The year to come will feature changes, expansions- and some failures
by Rick Thompson/January 6, 2020
FLINT- Last year was a red-letter, history making 365 days of cannabis glory and advancement. Both of Michigan’s regulated cannabis programs, the Medical Marihuana Facilities Licensing Act (MMFLA) and the recreational Michigan Regulation and Taxation of Marijuana Act (MRTMA), had milestones and made significant advancements during the last 12 months.
What does 2020 hold for the future of cannabis in Michigan, nationally and across the planet? Let’s look at the various industry components.
Cannabidiol (CBD) is nearly everywhere in America today. There are kiosks in the mall selling CBD, most gas stations and even Family Video stores are selling products supposedly containing the cannabinoid. Expect some of that to stop.
As part of the 2020 federal budget, the Food and Drug Administration was tasked with developing rules for the regulation and control of CBD products. That guidance and the accompanying restrictions will be a wet blanket on the CBD industry, which operates now in an uncharted and unregulated fashion in all 50 states.
Some of the CBD being sold (possibly most of it) is not derived from cannabis and hemp plants; instead it comes from other unregulated vegetables and plants. That’s part of the reason why the government’s rules on cannabis products do not seem to cover the CBD market.
In Michigan many hemp farmers grew their crops to produce high CBD- low THC plants for smoking purposes. Hemp flower is available in MMFLA-regulated Michigan cannabis provisioning centers. New regs on CBD may put an end to that practice.
2020 is the year The Michigan Department of Agriculture and Rural Development (MDARD) becomes more of a regulatory body and not just a licensing service. There will be an increase in the number of farmers receiving licenses for hemp production, and an increase in the number of tillable acres planted with hemp, but whether the established market has a destination for all that hemp biomass is yet to be seen.
As mentioned, hemp farmers in Michigan planted and grew thousands of acres of hemp in 2019. It was the first year of large-scale hemp production in the state since World War II. It is a new industry and both the government and participants are still feeling out the borders of the new regulatory framework.
Hemp has never seemed to be in competition with high THC cannabis plants- until 2019’s production spike in combustible hemp. Any smoking alternative which is perceived by MMFLA and adult-use MRTMA licensees as threatening their profitability will be attacked in 2020. As the medical/recreational cannabis industry grows, their power to influence politics grows, too.
There are three ways industry can act to eliminate hemp flower from the regulated cannabis marketplace in Michigan- get the legislature to pass laws prohibiting it, get the Marijuana Regulatory Agency to issue a directive forbidding it or have MDARD make a change in their hemp regulations to disallow it. Of the three, influencing the MRA seems the easiest path. Federal regs controlling the distribution of CBD products could accomplish this industry-suffocating effect without state action.
Traditionally, hemp is grown to produce food, fuel and fiber. Flower production is a relatively new facet of hemp commerce. It may have slid by the notice of state-based regulatory bodies in Year 1 of hemp in Michigan, but it is unlikely that it will slide past them in Year 2.
Hemp crops are not interchangeable, meaning the plants are genetically designated specialists in fiber, seed or flower. When farmers plant crops, they have already decided which market their hemp will feed into. Of a prime concern is: will state regulators announce any changes BEFORE plants are in the ground in 2020, or will they drag their feet and allow farmers to plant crops whose target market is denied to them halfway through the growing cycle?
The MMFLA continues to grow during 2020 with an increase in the number of communities allowing cannabis-based businesses and the number of licensees open and operating in those communities. This isn’t very hard to predict.
But supply chain problems have plagued the MMFLA since its launch. Some distribution centers are being charged outrageous prices for even moderately-marketable cannabis flower. Allowing the adult-use market to bleed cannabis from the medical program is not going to help medical marijuana licensees keep their shelves full.
Empty shelves or limited purchase options will keep the pre-existing unregulated market booming in 2020. Although I predict there will never be an end to the free market (or black market) in cannabis, it will not be significantly diminished by the MMFLA and MRTMA systems until pricing comes way down and variety comes way up. The millions of dollars spent in Michigan’s first month of recreational cannabis sales is not even a dent in the sales volume of the free market.
As the calendar advances so too will the maturity of Michigan’s cannabis supply chains. Until the supply chain becomes fully grown and functioning, lack of product could be a factor in some facility failures in the cannabis industry. Although small operators may seem to be the most vulnerable I suggest it is the state’s large chains of cannabis facilities which are the most at risk.
If you had to borrow a hundred thousand dollars to launch your regulated cannabis business, you can repay that in 2020 even if the MMFLA program is not fully functional. If you borrowed tens of millions, and then foolishly spent it all on grabbing up licenses and real estate in towns where they disallow recreational cannabis sales, you may have a real problem on your hands.
