September 28, 2022

Michigan Contemplates a License Moratorium to Help Stabilize Cannabis Market

Michigan Contemplates a License Moratorium to Help Stabilize Cannabis Market
Photo: Matteo Paganelli/Unsplash

The Michigan Cannabis Regulatory Agency (CRA) held a meeting on September 14, 2022, to three questions regarding a potential license moratorium and whether “excess grow licenses” should be done away with, as covered by MLive.com. Each excess license allows adult use growers an additional 2,000 plants on top of the maximum 10,000 plants allowed under regular Class C grow licenses. Up to five Class C licenses can be “stacked” to equal 10,000 plants, while each “excess license” allows 2,000 more plants to be added to the amount granted by the underlying Class C licenses.

According to the CRA, the following questions were under consideration at the public meeting:

  1. Would you support a change in the law to place a moratorium on the issuance of grow licenses? If so, under what conditions? If so, for what period of time?
  2. Should the agency eliminate the excess grower license established in the administrative rules?
  3. Should the agency promulgate a rule to authorize an individual to hold an interest in more than five marijuana growers or in more than one marijuana microbusiness after January 1, 2023?

Speakers from the caregiver community, recreational cultivators, and various cannabis industry organizations spoke at the meeting to express opinions regarding the above questions, occasionally interspersed with complaints regarding licensing fees, the evolving caregiver system, and high number of communities that have opted out of the adult use industry.

Most speakers supported the notion of a moratorium, though many expressed support for the continued issuing of licenses to social equity and Native American applicants during the moratorium. Smaller growers from the caregiver community expressed worry about being crowded out of business by multistate operators and operators from Europe, according to one speaker.

The Michigan Cannabis Manufacturers Association (MCMA) spokesperson said the organization was “open to the moratorium,” but qualified the statement by stating they “don’t support a blanket moratorium.” The MCMA further muddled their stance by expressing concern over “the market situation.” MCMA acknowledged low prices and said they “recognize oversupply … but also lack of participating cities [that allow adult use cannabis businesses].” The CRA must “deal with the illicit market,” according to the MCMA. As well, the organization expressed “concern about excess grower licenses,” but wondered “what other licenses might be impacted.”

The National Organization for the Reform of Marijuana Laws (NORML) weighed in at the meeting, pointing out they “disagreed with the creation of excess grow licenses,” referring to the time at which they were memorialized in law. The organization did not take a stand on the moratorium and opined on the small number of communities opting into the cannabis business. NORML did concede that “small farmers would be helped by the moratorium.”

The Michigan Cannabis Industry Association (MCIA) came out in favor of the moratorium; they said they “surveyed their members last spring” and found widespread support for the moratorium. It appears the moratorium has long been under discussion in the state’s cannabis community.

Thomas Levine, a cannabis attorney, said his firm has been against the “excess grower” licenses from the outset, asserting they were beyond the scope of the law. He said he does not support a moratorium because he thinks it might stop “people in [the] process” of obtaining a license.

Overall, the moratorium gained support from speakers representing individual cannabis businesses, while cannabis advocacy and business organizations, NORML and MCMA, did not offer full throated support. The MCIA, however, does support the moratorium.

David Harns, Public Relations Manager for the CRA, said the agency will “take the information gained from the public meeting and internalize it.” The CRA does not have the authority to implement a moratorium and the questions regarding licenses – multiple and excess growing – will be taken up in the next “rules session” after the new year, according to Harns. There is no expected date for the legislature to formulate a bill that would impose a moratorium on cannabis licenses nor a target date for implementation of a moratorium. The alphabet soup of cannabis organizations is likely to weigh in through their lobbyists, according to Harns, although the meeting suggested all players are not on the same page. Stay tuned.

More immediately, plant count data from the CRA indicates a large fall harvest is on the way, which will further pressure prices in an already oversupplied market.

September 20, 2022

Cannabis Taxes in Alaska Show Declining Flower Sales, While Tax Evasion Becomes an Issue

Cannabis Taxes in Alaska Show Declining Flower Sales, While Tax Evasion Becomes an Issue
Photo: McKayla Crump/Unsplash

The Alaska Department of Revenue (ADOR) recently issued July 2022 tax collections from the wholesale side of the state’s cannabis market.

July 2022 saw 1,508 pounds of flower change hands, down 3% from 1,556 pounds in June 2022 and down 16.5% from 1,806 pounds in July 2021. Alaska’s cannabis cultivators are taxed at a flat rate of $50 per ounce ($800 per pound) which brought $1,206,377 to state coffers in July 2022.

