance, cannabis employees can’t access Freddie Mac’s Home Possible program, which provides those with lower incomes a mortgage with a low-down payment and lower fees.

“Because Freddie won’t allow a loan to a cannabis employee, 50 percent of the industry is cut off from them,” Peterson said. “Home Possible is off the table. These people need homes too.”

Erring on the side of caution

To avoid any possibility of money laundering or wire fraud charges, the big banks began immediately purging accounts held by marijuana company owners and executives in the state.

In 2020, Bank of America terminated its banking relationship with David Morrow, CEO of the state’s largest marijuana company Lume. Morrow said he had millions of dollars in various BofA accounts, including money-managed accounts and loans.

“They treated me like a coke dealer,” Morrow said. “All of my accounts, my wealth management accounts, everything was booted. I got into this business to help out Bob (Barnes, majority owner of Lume). The last thing I was looking for was to have my entire personal banking relationship to get tossed out the window.”

Morrow said the bank he’d used for more than 20 years only noticed his paychecks were coming from the marijuana industry after he applied for a mortgage for an investment property and internal compliance auditors flagged his accounts.

He has since moved his accounts to another bank in the state.

Dave Morrow

“Look, this cost me a lot of money, but it’s nothing on what it’s done to our employees,” Morrow said. “Ask anyone working in the industry and they’ve faced issues with banking. It’s all hypocritical. They go after people working in this industry, but what about the people buying weed? They are taking money out of their banks and buying weed. It’s discriminatory, because they go after the sellers, not the buyers.”

Paul Bugajski, director of operations for Common Citizen, faced a similar fate. In May, Huntington Bank terminated his personal bank account, his credit card account and his farm account for the small farm the family runs in Northern Michigan.

“We received a letter that said we had 22 days to get this straightened out,” Bugajski said. “We were loyal and had money in that bank for years.”

Bugajski, a former aviation manager at Eaton Corp., said the bank never fully disclosed why his accounts were terminated but after hearing from his peers, he suspects it was because he works in marijuana.

In a statement to Crain’s, Huntington said it must terminate any accounts associated with marijuana due to federal law.

“As a federally chartered institution, Huntington must adhere to federal law, including when it conflicts with any state or local statutes,” the Columbus, Ohio-based bank said in the statement. “At this time, marijuana remains federally scheduled as a controlled substance, and the manufacture and sale of marijuana remain illegal at the federal level. We continue to monitor federal lawmaking efforts on this subject.”

Hits from the gong

Yerock’s banking troubles didn’t stop at a mortgage. To clear her driveway of snow, she went to purchase a side-by-side utility vehicle and plow. The dealer, however, was unable to secure a loan for the vehicle due to her employment as a Six Sigma manager at Common Citizen.

Her wife, who does not work in cannabis, had to drive up to the dealer and apply for the loan.

Two other employees at Common Citizen were denied financial assistance for hearing aids through Michigan Rehabilitation Services, a state program that assists employees with disabilities, said Amanda McCrary, chief human resources officer for the company, said. MRS is regulated by the federal Workforce Innovation and Opportunity Act.

In an emailed letter to McCrary, MRS wrote it is prohibited from “supporting services or employment goals associated with growing, selling, producing, handling, or distributing marijuana in any form.”

“People working in the industry can’t benefit from these programs,” McCrary said. “People who work for us are disproportionately impacted by the federal government’s stance on cannabis.”

A change is on the horizon, though.

The U.S. Department of Health and Human Services recommended this week that the Drug Enforcement Agency move marijuana from a Schedule I to a Schedule III drug. Rescheduling the drug would immediately clear up marijuana business issues, such as ending the 280E tax, which prohibits marijuana sellers from writing off business expenses.

Rescheduling to a Schedule III, while not legalizing marijuana at the federal level, would also likely make it much easier for banks to enter the marijuana space for both businesses and employees.

“I don’t see a need for the SAFE Banking Act if this in fact becomes the official position,” Jonathan Havens, a cannabis attorney at Philadelphia-based Saul Ewing who previously worked for the FDA, told Politico Wednesday. “I’m not saying that all banks will want to jump into this space, but the need for safe harbors I don’t think exists like it does today.”

It’s unclear whether the DEA will move to reschedule marijuana and when. It’s also unclear whether rescheduling would impact federal assistance programs like the MRS hearing aid program.