Investors across the nation are tired of sinking dollars into cannabis schemes where the players have not proven any ability to turn a profit. Med Men has become the national poster child for growing too big, too fast in the cannabis industry. Michigan’s cannabis chains will face a similar day of reckoning in 2020.
Many cannabis industry expansion projects are based on continual borrowing and eventual return of capital, not on reinvesting profits from operating and successful businesses. Some of the timetables for returning investment dollars (with a profit) are not realistic, given Michigan’s small number of recreational cannabis business communities.
Medical cannabis businesses are limited in their customer base and in methods of advertising, which restricts the profitability of that program. Many so-called experts predicted more medical communities jumping on board with allowing adult use sales of cannabis. These false messiahs led their corporate disciples down a bad path, and in 2020 their poor predictions will prove costly.
It isn’t just unpredictable communities which will cause some expansion plans to be abandoned- in many cases, it’s bad actions by the corporate entities themselves which contribute to their difficult times. Calling caregivers dirty and labeling the cannabis they produce as poison inhibits patients from making purchases at those stores. Encouraging police to hunt down black market players is a very unpopular action. Talking down to patients is a negative. Treating the purchase experience like patients know nothing about the nature of the herb they’ve enjoyed for years does not make friends among the ill and injured, either.
But all those negatives aside, if MMFLA centers have inexpensive and high quality cannabis products they can do well. Bad actors on the production side are gouging the companies on the distribution side, charging an outrageous $5,000 per pound or more for quality cannabis flower. Many MMFLA centers are handcuffed into making purchases at these super-high price levels. As the supply chain matures during 2020 these prices will come down; what will remain are the memories of being taken advantage of.
Bad actors, beware.
There are four industries whose successes contribute to the overall health of Michigan’s cannabis market: the hemp industry, CBD marketing, the medical marijuana program and legalized recreational cannabis. Michigan’s government will make mistakes as the rollout of the medical and adult-use programs continue in the coming year.
Mistakes already made include the premature launch of the adult-use market, pulling all vapor products from the shelves for additional testing, the inclusion of the labor peace agreement in the proposed MRTMA administrative rules and the continual stream of rule changes/updates seen in 2019.
In a healthy market, industry can survive governmental failures. Michigan’s market is healthy some places and unsteady in others. The potential for corporate mistakes has been outlined already but governmental errors are costly across the board. The MRA has steady leadership, yet seems to step on its own tail on occasion.
Changing federal guidelines do not make state lawmaking any easier, but neither does a state legislature whose record for being influenced by corporate interest is a national embarrassment. In 2016 the legislature passed a new law requiring all cannabis to be carried in the trunk of your car, a rule which was immediately challenged and which now is unenforceable. Minimizing legislative and administrative mistakes is crucial to ensure a successful 2020 for consumers and industry alike.
Cannabis milestones were featured front-and-center by Michigan’s news publications in 2019. In 2020 there will be few ‘first-ever’ events and the news coverage will not be as brisk as it has been.
In 2019, the cannabis industry’s media coverage reigned supreme. Part of the industry’s success has involved being in the spotlight. Bad actions by lawmakers in Leoni Township and in Warren were publicized all across the state. In Leoni the council members were prevented from profiting from cannabis industry application fees, and in Warren the challenge of developing a fair selection process continues to haunt the city.
Expect less emphasis on industry success and sadness in media during 2020. Provisioning center openings will be interesting to local media only. Unless there is a tragedy, you can expect the positive stories of hope and promise to fade from newspaper headlines and be relegated to the back pages.
Don’t forget, there are many stories to compete with cannabis for headline space this year: it is a national election year, unrest in the Middle East will grow, and 2020 looks to be a tragic season for wildfires and natural disasters domestically and abroad. Plus at least five other states will have cannabis issues placed on their statewide ballots for voting in November.
In much the same way we see Colorado’s cannabis programs fading from national prominence, expect Michigan (and Illinois) to take a media back seat to those other first-timers making their mark in 2020.
LIARS AND CHEATS
2020 may well be remembered as the year of liars and cheats.
As competition between cannabis companies escalates, the war of words will become a hot battle of who-did-it-first and who-does-it-better. Expect grand claims from people who contributed very little or whose participation in the cannabis industry revolution came late in the game. Cannabis companies will try to rewrite history to frame themselves in the most flattering light, and so will advocates and activists, too. It’s already happening in Lansing and Ann Arbor.
