New marijuana rules could translate into higher prices, short supplies of legal weed

Michigan’s marijuana market just got a little bit tighter at a time when the legal weed supply is already struggling to keep up with demand.

In an effort to ensure that all marijuana produced and sold in Michigan comes from licensed growers, processors and retailers, the Marijuana Regulatory Agency began Sunday to phase out products grown and processed by caregivers, who have been cultivating weed since Michigan voters approved marijuana for medical use in 2008.

And that’s going to put a crucial crimp in Michigan’s supply of weed. Currently, the cannabis grown by caregivers — the people registered by the state who can grow up to 72 plants for up to six medical marijuana cardholders — makes up 60% of the marijuana flower in the marketplace. Under previous rules, the caregivers have been able to supply marijuana flower and infused products to state licensed growers and processors to supplement the medical and recreational marketplace

The new rules went into effect Sunday and until May 31, caregivers can only supply marijuana flower to state licensed growers and processors, who can, in turn, have the product tested and either turned into other pot-infused products or sold to legal weed shops. They can no longer supply the marijuana oil, also known as distillate or concentrate, to the legal medical or recreational marketplace.

From June 1 to Sept. 30, licensed marijuana growers and processors will be limited in the amount of flower they can get from caregivers. And by Sept. 30, no caregiver products — flower, oils or infused products will be allowed in the licensed marijuana marketplace.

The caregiver-produced infused products, including vapes and edibles, already on the shelves of medical and recreational pot shops can be sold until the product is gone, said David Harns, spokesman for the Marijuana Regulatory Agency.

“Whatever they have on their shelves, they can sell,” he said. “And by the time caregiver flower is phased out, licensed growers should be able to fill the difference.”

The first impact is going to be on price, said Dennis Zoma, one of the owners of Liv medical marijuana dispensary in Ferndale. The caregiver product has been much cheaper because it isn’t subject to state mandated regulatory fees and assessments that licensed facilities are required to pay and they don’t have the same overhead costs.

“It’s going to drive up pricing on the distillate oil, which is going to affect the price of vape carts to edibles to everything else,” he said. “And when the caregiver flower is phased out, that’s going to really hurt.”

At shops like The Reef, a medical marijuana dispensary in Detroit that doesn’t have a grow operation attached to the shop yet, the problem gets even tougher.

“Most of the wholesalers are vertically integrated, and they're only going to supply their own shops. So there is definitely a big concern about product availability,” said Rush Hasan, head of operations at The Reef. “And once the Marijuana Regulatory Agency shuts down the caregiver market entirely, then we’re at the mercy of any of the suppliers out there.”

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The wholesale price for marijuana in Michigan is running $4,000 to $4,500 a pound, one of the highest prices in the nation. Those prices are then getting passed on to customers. And many of those customers are reverting back to the much lower black market prices.

“We’re seeing less of our loyal customers coming in,” Hasan said. “We’re assuming that they’re going to places closer to them or the illicit black market.”

At Arbors Wellness in Ann Arbor, which sells both medical and recreational marijuana and is vertically integrated with a grow operation, processing plant and retail shop, supply has been steady, but phasing out caregiver flower and infused products will make business challenging.

“It will kick licensed producers into high gear, which is a good thing,” said James Daly, president of Arbors. “And I think the state is looking for more aggressive action and production from licensees.

"But there are a lot of good caregivers in the state who do a great job and the market is absolutely dependent on their product. I think we’re going to see a lot of market volatility this year.”

That uncertainty comes at a time when the state is adding more and more recreational business licenses in the state to accommodate a growing desire for legal weed in the state. Since Dec. 1 when recreational marijuana sales began, $31.9 million in marijuana products have been sold. That amount has generated $5.3 million in tax revenue from the state’s 10% excise tax and 6% sales tax.

There are 61 licensed marijuana retailers, but only roughly 35 of those are actually selling recreational pot. And there are 26 licensed recreational pot growers and 11 processors in the state.

Contact Kathleen Gray: 313-223-4430, kgray99@freepress.com or on Twitter @michpoligal.