Gov. Gretchen Whitmer has called for Congress to pass the SAFE Banking Act on several occasions. Employees at Common Citizen also met with Lt. Gov. Garlin Gilchrist II in August to discuss their banking problems. In addition, Common Citizen is working with the Michigan Chamber of Commerce to create a lobbying coalition in Washington D.C.

Another attempt to get the SAFE Banking Act passed is also afoot. Herndon said the bill is likely to move to a Senate committee in September.

Until then cannabis businesses and employees will be forced to use local banks and credit unions for financial services.

“We’ve all been taken advantage of,” said Morrow. “We’ve all had to pay five times the fees or a higher interest rate. Everyone in this industry has a story. It’s gone on for years. We’re just regular people trying to do regular business in a legal industry.”

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BusinessCultivationPrivate

Do Cannabis Farms Count as Agriculture? The Answer Could Cost Michigan Schools.

Dustin WalshAugust 25, 202316min00

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.

Cannabis cultivators take great care. Transferring a seedling from its mother plant to new pots. It joins its siblings in a highly-controlled room. Twelve hours of light, 12 hours of darkness. Its vegetative state is critical to its maturation. Temperature, humidity, and airflow are tightly monitored.

The weeks-long result is pounds and pounds of marijuana buds, set to be flash-frozen, dried, or distilled for consumption. There’s no doubt the process mimics vertical indoor vegetable farming.

But is cannabis agriculture?

In June, a Circuit Court in Cass County ruled that it was, potentially creating a legal frenzy of Michigan growers seeking to overturn a common property classification in hopes of saving thousands of dollars in their annual tax bills in 2024 and beyond.

Local municipalities have always classified cannabis properties across the state as industrial or commercial properties. The reason is simple: Most indoor grow operations set up shop inside former industrial buildings — and by maintaining the industrial use classification, those occupying the property pay the common taxes, including school millages. Properties categorized as agriculture, however, are exempt from paying school mils and other local taxes.

“It’s a nuanced area of property law,” said Ben Sobczak, partner at Detroit law firm Dickinson Wright PLLC and former chief legal officer for vertical marijuana company Pleasantrees. “But it’s big money for operators. And, until now, no one has really fought it because the local municipality has the leverage on your permits. Challenge them and they may not renew your permit to operate next year.”

Due to the result of the case in Cass County, experts believe a horde of new lawsuits will crop up as cannabis operators look to shrink their tax bills as profits remain fickle due to low prices across the state’s industry.

Technicality for THC?

Sunset Coast Provisions, which operates a grow operation and dispensary on E. State Street in the village of Cassopolis, received its tax assessment in February 2022 where the local assessors categorized the grow side of its operation as industrial.

The owners of HRP Cassopolis LLC, doing business as Sunset Coast, quickly contacted property tax attorneys at Detroit-based law firm Dykema Gossett LP to challenge the assertion. They declined a request for comment Thursday.

The local review board quickly denied the appeal. Carl Rashid Jr. and Mark Magyar, partners at Dykema, then appealed the ruling to the State Tax Commission.

“It’s the growing of a plant,” Rashid Jr. said. “But the State Tax Commission said it didn’t have any evidence that cannabis is agriculture. We filed a motion to reconsider and showed a bulletin from the Michigan Department of Agriculture that spelled out what is considered agriculture. Even with that evidence, we were still denied.”

Under the General Property Tax Act in Michigan, any property involving the “growing and harvesting of any agricultural, horticultural, or floricultural commodity” is considered an agricultural property, among dairying, raising livestock, and tree farming.

The Dykema attorney appealed the tax commission’s ruling to the Cass County Circuit Court, which in June ruled in favor of Sunset Coast. Cultivating marijuana was agriculture according to Judge Carol Bealor.

“Giving the words in the statute their plain and ordinary meaning, as case law dictates this court must do, cannabis cultivation falls squarely within (the property tax act)’s definition of an agricultural operation,” the judge wrote in her June 29 ruling. “The statute’s language is unambiguous, using words that have a clear meaning. No further judicial construction is required or permitted, and the statute must be enforced as written. Considering the record before this court, and the absence of the use of any standards or objective criteria by the assessor that demonstrated cannabis cultivations did not fall within the plain meaning of the definition of an agricultural operation, the assessor’s conclusion that cannabis cultivation is not an agricultural operation is not authorized by law.”

