Grow Life 420

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.

Business was humming on Saturday at Bazonzoes’ three marijuana dispensary locations. Hundreds were in line to take advantage of the retailer’s large 42% discount to celebrate the 4/20 holiday.

Then it all started to fall apart as Bazonzoes’ point-of-sale system, Dutchie, began to experience outages. The cannabis retailer quickly adjusted by handwriting sales, calculating taxes and discounts using a calculator. Pandemonium.

“We were out for about two hours total,” said Erin McCann-Sabo, operations director for Bazonzoes, which has two locations in Lansing and one in Walled Lake. “We were already at a backup of 35 minutes to an hour and a half due to the sheer volume of people in line. We had to rely on our budtenders to quickly do math and transcribe METRC numbers (the state’s product tracking system). For people to hand-write METRC, excise and sales tax on a subtotal with various discounts is an exercise in not only math skills and patience, but in perseverance. Especially in front of 400 angry customers.”

The Dutchie point-of-sale system outages began at about 12:30 p.m. on Saturday, about 30 minutes after the west coast of the U.S. began cannabis sales, indicating volumes probably overwhelmed the systems.

McCann-Sabo estimates that upwards of 500 people walked out of line due to the slow down, costing the retailer thousands of dollars in marijuana sales.

“It was a devastating impact on what could have been a very victorious 4/20,” she said.

Bazonzoes wasn’t alone: the outage from Oregon-based POS provider Dutchie was widespread across the U.S., impacting roughly 20% of its customer base. The company services roughly 6,000 customers in the U.S. and Canada.

In a statement to Crain’s, the company acknowledged the outage but said it was still a very successful 4/20 holiday, which represents the largest sales day of the year for cannabis retailers.

“This year’s 4/20 was a record-setting day for the majority of Dutchie-powered dispensaries,” a Dutchie representative said in an emailed statement. “Our systems powered over two million transactions, representing $165 million dollars in retail commerce — a 50% increase from 2023 4/20. While Dutchie and our partners prepared extensively for this year’s 4/20, a group of customers local to a specific instance of our POS system experienced serious issues that impacted their ability to transact. Dutchie is committed to stability and will be continuing to invest heavily to provide a reliable platform for all customers.”

It was a record-setting day in Michigan, as well. The state’s industry sold more than $28.5 million in product on the holiday, a 32% increase from last year’s 4/20.

But it’s unknown how many sales were lost due to the Dutchie outage and whether the customers that walked away from Bazonzoes and other retailers simply visited another dispensary or forwent a marijuana purchase all together.

Birmingham-based Quality Roots, which operates eight retail locations across the state, benefitted from the misery of others, said Aric Klar, CEO of the operator.

Quality Roots uses Dutchie competitor FlowHub as its POS system.

“We were good and saw customers lining up at our stores quickly when other stores went down,” Klar said. “Quality Roots had the biggest day ever.”

Klar said the company grossed more than $500,000 in sales on 4/20.

Other major retailers like C3 Industries, which operates 11 High Profile dispensaries, uses Dutchie for its POS system but did not experience any outages or slow downs, said CEO Akur Rungta.

Lume Cannabis Co. and House of Dank also use Dutchie but did not experience the outages on 4/20.

Greenhouse of Walled Lake experienced a major slow down in Dutchie’s system, co-owner Jerry Millen told Crain’s.

But he’s not angry about it.

“The problem is that it’s such a new industry and it’s hard to get all this straight on the day with the most volume. When it went down, we switched to a manifest and I went out and greeted our customers to make sure they were taken care of. No one was mad,” Millen said. “This happens. A hiccup on 4/20 is fine as long it works the other 364 days of the year. I give Dutchie a pass.”

Millen said the retailer barely makes money on the marijuana on 4/20 anyway because of the deep discounts.

McCann-Sabo isn’t so forgiving.

“I’m more angry than understanding because this happens every year with Dutchie,” she said. “It’s usually only for 10 minutes or 15 minutes, but this was quite a long period of time in the middle of the busiest day of the year. It’s not getting better, it’s getting worse.”

However, McCann-Sabo isn’t yet convinced the company will change POS providers.

“There’s nothing worse than switching a POS system,” she said. “It’s another time-consuming and costly thing in this industry and none of them are great. There’s a joke in the industry that they are called POS for a reason.”

The post Software crash hit Michigan marijuana dispensaries on 4/20 appeared first on Green Market Report.