Trim sales were 2,512 pounds in July 2022, up 13.9% from June sales of 2,206 pounds of trim and up 12.7% from July 2021’s sales of 2,228 pounds of trim. Trim is taxed at $15 per ounce ($240 per pound) and brought $602,762 to the state in July 2022.

July 2022 saw 1,370 pounds of Immature/Seedy/Failed plant material change hands, down 6.7% from June 2022’s 1,468 pounds, but up 27.3% from the 1,076 pounds that changed hands in July 2021. Immature/seedy/failed plant material is taxed at $25 per ounce ($400 per pound) and brought the state $548,171 in July 2022.

The month-on-month and year-on-year increases in Trim and Immature/Seedy/Failed plant material appear to reflect a rotation away from flower toward extracted and infused products. Sources have indicated Alaskans have a preference for very high THC content, a feature more easily engineered into extracted products than flower. However, cultivators might be choosing how their crop is characterized based on how much tax they can afford to pay. Is $800 per pound a reasonable amount to pay for flower that may not find its way to retail or is it better to pay a lower tax and sell plants as biomass for extraction and pay as low as $240 per pound while avoiding the cost of plant trimming, packaging, and, in some cases, transportation? Given the spot market price of flower is at an all-time low level at $2,548 per pound and the demand for high THC products, growers might decide to grow increasingly for the extraction market and / or grant themselves significant leeway in categorizing product for tax purposes.

As noted above, recent data from the Alaska Department of Revenue suggests extracted and infused products are becoming more popular in the state, with sales of Trim and Immature/Seedy/Failed plant material increasing as flower demand softens. ADOR data interpretation can tell only a simple story: demand is moving from one type of plant material to another, not why or how this trend is emerging or the on-the-ground story of the Alaska cannabis market.

To get that story, Cannabis Benchmarks spoke to Ryan Tunseth, President of the Marijuana Industry Association (MIA) and a cannabis retailer in the state. Sources in Alaska had been expecting a jump in cannabis sales from the second, post-pandemic tourist season this summer. Tunseth said his feeling was that cannabis sales were “flat this summer, maybe down a bit” amid the tourist season. He noted the state of Alaska had approved a jump in the Permanent Fund – an oil industry dividend paid by the state to residents each year – to $3,200 per person, a significant increase from which cannabis businesses expected to benefit. However, the boost in sales never came – from tourist season or, thus far, from the larger Permanent Fund payments.

While the ADOR data suggests a rotation away from flower, the fact is much of the flower finding its way onto retail shelves has been re-classified by cultivators as “trim,” a product taxed at just 30% of the tax rate for flower. Tunseth said this practice is causing “infighting because people selling bud for trim are undercutting bud prices.” He is keenly aware of the stress of tax obligations on the cannabis business, an issue being addressed by his organization.

The full interview is available in the September 16, 2022, Premium Report.

September 13, 2022

How Will the Fall Harvest Impact Colorado Cannabis Prices?

How Will the Fall Harvest Impact Colorado Cannabis Prices?
Photo: Collie Coburn/Unsplash

Cannabis Benchmarks spoke with Van McConnon to get a feel for the Colorado cannabis market, where he has been a grower and a consultant in the industry for decades. McConnon has seen some ups and downs as a market participant, consultant to cannabis firms, and observer.

Charts can reveal the technical reason for a sell-off in Colorado cannabis prices, but McConnon sees big structural issues as the cause for much of the price deterioration in the state and across the nation. When asked what he thinks is driving Colorado prices down, McConnon simply said, “Oklahoma.” According to McConnon, Colorado had a thriving cross-border cannabis trade with Texas until a massive growing spree in Oklahoma snatched that business away. McConnon said Colorado stores along the Oklahoma panhandle were some of the most profitable in the state until Texans gave up traveling north to that area and started partaking in the convenience of a 540 mile border with Oklahoma. Adding insult to injury, Colorado “weed tourism” all but dried up during COVID and, with cannabis legal across much more of the nation than when Colorado and Washington first legalized in 2014, “now you can have weed tourism in any [legal] state,” according to McConnon.