By being classified as an agricultural property, Sunset Coast saves about 30 percent on its annual property tax bill, Rashid Jr. said. That works out to about $20,000 annually.

Given that the state’s marijuana industry has been plagued with collapsing prices for the last 18 months — product oversupply has dropped recreational marijuana prices from $494.77 per ounce of flower in February 2020 to just $98.65 per ounce in July — margins are thin, and any way to save costs is celebrated.

“It’s just not true that the industry is making a ton of money right now,” Sobczak said. “This is just another incredible expense on top of the other specialized expenses licensed cannabis companies carry. The only reason cannabis isn’t considered agriculture is because it puts more money in (the municipalities’) coffers.”

Cultivation or depredation?

The state’s funding sources for education come from a variety of places, including sales tax, use tax, tobacco taxes and the lottery. But agricultural properties in the state are given exemptions from certain local school operating taxes, which can tax up to 18 mills — or $18 for every $1,000 in taxable value.

The state has more than 10 million acres of farmland, with one out of six acres in the state designated as farmland. It’s unclear how much in total taxes are exempt due to agricultural land.

The Michigan Association of School Boards did not respond to inquiries on the matter.

But it’s clear the Cass County ruling is going to lead to more property classification challenges for local communities come March 2024, when companies are able to appeal their property tax assessment again.

Mike Elias, CEO of Common Citizen, which operates a 40,000-square-foot grow operation in Marshall, located in Calhoun County, called the Cass County ruling “a cornerstone” for the industry in an emailed statement to Crain’s.

“As a leading cannabis cultivator, we believe this ruling is not only appropriate but also a critical step forward for the normalization of the industry,” Elias wrote in a statement. “Given the significant economic challenges our sector has faced, punctuated by artificial and steep price declines due to various factors, the industry is in dire need of such supportive legal precedents. The Cass County Circuit Court’s decision to rule in favor of HRP Cassopolis, clarifying the legal classification of cannabis cultivation and confirming its eligibility for agricultural tax-related benefits, is a watershed moment that couldn’t come at a more needed time.”

Crain’s reached out to several other cannabis cultivators, but all declined to comment on the record.

However, whether the ruling in Cass County is indeed a watershed moment or just an anomaly remains to be seen.

Gerald Fisher, distinguished professor emeritus at Western Michigan University Cooley Law School and local government law consultant, said while the circuit court ruling is favorable for the industry, it does not set a precedent for the entire state.

“Owners are certainly going to cite this case, but what one circuit court does in one county is not a precedent-setting ruling,” Fisher said. “This sounds like a hometown ruling to me. Cannabis is not considered food and fiber like most agribusinesses. While I can certainly see the rationale for why they would want to be considered agriculture, there’s a completely different marketing pattern and network than food and other vegetation the state considers agricultural. The better interpretation, from my view, is that cannabis would be industrial because it’s part of a network between grow operations and ultimately to a dispensary, not for traditional consumption of calories.”

Washington state and Massachusetts legislators carved cannabis out of being included in agricultural tax exemptions to protect school funding in recent years. There’s currently no legislation in the state of Michigan to remove marijuana from exemption considerations.

“Policy decisions are for the legislature,” Rashid Jr. said. “We provided those two examples in court … but in Michigan no such law exists.”

But the village of Cassopolis and LaGrange Township, where the village is located, are now seeking to intercede in the case brought against the State Tax Commission. They are seeking to become parties of the case so they can file an appeal. A ruling on whether they can intercede has not yet been made.

Lawyers for both municipalities declined to comment.

So while Sunset Coast may save on their tax bill this year, it’s unclear whether that will continue. Though it may not make a difference statewide, as others are prepping their own cases in 2024.

Sobczak said he’s referred clients to the Dykema team, and Rashid Jr. said several clients have begun to reach out to begin preparing their own challenges to property classification.

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BusinessPrivate

Michigan’s Marijuana Industry is Now the Top Market in the Nation. Here’s Why.

Dustin WalshAugust 18, 202311min00

This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh.

Weed. Jazz cabbage. Ganja. Jolly green. Righteous bush. Sin spinach.

Regardless of the name, Michiganders fully embraced marijuana’s legalization and commercialization.

