By Cody Yarbrough, contributing writer
The cannabis industry is booming across the country, and Ohio is the latest state to legalize the purchase and sale of the herb for recreational use. After a split 53%-47% vote in last year’s election and months of delays due to petty politics in the state legislature, the Buckeye State is the 24th state to pass the measure, as of August 2024.
The benefits of the measure were felt almost immediately across the state. Dozens of dispensaries made huge profits on the first day as lines of customers wrapped around the block and cannabis parties and events encouraged people to buy more product. The profit made in the first week exceeded market expectations, lining both the pockets of business owners and the state coffers. However, while Ohio is enjoying the success of its already booming new industry, here in Michigan many experts and dispensary owners are expecting the worst.
This wouldn’t be the first time Ohio has screwed Michigan over, but it would certainly be one of the more costly instances. In 2023, Michigan ranked No. 1 in the nation in the number of cannabis products sold, with 24.2 million units sold and over $3 billion in revenue. However, a large portion of marijuana sales in Michigan are not made by Michiganders. Until the herb was legalized in Ohio, Michigan bordered three states where only medical use was legal. As a result, Michigan dispensaries have gained a strong support base from out-of-state buyers over the past five years. In fact, some people in Monroe Township say Ohio residents alone account for half of their cannabis sales.
It sounds like a dream to have lots of other state residents pouring into the economy and spending money there. But when you look at the numbers, that dream becomes a harsh reality. Although Michigan sells more cannabis than any other place in the country, it only generated $3 billion in sales last year, putting it in second place behind California, which generated $5.1 billion from just 17.3 million units. The reason? Well, aside from California’s higher taxes, there’s just too much weed and too much competition in Michigan.
“Every state has different structures and rules.” Jason Erkes of Cresco Labs said in a recent interview: “Michigan is not a state with limited (cannabis) licenses. That means the state is really saturated with stores competing with each other, which drives prices down and puts a lot of stores out of business.”
Cresco Labs is a Chicago-based company that owns dispensaries across the country, including one in Ohio. With around 750 licensed dispensaries in Michigan, the cannabis market is highly competitive and oversaturated. In addition to overproducing product, undercutting the prices of competing dispensaries has become a common practice across the state. The low prices may be great for the consumer, but it’s difficult for cannabis retailers to make decent profits. Smaller dispensaries are especially affected, as meeting competitive pricing can make it difficult to keep up with costs, and price increases can result in fewer customers coming through their doors.
To be clear, Michigan’s cannabis industry is growing but unstable. And when you factor in Ohio’s exit from the Michigan market, that’s more than enough to make those invested in the industry pretty nervous. Dispensaries strategically located in border towns are seeing declining sales and may soon find that the rural area they’ve set up shop in is unable to sustain business without out-of-state buyers. Worse, because of the massive impact the cannabis industry has had on Michigan’s economy, its decline will be felt across the state.
The drop in revenue will also mean that Michigan communities will receive less from the government. Taxes from cannabis sales in Michigan are reinvested in schools, transportation, roads and other public projects. The state also gives small town governments a piece of the pie in the form of grants that they can use as they see fit. Ohio’s exclusion from the picture directly impacts these programs and the communities that benefit from them. However, there is one saving grace that could potentially soften the economic blow enough to keep the market stable.
Ironically, Michigan’s low prices may be the only thing keeping the industry from an immediate crash. Although it’s now legal, Ohio’s market is nowhere near as oversupplied as Michigan’s. There are only about 100 dispensaries in the entire state that sell recreational cannabis. That means prices there are much higher in comparison, and it’s still cheaper for many Ohioans to travel to Michigan for the products they enjoy. This will of course change over time as investors rush to open their own dispensaries and take advantage of this new opportunity. However, the slow pace of change will mean Michigan has a chance to adjust in a healthier way than if Ohio had come on as a major competitor right away.
Still, Ohio’s market is growing rapidly, and in a year the industry could even rival that of its big brother to the north. In fact, Ohio’s cannabis trajectory is already similar to Michigan’s in many ways. The recent legalization of the herb has not only excited Ohio consumers, but also cannabis connoisseurs from neighboring states like Kentucky, Indiana, and Pennsylvania. Since the state is almost surrounded by states where cannabis is not commercially distributed, it’s no big secret how previous projections were so easily surpassed.
“Any way you look at it, Ohio has had an incredible performance in the first week of sales.” Erkes explained, “We’re seeing numbers at dispensaries that rival numbers in established markets like Illinois that have been around for years. That’s what we’re seeing in the first week in Ohio. We’re seeing a lot of out-of-state licenses when people check in. A lot of out-of-state license plates in the parking lot. We know people want access to regulated, lab-tested products, and they don’t have that in these states.”
With Ohio having the same success in the cannabis industry as Michigan, they should also look at where Michigan is now and take note. Relying on an out of state customer base has put the state in a precarious position that will cost local communities millions. Every year more states vote to legalize recreational cannabis and in the near future, the states that have not will be in the minority and the market for traveling buyers will be almost non-existent.
For one reason or another, Michigan retailers didn’t see this coming and now many are wrestling with some difficult decisions regarding their business. This blow to the industry won’t mean the end of the cannabis business in Michigan, but with some foresight and regulation, it’s a blow that easily could have been avoided.
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