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With recreational sales growing from $9.8 million in January to $65.5 million by August, there’s no questioning Michigan’s potential.
In December of 2019, Michigan became the tenth state in the U.S. to legalize adult-use cannabis. Less than a year in, it’s already outpaced Nevada to become the fifth highest-grossing state for cannabis sales and is on track to surpass $1 billion in sales, according to data from Headset.
In addition to its fast-growing new adult-use market, Michigan’s medical market is ranked #2 in the country, second only to California. Now, all eyes are on The Great Lake State as cannabis operators and investors across the U.S. seek to claim their share of this high-potential market.
A Strong Medical Market Paved the Way
Though Michigan’s recreational market is still less than a year old, medical cannabis has been legal in the state since 2008.
“Michigan has historically boasted the second-largest medical cannabis program in the country, and therefore, the adult-use market has a phenomenal base of consumers to grow from,” explains Fabian Monaco, President of Gage Cannabis Co, a Michigan-based cultivator and dispensary operator.
“Because of this, adult-use sales are now experiencing exponential growth, along with the fact that the state has 7.3 million adults over the age of 21, with a total population of 9.9 million,” adds Monaco.
Michigan Consumers Are Top-Spenders
Perhaps the biggest standout finding was the amount Michigan consumers were willing to spend on cannabis. Headset data shows the average basket size in Michigan is $84.58, a notable increase from California’s average purchase amount of $64.13. This data puts Michigan consumers at the top of the food chain, spending-wise, and is especially attractive to cannabis brands that offer premium products at higher price points.
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Gage Cannabis, which has exclusive cultivation and distribution rights to premium brands like Cookies, Grandiflora, and Minntz, currently operates just 1% of Michigan’s medical dispensaries but has commanded 10% of the state’s medical market share.
Monaco attributes this to Michigan consumers’ apparent preference for high-quality brands, and a willingness to spend more on their purchases. Despite plenty of competition and lower-priced options, Gage continues to command premium pricing on its flower products.
“The average basket size of a Gage customer has been $175 for five straight months, which are industry-leading numbers to say the least,” Monaco underscores.
The Pandemic Only Boosted Business
With the onset of the pandemic, many retail businesses were forced to close, but the state’s newly-legalized cannabis industry was considered essential and allowed to remain open–with a few precautions.
“Delivery saw incredible adoption in the wake of the COVID-19 pandemic,” says Meredith Mahoney, president of Lantern cannabis delivery platform. Despite the fact that Lantern was brand-new to the Michigan market, the pandemic created a demand, and her technology was able to step in and fill it.
“Curbside pickup or delivery were the only ways to purchase, with delivery being the much easier and more convenient way to shop, and this accelerated our progress,” says Mahoney.
Consumers Come to Michigan from Out of State
Michigan’s unique geographical location also brings in consumers from neighboring states, some of which only allow medical purchases or none at all. Monaco notes that “Consumers travel to our stores from nearby states such as New York, Ohio, and Indiana, among others.”
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Though he says Gage will remain a single-state operator in Michigan, he has an “aggressive” expansion plan beyond his five current retail locations to meet the current demand. “We are preparing to open an additional eight locations within the next six months in new markets including Battle Creek, Kalamazoo, Bay City, Buena Vista, Center Line, Grand Rapids, and Lenox Township,” he says.
More Firsts and More Expansion Ahead
With recreational sales growing from $9.8 million in January to $65.5 million by August, according to Headset, there’s no questioning Michigan’s potential. Brands operating within the state are expanding their services to keep up with the Michigan consumer’s appetite.
Mahoney plans to launch on-demand cannabis delivery next: “Lantern will be the first on-demand cannabis e-commerce platform operating in Michigan that enables recreational cannabis delivery into Detroit in 60 minutes or less from when an order is placed,” she says. After teaming up with local dispensary 3Fifteen for its launch, Lantern will now broaden its network of dispensary partners to expand its service across the state.
Joe Crouthers, CEO of investment firm Ceres Group Holdings, agrees that more industry leaders are likely to follow suit. “Michigan is a big contributor to the cannabis industry’s momentum. They have explosive growth from their new recreational market, a friendly state government with progressive regulation, diverse (canna-educated) consumer mix, and a platform for well-established brands to expand,” he says.
And while he cautions investors with some general advice, “To maintain tempered valuations, achievable forecasts, and prudent cash flow management,” one thing is clear: “The state certainly warrants our attention.”
This article originally appeared on Green Market Report and has been reposted with permission.
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