Michigan is now the top marijuana market in the country — based on per capita spending.

Through the first seven months of the year, Michigan’s marijuana industry sold $1.7 billion worth of products ($58.8 million in medical marijuana and $1.644 billion in recreational), according to data from the Michigan Cannabis Regulatory Agency. Michigan weed is outselling distilled booze in the state and is on track to easily top $3 billion in 2023.

While Michigan won’t top California in overall sales, totaling $5.3 billion in 2022, it beats out the Golden State and other competitors, including the OG in legalization, Colorado, on per capita spending.

Sales in the Rocky Mountain State through June topped $782 million for a per capita spend of $134.03. California is less than $136 per capita. Michigan, however, topped $142.13 in per capita spending on marijuana products in the first half of this year.

So are Michiganders just more in tune with getting baked than Californians and Coloradoans? Probably not.

Don’t step on the grass, Sam

Michigan’s success in the marijuana game is correlated directly to the state’s regulatory, tax, and overall business framework.

Following the legalization of adult-use recreational marijuana by voters in 2018, Michigan’s framework solidified it into an unlimited licensure state with comparatively low taxes.

The unlimited licensure allowed businesses to get approved to operate grow operations, processing plants, and retail stores quickly. Yes, there were and still are problems with local municipality business licensure, but those roadblocks are eroding.

Michigan also taxes consumers among the lowest in the U.S. with a 10% excise tax on recreational marijuana sales. Colorado has a 15% excise tax on wholesale and retail sales. California has a 15% excise tax on wholesale and a per-ounce tax on fresh plants and cultivation. Other top players like Washington and Oregon have a 37% excise tax and 17% excise tax on retail, respectively.

It should be noted that Michigan crossed $1 billion in excise and sales tax revenue collected from the marijuana industry last month, the Michigan Department of Treasury confirmed. That’s a number that almost seems unbelievable given the low excise tax.

The low taxes resulted in the Michigan market maturating very quickly due to easy access to marijuana and prices that shrank precipitously — maybe too quickly for some.

Recreational marijuana sales were only $9.83 million in January 2020, the second full month of legal dispensary sales in the state. By July 2020, six months later, rec sales topped $57.4 million. In July this year, rec sales were north of $270 million.

No more illegal smile

And that’s all about cost. The average cost of an ounce of flower in July 2020 was $402.72. In July of this year, the average cost of an ounce of recreational flower was $98.65 — prices have stabilized since a low in January this year of $80.16 per ounce.

That price collapse, of course, has crippled several business operators — Skymint and at least six others are under a court-ordered receivership — a natural byproduct of any new industry wrangling supply and demand.

Businesses still struggle under the weight of operating at low margins, but it’s certainly helped demand. Low prices and abundant product has pushed more and more Michiganders into the legal marijuana market, according to 2022 data provided by Oregon-based Whitney Economics and published by the National Cannabis Roundtable.

According to the data, 75.5% of all marijuana sales are in the legal market, as opposed to the illicit market. California is only at 44% legal sales; Oregon at 74.8% legal sales; and Washington state at 61.3% legal sales. Colorado is the bright spot here, with Whitney Economics projecting 99.8% of all marijuana sales in the state are in the legal market.

That means it’s likely Michigan still has some runway to its total market potential, but also shows there is a peak. Whitney Economics projects the total market demand for marijuana in Michigan to top out at just over $3.2 billion, compared to $11.93 billion in California. Michigan is likely to come near that total in 2023.

The industry is yet to recognize any slowdown in the market. As of June 31, there were roughly 1.9 million marijuana plants actively being grown in legal operations for recreational sales, according to CRA data. That’s well up from the under 1.3 million plants in June 2022.

Passing the Dutch?

But whether Michigan remains a top marijuana state by any metric will likely be determined not by Michigan’s market, but by whether other states coming into the market follow Michigan’s lead and let the industry blossom under less restrictive rules or whether they cultivate a slower, more steady market. Illinois, for instance, limits how many marijuana dispensary licenses it issues annually, limiting the supply to prevent steep price declines like those seen in Michigan and elsewhere. Florida is still a medical marijuana-only state, as well as Pennsylvania. Texas still doesn’t have any legal marijuana.

Ohio will be the one to watch, alongside maybe Indiana. A ballot initiative in Ohio gathered enough signatures and received approval earlier this week to be on the November ballot.