This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh. 

Lansing, Michigan-based marijuana processor TAS Asset Holdings LLC has surrendered its medical and adult-use recreational licenses following illegal activity discovered by the Michigan Cannabis Regulatory Agency.

The removal of its license to operate follows a previous suspension of its licenses in February last year when the CRA alleged TAS, which processes product under a licensing agreement with Ferndale-based Fwaygo Extracts, stored and interchanged legally regulated marijuana flower, distillate, concentrates and THCa powder with the illegally produced product.

The CRA first became aware of the issue in September 2022 when two vape cartridges, marketed under the product name Space Rocks, produced by TAS failed a spot a safety compliance check despite the product passing the preliminary safety check before the raw marijuana product was shipped to TAS from the grower. Both products tested positive for Bifenthrin, a synthetic insecticide banned for use on marijuana products in Michigan.

After investigation, the CRA discovered the product used to make the Space Rocks product was not the product processed and entered into the state tracking system earmarked for the vape cartridges.

Investigators noted the “business had many areas that were dirty and cluttered and had leaking containers of various process stages of marijuana and waste” among unregulated marijuana product, according to the state. Investigators also observed “three barrels of an unknown substance that were wrapped in plastic, two black totes of an unknown substance, and several mason jars of oil.”

The investigation ended with 23 formal complaints against TAS’ medical and adult-use licenses issued by the state. TAS has been closed since February 2023.

The owners for TAS Asset Holdings are listed on CRA documents as Noble Road LLC, its operating partner and former registered nurse Travis Wilson, Southern Investment Capital LLC; and several other names Crain’s could not verify.

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This story was reprinted with permission from Crain’s Detroit and written by Dustin Walsh. 

Despite Michigan’s bountiful, and inexpensive, legal market that sold more than $3 billion of marijuana last year, Michigan’s illicit market is thriving, according to the Michigan State Police.

Just last week, the MSP’s Marijuana & Tobacco Investigation Section took down potentially one of the state’s largest illegal marijuana grow operations on record.

On March 7, the MSP executed warrants on a single operation at four commercial buildings in Livonia, resulting in the seizure of more than 6,000 marijuana plants, 2,500 pounds of psilocybin mushroom bars, and 700 pounds of marijuana flower, according to a press release from the MSP.

The marijuana flower alone has a legal market value of more than $1 million.

The operations did not hold any legal marijuana operators’ licenses, according to the MSP.

First Lt. Tom Kish, commander of the specialized unit in the MSP, said large-scale illegal operations like in Livonia persist due to Michigan’s weak laws on illicit marijuana.

In October last year, the state’s Court of Appeals ruled that illegal grow operations could only net misdemeanor charges after the state legalized recreational marijuana in 2019, easing laws to alleviate the harsh penalties faced during prohibition.

This has led to larger criminal activity in the sector, Kish said.

“These larger grows are becoming a big issue,” Kish said. “I can tell you the perception was that black market marijuana would go away when the adult-use market came online. That’s not true. The black market in Michigan is a huge problem and it’s a booming illegal marketplace. That’s largely because of our penalties, or lack thereof.”

Kish said his unit has seized more than 10,000 illegally-grown marijuana plants in the last 30 days alone and is executing warrants several times a week.

The illicit market does not adhere to safety and testing standards — “I was on site for the warrants in Livonia and I can tell you the facilities were disgusting,” Kish said. He also said the business is being dominated by those also involved in human trafficking and other more heinous crimes: the MSP often finds foreign nationals effectively living in indentured servitude to these operators who traffic them into the U.S.

“We have a lot of foreign nationals that are connected to these illegal grow ops,” Kish said. “Some from China, South America, or Mexico; people who are trafficked here to produce or procure black market marijuana. Many don’t speak English and are forced to process flower or tend to plants under terrible living conditions. It’s becoming a serious problem.”

Kish confirmed foreign nationals were discovered during the execution of the warrants in Livonia, but the MSP and federal authorities are still working to determine whether they were trafficked or have a larger connection to the illegal operations.

The marijuana tested from the Livonia operations also tested positive for banned pesticides as well as heavy metals and molds.

“It may be cheaper, but these products are very hazardous for human consumption,” Kish said.

The illicit market operators resort to trafficked labor and illegal pesticides to undercut the state’s legal market, which has become one of the most inexpensive markets in the country.

In January, the average cost of an ounce of recreational marijuana was $93.20, or about $1,500 a pound.

