The forces behind Michigan’s plummeting cannabis prices…


Glacial Farms is taking over for a defunct grower, one that couldn’t make the math work with depressed prices.

Jonathan Kirkland, an attorney for Detroit law firm Butzel Long, said the industry is forecasting a recession that may spur mass consolidation that pushes out smaller operators.

“There’s already consolidation in the space, we’re seeing lots of M&A (mergers and acquisitions),” Kirkland said. “The next one to five years will be challenging for mom-and-pop growers, provisioning centers and adult-use retailers. Some will go out of business and others will be bought out by larger operators.”

Andrew Livingston, director of economics and research for Denver-based cannabis law firm Vicente Sederberg LLP, said the ease in which cultivators could get licenses in the early days of legalization has led to this “musical chairs” moment in the market. Effectively, independent growers are being pushed out by the retail consolidation of vertically integrated operations.

“There are more independent cultivators than independent retailers,” Livingston said. “The vertically integrated companies come to the dance with their own date or multiple dates. This puts the squeeze on the independent cultivators, leaving them to have to find the limited independent retailers who are already being bought up by the vertically integrated companies. There’s simply not enough chairs and cultivators are fighting for the last chair by dropping prices to make sure their products get to market and so everyone lowers prices, making the problem even worse.”

One of the largest operators in the state, Marshall-based Common Citizen, is seizing that consolidation opportunity from those low prices.

“Vertical integration is the key to … surviving,” said Mike Elias, president and CEO. “We knew there would be a day of reckoning, so as everybody is selling, we’re buying. We started our company as predominantly a provider of wholesale product with a lot of manufacturing capability. We wanted reach, for our brands to get exposure. … Now to hedge against the price decline, it’s time to go vertical. The advantage is instead of selling wholesale for $2,000 a pound, I can sell it for $4,000 a pound in the retail space and enjoy the whole of the margins on both sides. The way to secure your market share it to get more retail and maintain a chokehold on the wholesale market.”

Common Citizen is considering selling its Battle Creek and Flint dispensary locations but, in July, it acquired LIV Cannabis, a retailer in Ferndale. Common Citizen is “stamping and repeating” the LIV stores in other locations, such as Lapeer and Buchanan.

“Everyone is calling me to sell,” Elias said. “It’s perfect. It’s exactly what our business model was designed to do. We’re blessed to have a lot of backing from wonderful investors who want to put their capital to work today. Distress in the market is a great opportunity to get these entities at a discount.”

Tangled up in weed

Common Citizen distributes its product from a 200,000-square-foot grow operation in Marshall. But it’s utilizing only one-sixth of its license capacity to grow plants.

The state issues different grow licenses with differing caps on the number of plants that may be grown at one location. A Class C grower license allows for 2,000 marijuana plants per location and they can be “stacked” for up to five licenses per location or a maximum of 10,000 plants.

It’s likely Common Citizen will look to boost how much it grows to feed into its current retail operations and future acquisitions.

Glacial Farms’ doubling of its grow operations also means more marijuana on the market. Glacial is now selling wholesale packaged products by the ounce containing a chillum (a small pipe for smoking) called a “Snowpack” to boost margins.

“We can pass different discounts through at a higher volume,” Sereno said. “Maybe someone has $20 burning a hole in their pocket, but what if they have $100? We can capture that person and move more product at a better margin.”

All of this posturing to enhance market share and margins likely leads to more marijuana being grown and exacerbates the oversupply problem that has collapsed prices.

“Operators are trying to reduce their variable costs by getting bigger,” Livingston said. “The only way to stay in business is to increase your size, allowing you to drop your wholesale costs and put more product onto the market, which dampens prices even more. Controlling that price spiral is difficult.”

Distilling a solution

The industry has, for the past year or so, tried to sidestep the oversupply issue by pointing to illegal marijuana making it into the legal market.

The theory is that mass amounts of distillate, used in making vapes and edibles, is being shipped in from out of state at a steep discount and finding its way to store shelves. The other gripe is that marijuana grown by individuals is finding its way into retailers and growers without being entered into the state’s tracking system.

Nic Antaya for Crain’s Detroit Business

Glacial Farms will double its operations and put more supply into the market.

There’s evidence this could be true.

The number of active marijuana plants being grown in the licensed market grew 120 percent between August 2021 and August 2022, just above sales growth of 103 percent. Yet licensed market inventory, by pounds, grew more than 400 percent during the same 12 months.

That’s a major discrepancy between plants coming online and the inventory on shelves.

Industry pressure on the CRA to take enforcement more seriously led CRA founding executive director Andrew Brisbo to resign from the post this year. He was quickly replaced by a Michigan State Police crime analyst favored by the industry.

Director Brian Hanna has made it clear he plans to clean up the market.

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