It’s likely many Ohioans drive up to dispensaries in Michigan to purchase marijuana. But it’s still unknown if recreational legalization there would impact Michigan’s market.

Ohio is a more populated state and if the Ohio regulators get legalization right, we could see Ohio emerge as a dominant player in the coming years.

But until then, Michigan is tops for dope smokers, edible eaters, vape vendees, and those who serve them.

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Medical Marijuana Pioneered Legal Cannabis in Michigan. Now It’s Withering Away

Dustin WalshAugust 17, 202319min00

This story was reprinted with permission from Crain’s Detroit and written by Dustin Pletz.

Michigan’s medical marijuana industry is wilting.

The portion of the cannabis business that stood up legal weed in the state is now at its lowest point since its inception in 2008, according to data from the Cannabis Regulatory Agency. Sales crept to just $6.14 million in July, down nearly 71% from a year ago and down 86% from July 2022 when sales reached nearly $43 million. The cost of an ounce of medical marijuana is down 52% over the last 12 months to $102.03, but consumer pricing is only part of the cost conundrum.

Much of the medical marijuana drawdown is linked to industry costs associated with maintaining a medical and recreational license and the costs associated with marketing and selling both. Plus there are fewer and fewer markets that are medical marijuana only, such as Waterford Township and Pontiac, both of which are merging toward the adult-use market. Detroit was the last major city that maintained the distinction and prohibited recreational marijuana, but sales finally began earlier this year after legal squabbles.

The reality is there are fewer dispensaries selling medical marijuana as demand for adult-use recreational marijuana dominates — recreational sales totaled $270.6 million in July, compared to $188.8 million a year ago. And with those prices near historic lows, it’s simply easier and cheaper for all consumers, recreational or medical, to purchase marijuana on the recreational side of the business.

“For us, it’s expensive to maintain both licenses and follow both sets of rules,” said Ankur Rungta, CEO of Ann Arbor-based C3 Industries, a vertically-integrated company with a grow operation in Webberville and 13 High Profile Cannabis Shop locations across the state. “It’s a tighter market right now and managing costs is critical. As the market shrinks, it just makes less and less sense (to sell medical marijuana).”

C3 Industries

Puffing prescription

Michigan voters approved medical marijuana sales in 2008, a full decade before voting to allow recreational sales. But the legal framework to allow medical sales wasn’t established until 2016, after the Michigan Supreme Court ruled in 2013 that the 2008 law didn’t allow for dispensaries. The long delays led to the state not issuing the first batch of retail licenses until August of 2018.

The medical industry was largely supported by caregivers, those growing marijuana at home and distributing that product to dispensaries — the state began phasing out caregiver sales to dispensaries in 2020 as recreational marijuana came online and commercial grow operations were churning out product. Caregivers can still supply registered medical marijuana patients, but cannot sell excess product to dispensaries.

The state requires a medical marijuana card for “patients,” who used the product to treat mostly chronic conditions, requiring patients to get a medical marijuana card issued by medical doctors and doctors of osteopathy. One difference there is patients can be as young as 18, where recreational cannabis is only available to those 21 and older.

David Schulman, a former vascular and thoracic surgeon at Henry Ford Health and other metro Detroit health systems, started Huntington Woods-based Greenpath Holistic Medicine in 2017 to review and approve patients seeking medical cards.

“I was done with surgery and done with teaching, and I was done with organized medicine,” Schulman said. “But I wanted a source of income, though that wasn’t the major factor. It was more curiosity about marijuana and it was something I could do with my license without having to be involved in traditional medicine.”

Schulman said he doesn’t issue cards for common complaints like insomnia and anxiety but saw great improvements in patients with migraines and other chronic conditions.

“I would say I started as a skeptic, thinking my patients would be young college students looking to sell weed to their friends,” Schulman said. “But I discovered a large cohort of patients who found marijuana is superior to the crap drugs other doctors were putting them on.”

The state had more than 251,000 registered marijuana card holders in July 2021, making Michigan the largest medical marijuana market of the time, according to data from the CRA. Of those card holders, nearly 61% of the cards were issued for chronic pain and more than 22% for arthritis.

But plummeting recreational prices started cutting into those sales. Recreational wholesale prices had almost reached parity with medical marijuana by July 2021 and continued to crash, reaching as low as $80.16 an ounce by January of this year.