Legal market marijuana is very popular in Michigan. The state sold more than $240 million worth of marijuana just last month, or about 428,00 pounds of flower and edibles and 675,000 ounces of infused liquid.

Enforcement of illicit market marijuana has been a hot topic in the legal market for the last few years as legal operators faced a massive price collapse due to oversupply, which many blamed on the illicit product in the market.

Enforcement was a big reason Gov. Gretchen Whitmer hired current Cannabis Regulatory Agency Executive Director Brian Hanna in September 2022. The enforcement issue had been growing, so Hanna was brought in to show how serious the state was about handling the issue. Hanna was a former analyst in the MSP’s computer crimes division and had previously spent more than four years at the CRA as an investigations manager.

But for the MSP, cracking down on illegal market marijuana remains a challenge, not only under state law but in finding willing prosecutors, Kish said. Since legalization, many prosecutors across the state have been unwilling to prosecute illicit marijuana operations, fearing legal gray areas and lax penalties.

“Prosecutors have varying opinions on how to pursue these investigations or whether to do so at all,” Kish said. “We certainly enjoy working in areas where we have prosecutors who want to work with us and don’t shy away from cases like this.”

While Michigan’s illegal marijuana grow penalties are weak, these operations also exist outside of the tax code and are usually brought up on tax violations. The Livonia operation would have likely owed hundreds of thousands of dollars per year in taxes and the operators will likely be prosecuted for such.

“The legal operations in Michigan, they literally spend millions of dollars to come into the market legally and do so that produce products that are safe, tested and taxed,” Kish said. “These black market products are offered for sale are not any of those things and it’s a huge problem to the licensed market and not fair to them.”

The post Police bust one of Michigan’s largest illegal marijuana grow operations to date appeared first on Green Market Report.

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh. 

Mount Pleasant-based cannabis company Stash Ventures has acquired the dispensaries of Troy-based Cloud Cannabis Co. in what is the first notable acquisition in the sector of 2024.

Financial terms of the deal, which closed late last month, were not disclosed.

Under the deal, Stash Ventures takes control of Cloud’s 11 dispensaries in Michigan — Ann Arbor, Detroit, Muskegon, Traverse City, two in Grand Rapids, Utica, Gaylord, New Baltimore, Cedar Springs and Kalamazoo.

The dispensaries will continue to operate under the Cloud Cannabis name to preserve Cloud’s “already well-established market position,” Stash Ventures said in a press release.

Stash Ventures already operates three dispensaries in Michigan under the Timber Cannabis Co. name in Mount Pleasant, Owosso and Sturgis.

The acquisition of Cloud also gives Stash Ventures the ability to more widely distribute its High Minded and High Minded Creations marijuana products in Southeast Michigan. The company also operates a grow and processing operation in Sturgis.

“Growing our investment in the State of Michigan is important to us, and we’re proud to be able to do this with such a well-established brand like Cloud Cannabis,” Scott Moorehead, CEO of Stash Ventures, said in a press release. “The merger also presents an exciting opportunity for our High Minded and High Minded Creations products as there will be expanded retail outlets for customers to find our exceptional flower and products.”

Cloud Cannabis retains its marijuana grow and processing operations under the deal, allowing the company to focus squarely on wholesale distribution of marijuana instead of retailing to consumers.

“This transaction with Stash Ventures represents a pivotal strategic decision for our team,” John McLeod, co-founder of Cloud, said in a press release. “We recognized an extraordinary opportunity to orchestrate a mutually beneficial financial and operational outcome for both parties, while enabling us to sharpen our focus on our established wholesale operations. This move is a testament to our commitment to our stakeholders and aligns with our vision for the future.”

The move to pare down operations stands in contrast to how the industry has been moving, toward more vertical integration. Operating both a grow operation and dispensary allows companies to realize margins on both side of the business.

It’s unclear whether Cloud ran into troubles operating the dispensaries. McLeod did not immediately return calls and messages about the deal.

The industry is finally stabilizing after a nearly two-year price freefall that claimed many in the industry, including one of the largest operators Skymint.

The average price for an ounce of flower in the recreational marijuana market was $95.08 in December, up from a low last year of about $81. Prices, however, had been higher than $525 per ounce in early 2020.

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This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.

The property housing Gage Cannabis’ flagship store in Ferndale, Michigan, is for sale.

