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Despite Hurdles the Michigan Cannabis Market Is On Fire

With a run rate behind only California and Colorado, Michigan's early 2021 sales have put the state on pace to break a billion in sales.

Opinions expressed by Entrepreneur contributors are their own.

Now well into its second full year of adult-use sales, Michigan’s legal cannabis market is emerging from the pandemic ripe with opportunity. With a run rate behind only California and Colorado, Michigan’s early 2021 sales have put the state on pace to not only break the billion-dollar sales threshold but also blow right past it.

Michigan regulators allowed the state’s dispensaries to continue operating during the COVID-19 pandemic in 2020 – the first full calendar year of adult-use sales— resulting in sales over $984 million. Despite the essential business provision and solid initial sales, legal cannabis purchases declined during the autumn months.

But sales have not only rebounded; they have also soared to record levels: March 2021’s adult-use sales of $97 million shattered the previous record of $67.4 million set in January 2021. And April bested March by more than $7 million, coming in at over $105 million in sales.

Through April 2021, combined sales of medical and recreational cannabis were $513 million—more than double that period in 2020. If sales continue on that trajectory, the state could see combined annual sales above $1.5 billion this year, a 56 percent increase over 2020.

Despite the vast opportunity the market offers, unique barriers have stopped even some of the largest MSOs from entering the Michigan market. Local approval and the state’s canna-savvy consumer base are two obstacles to consider when evaluating cannabusiness opportunities in the Wolverine state.

Municipality approval poses a challenge

Statewide, there are no caps on the number of cannabis licenses issued, and the fees are set at $6,000 regardless of license type. Unlimited licenses and reasonable licensing fees keep barriers to entry low at the state level.

But Michigan’s 1,764 municipalities decide at the local level whether they will allow commercial cannabis activity, which activities they will permit, and how many licenses they will grant. For example, a municipality may opt-in to cultivation and processing but opt-out of retail sales. By April 2021, only 101 municipalities had opted in for adult-use cannabis operations. That's less than 6 percent of all municipalities.

California and Massachusetts have taken a similar city-driven approach to adult-use licensing approval. Through December 2020, 80 percent of California communities had opted out of recreational retail sales while 32 percent of Massachusetts towns and cities had banned all adult-use operations as of May 2021. Relative to these more mature states, Michigan’s municipalities have left a greater degree of opportunity on the table, which might prompt a change in the future.

For companies targeting the Michigan market, regtech products can monitor municipality dockets watching for cannabis hearings and ordinances to ensure licensing opportunities are not missed. It also pays to take a listen-and-wait approach to watch the process roll out in other regions, offering the valuable experience of seeing how peers navigate the system, too.

The upside to local approval is that communities that have already elected to opt-in are aware of the economic and social benefits of legal cannabis. For communities that are still on the fence, education and advocacy might help ease concerns. Companies targeting a municipality that has not yet opted in should consider hiring on-the-ground support to pitch local officials and residents about the many positives legal cannabis can bring.

The benefits of allowing legal cannabis on the local level include not only job creation and tax revenues— much appreciated in the post-pandemic economy—but also cleaning up the illicit market.

More sophisticated consumers

With medical cannabis sales legal since 2008, Michigan’s avid patient base boasted more than 250,000 medical card-holders when recreational sales began. This provided a platform for adult-use sales to take off and served as the main driver behind the market’s accelerated growth.

The long history of legal cannabis in Michigan has translated into cannabis consumption being normalized and well-accepted. Currently, more than 70 percent of the state’s residents are age 21 or older, yielding 7.3 million potential consumers.

But historic acceptance of cannabis and normalized consumption means Michigan consumers are more sophisticated than consumers in other states. They have refined tastes – and that means businesses need to offer top-notch flower and infused products to compete. In addition to product quality, savvy Michigan consumers respond to a variety of new flavors and strains.

This is part of the reason some MSOs have struggled or haven't entered the Michigan market: They simply cannot compete with existing cultivators on product quality. The level of product consumers tolerate in other markets is far lower than what is acceptable in Michigan, especially compared to markets with few licensed cultivators and limited competitive pressure. 

Not easy, but worth the effort

With a ready and willing consumer base, billion-dollar-plus sales projections, and most of the state left open to business development, Michigan provides significant legal cannabis opportunities. It will not come easy: Companies wanting to enter Michigan’s lucrative market must be prepared to engage local communities and ensure their products meet the quality and variety expectations of experienced consumers. But for companies willing to overcome these barriers, the market offers massive potential as it grows toward maturity.