The result was fewer and fewer people maintaining their medical marijuana cards. As of July 31 this year, state data shows Michigan has shed more than 100,000 medical card holders, dropping to 141,005.

“There used to be some meaningful advantages for a medical card for consumers – lower taxes and higher purchasing limits,” Rungta said. “But those advantages are less important as overall prices come down.”

Medical marijuana carries a 3% excise tax, compared to a 10% excise tax for recreational marijuana, and users are able to purchase larger doses of medical marijuana than recreational.

That translated to an ounce of recreational marijuana — an amount that would produce roughly 60 marijuana cigarettes or joints —costing $3 more than an ounce of medical marijuana in July 2023 prices. The CRA limits recreational THC concentrates in edibles at 10 milligrams per dose, compared to 50 milligrams per dose in medical as well as differing doses for tinctures and oils.

For many, renewing a two-year medical marijuana card, which costs between $100 and $200 for the medical appointment, isn’t worth the trouble, Rungta said.

C3 Industries has shed all but one of its medical marijuana growing licenses and almost all of its medical marijuana sales licenses.

“We have the largest addressable recreational market in the country as far as sales per capita,” Rungta said. “It’s not from medical marijuana consumers going to rec. It’s just exploding. That has to do with the low cost of product.”

While the medical market in the state continues to decline, the adult-use recreational market is reaching new heights, selling more than $270 million in July alone. The state’s total marijuana market is expected to eclipse $3 billion this year, behind only California, which has 30 million more people.

There are still good reasons to maintain a medical marijuana market, and Schulman said it has nothing to do with money.

“What if they encounter the law or have a job with drug testing?,” Schulman asked. “Cannabis still isn’t like other medicine because of the stigma. If they keep a medical card, they are less likely to face drug testing from their employer, and for those that picked up for DUIs and are found to have marijuana in their system, they get hit with that whether they were high or not. People are still threatened because of marijuana use.”

Kevin Mechigian, owner of Tree House CBD in Walled Lake and Express Med Card, said despite declines in card holders business is holding steady.

“For the average consumer, a medical card doesn’t make sense anymore,” Mechigian said. “But if you use cannabis daily or even monthly, it gets competitive.”

A card at Express Med Card costs $110, he said.

But he isn’t high on the market.

There are still good reasons to maintain a medical marijuana market, and Schulman said it has nothing to do with money.

“What if they encounter the law or have a job with drug testing?” Schulman asked. “Cannabis still isn’t like other medicine because of the stigma. If they keep a medical card, they are less likely to face drug testing from their employer, and for those that picked up for DUIs and are found to have marijuana in their system, they get hit with that whether they were high or not. People are still threatened because of marijuana use.”

Kevin Mechigian, owner of Tree House CBD in Walled Lake and Express Med Card, said despite declines in card holders business is holding steady.

“For the average consumer, a medical card doesn’t make sense anymore,” Mechigian said. “But if you use cannabis daily or even monthly, it gets competitive.”

A card at Express Med Card costs $110, he said.

But he isn’t high on the market. Mechigian expects medical marijuana to all but phase out of the state in the next five years.

“Maybe it doesn’t go away, but it will continue to change,” Mechigian said.

Rungta said the medical market in Michigan or elsewhere won’t survive until medical marijuana becomes more legitimate as medicine, not just as a recreational drug with a medical backdoor.

“For medical to really drive a comeback, there would need to be differentiation. It’s the same product, essentially, on both sides (medical and recreational) of the business. We’re just not there yet,” Rungta said. “It has to come through R&D. A product that’s something closer to medicine and more data-driven evidence to support it.”

expects medical marijuana to all but phase-out of the state in the next five years.

“Maybe it doesn’t go away, but it will continue to change,” Mechigian said.

Rungta said the medical market in Michigan or elsewhere won’t survive until medical marijuana becomes more legitimate as medicine, not just as a recreational drug with a medical backdoor.

“For medical to really drive a comeback, there would need to be differentiation. It’s the same product, essentially, on both sides (medical and recreational) of the business. We’re just not there yet,” Rungta said. “It has to come through R&D. A product that’s something closer to medicine and more data-driven evidence to support it.”

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These are Michigan’s largest marijuana dispensaries by retail location

Dustin WalshJuly 31, 20238min00

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.