The more than 46,000-square-foot building on 1.52 acres at 1523 Academy Drive St. is on the market for $7.06 million, according to marketing from the property brokers Chicago-based Northmarq.

The sale of the property does not impact Gage’s operations there as its lease will remain intact, Keith Stauffer, CFO of TerrAscend Corp. (OTC: TSNDF), the Canadian owners of Gage, told Crain’s in an email.

The property has a triple net lease, which means Gage would remain responsible for the property taxes, insurance and maintenance of the building, according to a property advertisement. The rent on the lease also increases 2.33% annually.

BJ Feller, managing director and senior vice president of Northmarq, said the property is being marketed as an investment as Gage’s lease is secured.

“Frankly many investors are viewing the (cannabis) real estate as more secure than traditional retailers, and also offering above market capitalization rates and returns,” Feller wrote in an email.

Northmarq is also marketing the Gage properties in Kalamazoo, branded as Cookies, and Traverse City, as well as two properties containing Lume Cannabis Co. dispensaries in Holly and Birch Run.

Gage’s Battle Creek location is also on the market.

The Battle Creek location is listed for $1.7 million, the Traverse City location for $2.55 million and Kalamazoo location for $2.9 million.

The Ferndale and Kalamazoo properties are owned by Troy-based Spartan Partners Properties. The Traverse City property is owned by Strategic Koach Properties LLC and the Battle Creek property is owned by an entity called Battle Creek Downtown Central LLC, according to CoStar Group Inc., a Washington, D.C.-based real estate information service.

None of those entities were immediately available to respond to requests for information.

Weed has been a hot real estate commodity for years. Investing in the property allows investors to play in the marijuana market without having to walk the line of federal drug regulations — marijuana is still a Schedule I narcotic in the purview of the federal government.

The hotness of the market, however, is extremely segmented. How high the real estate prices go is largely based on how saturated the local municipality is with competition.

A meager 2,400-square-foot building in Pontiac, which still hasn’t got its recreational-use market off the ground, was for sale for $3.5 million in 2022 ahead of Pontiac opening up its market to recreational weed.

Battle Creek is heavily saturated with dispensaries, which may dictate the $1.7 million price tag, compared to the more sparely populated Traverse City market, which is dictating $2.55 million for a similar building.

The state’s overall marijuana market, though, has yet to peak. Last year, operators sold $3.06 billion of product, compared with $2.3 billion in 2022.

The post Gage Cannabis’ Ferndale property for sale, but dispensary will stay put appeared first on Green Market Report.

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh. 

The planned, and unceremonious, end to Skymint’s growing operations is a cautionary tale as old as the earliest strains of Hindu Kush from the ancient mountains of Afghanistan.

A company chasing an industry boom — the “green rush” in this case — that leverages its entire business based on shaky growth projections to expand as rapidly as possible only to be clobbered by an inevitable decline of profit margins. The company entered receivership in March.

The pied piper stops accepting IOUs, eventually.

Skymint management’s feet never seemed planted on the ground and their projections were, well, in the sky. The company projected sales in 2022 of $263 million, or 11% of the total Michigan market, a far cry from what it ever reached. Their aspirations made little sense, considering the company held just 3.5% of the state’s total retail licenses and less than a percent of the state’s total growing capacity. Marijuana is a commodity and most wholesalers and retailers are commanding similar prices for similar products.

The end of Skymint’s growing operations, though, isn’t a harbinger for continued failure in the industry.

Yes, plenty of pain is abound across the sector that’s continually plagued by basement low prices and a near cursory federal tax rate. But the Skymint failure is viewed as opportunistic across the industry.

Its weed will be sourced elsewhere — vacuum-sealed marijuana doesn’t, in fact, grow in a vacuum. But competitors will Hoover up any residual demand left from the hole left by Skymint.

“I think the entire market is benefiting,” said Mike Elias, CEO of the state’s largest grower Common Citizen, a major competitor to Skymint. “It’s especially good for smaller operators trying to get a foothold. Keep in mind they’re still operating a fairly large portfolio with a third party now taking the cultivation risk.”

Andrew Sereno, CEO of Manchester-based Glacial Farms, which operates a much smaller grow than Common Citizen or Skymint, told Crain’s that removing Skymint weed from the market could potentially stabilize prices and raise margins for his operation.

“Overall, it’s good for growers and customers,” Sereno said. “It means better quality on the market and less need for growers to artificially depress prices to compete with a large grow, such as selling at a loss.”

