March 25, 2019

Newly Licensed Cannabis Growers’ Supply May Compete for Shelf Space as Unlicensed Dispensaries Are Forced To Shut Down After March 31st


Michigan Governor Gretchen Whitmer recently issued Executive Order 2019-7. The order establishes a state Marijuana Regulatory Agency (MRA), while simultaneously abolishing the Bureau of Marijuana Regulation (BMR) and moving the powers of the Medical Marijuana Licensing Board (MMLB) to the new MRA.

According to the text of the order, “To avoid licensing delays and to better coordinate varying sources of authority for the enforcement of state law, the administration of state laws relating to marijuana can more effectively and efficiently be administered by a dedicated state agency.”

We have over the course of recent months pointed out that the pace at which the MMLB was issuing licenses to cannabis businesses, which it does only at monthly meetings, has been slow. As a result, the number of businesses permitted to operate in Michigan has contracted compared to a year ago and has declined significantly relative to the period prior to the attempt to impose licensing and regulation on Michigan’s medical market.

A report from the Detroit Free Press states that 121 licenses of all types had been approved as of the beginning of March, with just over 100 businesses activating their licenses by paying their fees, which permits them to operate. Another 60 dispensaries are also currently open for business while their license applications are being processed but will be forced to close by the end of this month if a permit is not granted, the Free Press notes.

Two more meetings of the MMLB are scheduled prior to the executive order taking effect at the end of April, according to a report on the matter from MLive. The first took place on March 21st. In regard to that meeting, the state Department of Licensing and Regulatory Affairs (LARA) this week issued a bulletin affirming that unlicensed businesses that are currently authorized to operate temporarily will be compelled to close after March 31st. Additionally, the bulletin states:

“LARA recommends that the MMLB adopt a resolution that makes it clear that – beginning April 1, 2019, after the provisions of the last MMLB resolution end on March 31, 2019 – disciplinary action will not be taken against a licensed grower or processor that purchases caregiver products. The resolution should require growers and processors to immediately add the caregiver product to the statewide monitoring system and test the product in full before moving it through the regulated system. The resolution should also provide for the continuation of this allowance until ended by LARA at a future date when the regulated supply is deemed sufficient to meet demand.”

The prior resolution linked above, in the text quoted from the bulletin, allows untested, caregiver-sourced product to be sold through licensed and temporarily operating dispensaries through the first quarter of this year. MMLB adopted the prior resolution based on a similar recommendation from LARA, due to reports from advocates and market participants that available supply in the new licensed system was inadequate to meet demand.

Despite the provisions of the resolution currently in effect that were intended to loosen supply, wholesale prices in Michigan have consistently been on the upswing this year. As of the beginning of mid-March, Michigan’s Wholesale Cannabis Spot Index had risen by 6.3% from the opening week of 2019.

Licensed growers are expected to increasingly bring their nascent production capacity online through this spring and early summer, which could result in loosened supply and a stabilization, or even decrease, in wholesale prices. The impending shutdown of dozens of unlicensed dispensaries at the end of this month will also remove wholesale buyers from Michigan’s regulated market. With less shelf space to fill statewide, wholesale demand will likely drop, which may also apply downward pressure on the state’s Spot Index.