McConnon said Colorado prices have little chance of recovery in a market characterized by “$40 ounces” and “last year’s outdoor crop still on the market.” The recent rise in outdoor cannabis prices in the state is due to the “summer crop” bumping prices up; the implication is that fresher product temporarily drew higher bids in the market. He sees greenhouse product trading $550 – $650 per pound and bifurcates the top end of the market, saying the best indoor product is still getting $1,200 to $1,400 per pound, with middling indoor trading between $900 – $1,000 per pound. McConnon said there is no chance Colorado cannabis prices will recover if “this year’s crop comes in like last year’s crop,” referring to the size of the 2021 harvest.

McConnon says Colorado cannabis “revenue is down 20%” and harvest weight is down “10 to 12%” as demand slackens in the wake of “losing Texas.” In a bit of a history lesson, McConnon recalled the practice of “looping,” whereby medical card holders would buy the maximum 2.5 ounces each day, accumulating ten pounds of product in a week’s time and then taking it to Oklahoma, Texas, and Nebraska for a quick, fat profit. He said “looping has gone way down” in a local crackdown on the practice and due to the demand drop off behind Oklahoma legalization.

On a wider frame, McConnon noted “folks got into this market with weed at $350 – 400 per ounce,” himself included. Today, at $150 per ounce for the best product, he does not see a sustainable business model. McConnon has seen his share of whipsaws in the cannabis market – ranging from price crashes to illicit market dominance to demand destruction – and is skeptical current businesses can go on in this manner, much less under nationwide legalization.

Speaking of nationwide legalization, McConnon is not averse to picking winners when interstate trade is eventually allowed. In his view, Oregon has the best cannabis in the nation hands down, followed by northern California, which he sees as having a very expensive tax and licensing regime, not to mention very expensive energy costs and water issues. He theorized that East Coast markets may not thrive as expected due to high land and licensing costs, high taxes, and climates not conducive to vast production. At the end of the day, McConnon sees Oregon as the big winner in national legalization, given their history of exporting the crop, low barriers to entry in the cannabis business, high quality product, and low energy and land costs.

McConnon tends to see the wider picture in terms of how successful each market is in its own right and in relation to other state cannabis markets. Montana has cannabis quality issues. California has quality issues from the largest grow sites but, along with Oregon, has a thriving illicit market where “spending $75,000 for 100 pounds of cannabis can return $250,000 when it arrives in Chicago.”

Speaking of Illinois, they too have quality issues arising from the “oligarchy,” said McConnon, referring to the large Multi-State Operators based in the state. In fact, he remarked, “it’s a close contest between Florida and Illinois for the worst weed” in the nation. He puts this down to massive grows in limited licensing states that keep craft growers from producing a better product for consumers. He believes the cannabis industry should be 100% consumer-focused, allowing anyone to grow and sell cannabis without licensing and tax restrictions. He believes there is little understanding of the “effectiveness of the black market,”and noted that state legalization schemes, in which he has extensive experience, are disparate and not amenable to nationwide legalization.

McConnon has been around the business for decades and thinks people might not understand the implications of nationwide legalization. McConnon posed the question, “will dedicated weed shops survive on $2 per gram at retail?” He thinks not. However, McConnon is hopeful for those who can produce very high end cannabis and establish a niche market amid nationwide legalization, where he expects massive cannabis grows to flood the market with substandard product.

September 6, 2022

Massachusetts Retail Cannabis Sales Climb While Consumers Benefit from Lower Prices

Massachusetts Retail Cannabis Sales Climb While Consumers Benefit from Lower Prices
Photo: Michael Baccin/Unsplash

The Massachusetts Cannabis Control Commission (CCC) recently issued data for July 2022 adult use sales on the state’s Open Data Platform. July adult use retail sales set a new high for 2022 at $132.5 million, up 8.2% from June 2022 sales of $122.6 million (upwardly revised), but down 8.8% from July 2021 sales of $145.4 million, an indication of the damage done by a bruising sell-off in cannabis prices. The July 2021 weighted average wholesale price for a pound of cannabis in the state was $3,534; the average wholesale price in July 2022 is down over 50%.

Average daily sales in July 2022 were up 4.7% from June 2022 average daily sales (upwardly revised) of $4 million. Monthly sales and average daily sales indicate demand is still growing in Massachusetts even as prices drop.

Average Daily Massachusetts Adult User Cannabis Retail Sales

The CCC also provides information on the number of licensed and operating cannabis businesses in the state. The table below depicts the last three months’ count of licenses with permission to commence operations. The pace of license issuance appears to have picked up a bit with a notable increase in cultivators and product manufacturers.