Michigan’s marijuana industry is among the most competitive industry in the state. With basement-low wholesale prices, the industry is becoming increasingly more vertically-integrated. The most profitable way to do business in weed is for growers to be sellers, realizing margins on both sides of the business.

Some consolidation has occurred and more is likely. The large players remain large, such as Lume. But others are growing their presence in retail, like Common Citizen, which acquired Liv Cannabis last year and is amassing a larger retail operation.

Below are the largest cannabis retailers in Michigan, according to Crain’s research. This list is not exhaustive and only a snippet of the entire retail sector of the industry, which has hundreds of dispensaries.

Lume Cannabis Co.

Headquarters: Troy

Retail stores: 34

Retail locations: Adrian, Ann Arbor, Berkley, Big Rapids, Cadillac, Cedar Springs, Coldwater, Escanaba, Evart, Gaylord, Grand Rapids, Honor, Houghton, Iron Mountain, Jackson, Kalamazoo, Kalkaska, Lowell, Mackinaw City, Manistique, Monroe, Mount Pleasant (2), Negaunee, Owosso, Oxford, Petersburg, Petoskey (2), Portage, Saginaw, Sault Ste Marie, Southfield and Walled Lake.

Popular strains: Jenny Kush, Blackout Marshmallow OG, GMO Crasher.

Jars Cannabis Co.

Headquarters: Troy

Retail stores: 17

Retail locations: Battle Creek, Center Line, Detroit (2), Fennville, Flint, Grand Rapids, Lansing, Monroe, Mount Clemens, Mount Pleasant, Muskegon, Owosso, Oxford, River Rouge, Saginaw and Ypsilanti.

Popular strains: AK-47, Tangie, Moroccan Kush

Skymint Cannabis Co.

Headquarters: Dimondale

Retail stores: 21; four branded as 3Fifteen.

Retail locations: Ann Arbor (2), Battle Creek (2), Camden, Coldwater, East Lansing, Flint, Gaylord, Grand Rapids (2), Hazel Park, Kalamazoo, Lansing (2), Morenci, Muskegon, Nunica, Portage, Saginaw and Traverse City.

Popular strains: Lemon 18, Beng Beng OG, Cheetah Piss, Animal Mint Cake

Note: Skymint is currently under the control of a receiver and is expected to be auctioned to the highest bidder in the next month.

Gage Cannabis Co.

Headquarters: Ferndale

Retail stores: 19; five branded as Cookies, five branded as Pinnacle and one as Lemonnade.

Retail locations: Addison, Adrian, Ann Arbor, Battle Creek, Buchanan, Burton, Camden, Center Line, Detroit, Edmore, Ferndale, Grand Rapids, Jackson, Kalamazoo (2), Lansing, Morenci, Oxford and Traverse City.

Popular strains: Gelato Driver, Zweet Inzanity #1, Banana Bread

Cloud Cannabis Co.

Headquarters: Troy

Retail stores: 11

Retail locations: Ann Arbor, Cedar Springs, Detroit, Gaylord, Grand Rapids (2), Kalamazoo, Muskegon, New Baltimore, Traverse City and Utica.

Popular strains: Do not manufacture their own strains.

Exclusive Brands

Headquarters: Ann Arbor

Retail stores: 10

Retail locations: Ann Arbor, Coldwater, Gaylord, Grand Rapids, Kalamazoo, Lapeer, Lowell, Monroe, Muskegon (medical only) and Oxford.

Popular strains: Wonka Bars #13, Gelato Pebbles, Gorilla Zkittlez

Common Citizen

Headquarters: Marshall

Retail stores: 9; six branded as Liv Cannabis, one as Pure Cannabis Dispo, one as Xplore Cannabis and one as Cannavista Wellness.

Retail locations: Buchanan, Detroit, Ferndale, Grand Rapids, Lake Orion, Lansing, Lapeer (2), Westland (opening soon).

Popular strains: Puffo Gelato, LA Pop Rockz, Electric Peanut Butter Cookies

House of Dank

Headquarters: Madison Heights

Retail stores: 9

Retail locations: Center Line, Detroit (2), Grand Rapids, Lapeer, Monroe, Saginaw, Traverse City, Ypsilanti.

Popular strains: Runtz, Lemon Bubba Temple, Peach Crescendo #1

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