What remains unknown is whether San Diego-based Innovative Industrial Properties, the country’s largest marijuana commercial real estate developer and owner of Skymint’s soon-to-be-closed Harvest Park building, has a suitor for the turn-key operation. Another large player stepping in using the 56,000-square-foot facility’s entire capacity would likely do nothing to shuffle prices.

Even if there is no suitor, it’s not totally clear the void Skymint leaves on the cultivation side would really have much impact at all on the market, said Lance Boldrey, cannabis attorney for Dykema Gossett law firm.

Skymint holds seven Class C medical marijuana grow licenses and seven Class C adult-use and adult-use excess marijuana grow licenses, with each license allowing the growing of 2,000 plants. So Skymint had a capacity of growing 28,000 plants, and it was unlikely growing that many.

Skymint held just 0.7% of the state’s total grow licenses.

“… Many of those statewide licenses aren’t being fully utilized, but Skymint is only a modest-sized grower and its production a drop in the bucket,” Boldrey said.

The reality is that many growers, and retailers, are simply hanging on as victims of market conditions.

While prices plummeted between late 2020 through early 2023, they’ve largely stabilized — though at a low point — and risen throughout much of the year. The average price of an ounce of adult-use marijuana flower in October was $97.62, up from $80.16 per ounce in January. But the industry started in 2020 with an average ounce of flower retailing at more than $500.

Michigan’s marijuana sector has largely been saved by near-insatiable consumer demand.

The low prices have kept consumers active in the market and the total sales of adult-use marijuana in the state has risen dramatically. The state sold $258.5 million worth of marijuana in October alone and is on pace to reach nearly $3 billion in sales this year, up from $2.3 billion in 2022.

But Michigan is bound to crest the sales peak at some point. At least one expert predicts the total market size as $3.2 billion. Slowing sales seems certain.

Still, there is one potential near instant-growth boost on the potential horizon.

The federal government is deliberating whether to move marijuana from a Schedule I drug to a Schedule III drug, which would be the most consequential regulatory move the Drug Enforcement Agency has made on marijuana since classifying it as having “no currently accepted medical use and high potential for abuse” under the Controlled Substance Act in 1970.

Rescheduling marijuana eliminates the IRS Tax Code 280E, which prevents individuals from writing off business expenses involved in the trafficking of narcotics, translating to a 70% or sometimes higher effective tax rate for marijuana dispensaries instead of the regular 21% corporate rate.

And while classifying it as Schedule III doesn’t make marijuana federally legal, it would open the door to research grants, banking opportunities for cannabis businesses and their employees and, most importantly, would end a rigid tax regime that until now has stifled growth in Michigan’s regulated industry.

Marijuana not falling under 280E effectively means instant cash flow for the industry — and more windfalls and fewer Skymints.

The post Closure of Skymint Cannabis Grow Offers Opportunity for Struggling Industry appeared first on Green Market Report.

This story was republished with permission from Crain’s Detroit and written by Dustin Walsh. 

What’s in a name?

An aging hippie from Texas hill country and a mainstay in the “Outlaw Country” music synonymous with weed culture is, perhaps to no surprise, a growing cannabis brand name in Michigan.

Willie’s Reserve, a marijuana licensing company started by singer and songwriter Willie Nelson in 2015, is among the latest celebrity brands to grace Michigan dispensaries — when they can keep it on the shelves.

Green Stem, a dispensary in Niles in Southwest Michigan, sold out of its first shipment last month of Willie’s Reserve — nearly 32 ounces of flower and 160 joints — in less than 36 hours.

“People have started to have it with celebrity brands,” said Katie Lindgren, brand director at Green Stem. “If the product isn’t good or doesn’t stand up in the culture … weed people, all weed people — soccer moms, teachers, just about anybody that consumes cannabis regularly — can tell who is a poser. If they aren’t picking up the vibe, that brand doesn’t last.”

Celebrity brands come and go in the cannabis space just like in regular retail goods, but the industry is beginning to find success under certain names as consumers are faced with an overwhelming number of choices at the store and operators look for a way to stand out.

“At the end of the day, the name gets your foot in the (consumer) door once,” said Hilary Dulany, chief marketing officer for Aardvark Industries, which is the exclusive licensing contract for Willie’s Reserve. “It’s the experience that keeps them coming back. You have to have some of the best cannabis behind the name, or you’re done.”

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