There are many way to gain a market advantage, and many of them are unethical. Companies whose financial future is grim will lie and cheat more than others to try and remain in business. Hard times make hard people. Hard people are capable of doing anything to survive.
In this vein, expect companies to report their competition to the MRA’s enforcement wing in hopes of a sanction or suspension of operating privileges. Expect companies trying to get their competition in trouble with the local authorities for imagined violations of ordinance regulations. This corporate espionage is predictable; what is not predictable is the unseen espionage which can take place at the employee, facility or market level.
Importantly, expect MMFLA and MRTMA companies to push the legislature and local officials to crack down on unregulated businesses like delivery services and farmer’s markets. I do not see a threat to medical marijuana caregivers or caregiving in 2020, as any changes to those regulations will require legislative approval in a super majority vote, which seems very unlikely in an election year.
Michigan’s social equity program was included in the adult-use market and requires certain things be done by licensees and applicants. Those regs have not resulted in a great deal of advantage for those whom it was intended to assist.
The MRA seems to have the opinion that loosely defined rules for social equity are just fine, and that any further requirements for action must come from the legislature. Corporations will be in competition to see who can do the least amount of work and still satisfy the MRA’s definition of social equity compliance. Communities disadvantaged by the War on Drugs can continue to see little more than lip service from most recreational cannabis businesses in 2020.
Nowhere is this more disappointing than in Detroit. The state’s largest city lags behind in nearly all aspects of the cannabis business industry: city government allows the most unlicensed centers to operate, they have not yet allowed recreational cannabis businesses to be licensed and they have in recent years actively sought to suppress petitions passed by the people which empowered cannabis use and commerce.
Detroit could set the national example of a functioning social equity program. Other communities of note have established their own social equity requirements for operating businesses. Detroit could enact a standard of their own which might require hiring city residents, license only those whose ownership contains a certain percentage of local residents, or allow centers to operate in the already-established commerce zones like Midtown, Downtown or along Woodward Avenue.
All that potential is unlikely to be realized, unless there is a sea change in attitudes held by city officials. Lansing has already had one company name a social equity recipient, former federal cannabis prisoner Ryan Basore. Detroit should be well ahead of the curve on this empowerment program. 2020 may move the city forward but seems unlikely to be the year in which Detroit gets cannabis businesses properly licensed.
THE CHICKEN OR THE EGG
Both sides of the political spectrum will try and claim the cannabis industry as their success story in 2020.
Republicans controlled the legislature and Governor’s office during the passage of the MMFLA. That may seem to be a feather in their cap, but there are many aspects of the MMFLA which are inhibiting the growth of the industry.
The Republicans created the Licensing Board, arguably the most detrimental aspect of the entire MMFLA program. It was tossed in the wastebasket during the first few months of Governor Whitmer’s administration- and THAT is a feather in the Democrat’s hat.
The strict and sometimes inhibitory testing standard established by the Republicans in the MMFLA has been toned down several times, including expanding batch size, allowing for the remediation of flower which fails certain tests and relaxing testing standards for metals. The financial standards contained within the program the 2016 Republicans gave the state has made it far more difficult for the common man to open a business in the cannabis industry.
In 2018 Republican candidates for office fought against the MRTMA, most notably candidates for the office of governor and attorney general. Still, formerly important Republican people including Callton, Kesto and Jones will try to convince people that their past efforts were worthy of praise and reward.
On the other side, the adult-use program was petitioned by, supported through and made into law by a majority of Democrats. MILegalize was led by a Board composed of many current and former Democratic supporters or office holders. Michigan NORML is helmed by Democratic-leaning personalities. Democratic state Senator Jeff Irwin was a principal in the Marijuana Policy Project’s small Michigan contingent of leaders during part of the campaign. Even those industry leaders without clear Democratic loyalties, like Jamie Lowell, are Independents who vote Democratic quite often.
The campaign to bring recreational cannabis to Michigan happened alongside the successful Democratic campaigns for governor and attorney general, both of whom won their positions and endorsed the MRTMA along the way. 2018’s election carried many victories for cannabis law reform advocates, and those victorious campaigners were mostly Democratic.
Many of the bad things which could happen to the cannabis industry and the medical program will probably not surface in 2020, since it is an election year. But watch out for 2021: the misaligned Michigan legislature is more likely to act in a year where the industry is less prominent in media and without an election to keep them afraid of the people.
Most cannabis patients are worried about the legislature trying to diminish home cultivation rights, or eliminate the caregiver system contained within the medical marijuana law. If the Republican lawmakers want to make a move in that direction, 2021 seems like a more likely time for that to happen.