Massachusetts Cannabis License Counts

As noted above, Massachusetts cannabis prices have undergone a shellacking, with average monthly prices falling 59% between October 2021 and August 2022. The precipitous price loss has in part been blamed on Multi-State Operators opening the spigot in January 2022 and selling off wholesale inventory in an effort to pay off loans, perhaps dating back to 2019. More recently, price has gained 7.8% between July 2022 and August 2022, but Massachusetts growers will be bringing in an outdoor harvest this fall. While the volume is uncertain, it is expected that consumers will be enthusiastic buyers of less expensive cannabis.

Prices at the retail level have fallen for 19 months in a row, breaching the $10 per gram level in August 2022 for the first time. (While CCC data shows the average retail price of a gram of flower below $10 in April 2020, adult use sales were suspended for the entire month as part of the state’s initial response to the COVID-19 pandemic.) The chart below depicts Massachusetts gram prices from November 2018, when the adult use market opened, to present.

August 31, 2022

Has the Michigan Wholesale Cannabis Market Begun to Stabilize?

Has the Michigan Wholesale Cannabis Market Begun to Stabilize?
Photo: Johnson Wang/Unsplash

The Michigan Cannabis Regulatory Agency (CRA) reported July 2022 data recently, detailing sales, licensing, and production in the state’s adult use and medical cannabis markets. Combined adult use and medical sales were $209.9 million, up 12% from June 2022 combined sales of $187.4 million and up 22.7% from July 2021 combined sales of $171 million.

Michigan spot prices have steadied after a massive sell-off that commenced in fall 2021. Locals had put the initial sell-off down to an unexpectedly large outdoor harvest. However, the magnitude of the price drop – 58% – suggested several factors were weighing on price, including uncapped licensing and a frantic money raise by some of the larger operators as borrowed funds came due in January 2022.

The Cannabis Benchmarks Michigan Spot Index shows prices have steadied over the past four weeks and have gained about 1%. That said, greenhouse flower prices have fallen about $21 per pound in the same time frame, while indoor prices have risen about $82. The downtrend has not reversed, but the bleeding has slowed, thanks in part to a post-pandemic rebound in summer tourism.

Michigan Spot Index and Wholesale Prices By Grow Type

July 2022 Adult Use Market Summary

July 2022 adult use sales, at $188.8 million, surged 13.8% from June 2022 sales of $165.9 million and are up 47.1% from July 2021 sales of $128.3 million. The July jump in sales established a new record and is the largest spike in adult use sales in the state since a 33.4% jump in April 2022.

July average daily sales topped $6 million, up 10.1% from June 2022 average daily sales of $5.5 million and up 47.1% from July 2021 average daily sales of $4.1 million.

Michigan Adult Use Retail Cannabis Sales

July 2022 flower sales volume jumped 12.6% to 46,777 pounds from June 2022 sales of 41,541 pounds and is up 156.5% from 18,235 pounds sold in July 2021.

July 2022 flower sales were $91 million, up 11.2% from $81.4 million in June 2022 and up 43.1% from July 2021 sales of $63.6 million.

Michigan Retail Adult Use Flower Sales Volume

Inventory held by growers that has passed the state’s required testing was 61,174 pounds at the end of July 2022, down 3.2% from 63,221 pounds held at growers in June 2022. Combined with flower held in inventory at retailers – 61,828 pounds – the amount of immediately marketable flower in Michigan’s adult use system at the end of July 2022 was 123,002 pounds, or just over 2.6 months of supply based on July sales of 46,777 pounds.

The number of plants reared and harvested in the most recent three months is shown in the table below. Vegetative and flowering plant counts jumped in July 2022, with the large increase in the former portending what looks to be a robust outdoor harvest come this fall. The number of harvested plants fell in July as the state’s tourism season winds down.

Michigan Cannabis Plants Cultivated by Licensed Growers

The average retail flower ounce price continued to trend lower behind very large drops in wholesale prices since last fall. July 2022’s average retail flower price was $121.58 per ounce, down $0.72 from June, a much smaller price drop than the previous two months when flower prices fell an average of $5.38 an ounce per month. With wholesale prices losing over 50% since November 2021, the drop in retail prices has been rather conservative.

Flower ounce prices and extrapolated pound prices for the last three months are listed below.

  • May 2022: $130.62 ($2,090 per pound)
  • June 2022: $122.43 ($1,959 per pound)
  • July 2022: $121.58 ($1,945 per pound)

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