This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.
For Quality Roots in Monroe, Michigan, out-of-state buyers, particularly those from Ohio, represent roughly 30% of the marijuana retailer’s sales.
But with Ohio voters hitting the polls next week to decide if the state should allow for recreational marijuana sales, Quality Roots and the dozens of operators near the border could see a major decline in revenue.
The only question remaining is when.
“I don’t see the (out-of-state) sales relaxing,” Aric Klar, CEO of Quality Roots, told Crain’s. “It’s going to take Ohio five to 10 years to build out its cannabis infrastructure to match Michigan. Prices are going to be high and inventory low for a long time, so I think consumers are still going to make that drive to Michigan for a long time to come.”
Myles Baker, an attorney for the cannabis practice at Detroit-based law firm Dickinson Wright, believes Ohio will come on board much quicker.
“It will be at least 18 months before the Michigan market feels it,” Baker said. “Ohio doesn’t have rules in place yet for adult use, but if they can get the act together in a reasonable amount of time there’s no reason to think they can’t be competitive quickly.”
Baker picked that time frame because according to the ballot measure Ohioans will vote on, the new law would go into effect 30 days after the vote and the first licenses must be issued within nine months after that.
The issue of its competitiveness with Michigan, however, comes down to price and access.
Michigan marijuana is cheap.
An ounce of recreational marijuana flower averaged $100.14 an ounce in September, according to data from the Michigan Cannabis Regulatory Agency.
But it wasn’t always this economical. When Michigan’s recreational market went live in December 2019, an ounce of flower averaged more than $516 before product and stores became abundant.
That’s what retailers like Klar are hoping for — a slow, steady rollout in Ohio that maintains those high prices that could aid in driving traffic over state lines. It should be noted that traveling across state lines with Michigan marijuana remains illegal, though few prosecutors push those indictments.
“We saw this in Illinois,” Klar said. “Consumers still drive over the border to get cheaper product. Most of the consumers from other states are still driving to Michigan today.”
Consumers in Illinois, which made recreational weed legal in 2020, pay some of the highest marijuana prices in the country, according to a recent study by market analytics firm Headset. The prices, which are 89% higher than the national average, are thanks to Illinois’ limited license allotments that keep product inventories low and place the second-highest taxes on marijuana in the country.
Ohio has already said it would place a 10% excise tax on recreational marijuana sales on top of its 5.75% sales tax, basically matching Michigan’s 10% excise tax on top of its 6% sales tax.
And Ohio has a head start on the market.
The state legalized medical marijuana sales in 2016, though no dispensaries opened until 2019. There are roughly 35 cultivators and 100 medical dispensaries already operating in Ohio. Those dispensaries and growers are first in line to get a recreational license, according to the ballot measure.
However, an ounce of medical marijuana flower in Ohio averages at about $311, well above the average in Michigan at $112.24 an ounce.
For prices to come down, the state will have to allocate more licenses so growers can grow more product and retailers can open more stores to sell more product. The rules for whether Ohio will be an unlimited or limited licensure state are not established.
How far is too far?
How meaningful the price difference will be for Ohio consumers is unknown. At what cost savings would a consumer from Dayton, Ohio drive the 175 miles to Quality Roots in Monroe when legal recreational marijuana is available close to home?
Klar believes consumers will continue to choose Michigan even as prices get more competitive.
“Michigan has a deep cannabis culture,” Klar said. “We’re leading the way on new trends and new products over the past few years. We have excellent brand recognition. I don’t think Ohio will catch up to that quickly.”
Doug Hellyar, president and COO of one of Michigan’s largest operations Troy-based Lume Cannabis Co., is in agreement with Klar about product differentiation but admits there is a time limit before the company’s three stores near the Ohio border — Monroe, Petersburg and Adrian — see sales declines.
“It will take some amount of time before Michigan is impacted significantly by Ohio approving recreational,” he wrote in an email to Crain’s. “The current price difference between the two states is meaningful to shoppers. I expect Ohio customers will continue to shop in Michigan to buy at lower prices for an extended period of time. Ohio operators will need to prepare to run their businesses in a much lower retail price environment than the current levels. Once that occurs, Lume’s Michigan border stores will be impacted but we will continue to attract Ohio customers with premium product at value prices.”
Until Ohio voters approve the ballot measure — which is currently seeing a 57% approval rating in polls — and at least the first recreational license is issued, Michigan’s border dispensaries are enjoying the extra publicity.
“Sales are doing great right now,” Klar said. “Every time someone writes about Ohio legalization, they mention Monroe. Sure, sales will decrease eventually, but then our store turns into a regular community store focused on consumers in Monroe.”
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