Cannabis Businesses Invest In The Midwest As Michigan's New Medical Marijuana Laws Take Effect

The Great Lakes State has the second-largest medical marijuana patient base in the country, trailing only gigantic California. A shift in Michigan's medical marijuana market is no small event.

Major legal weed markets have opened up on the West Coast — California, Washington, Oregon, Nevada and Alaska — and New England, with Maine, Massachusetts and Washington D.C. But the Midwest remains largely untapped.

Michigan's new licensing and seed-to-sale tracking system for medical marijuana opened for applications in December, and observers expect to see a ballot question on recreational marijuana in Michigan in November.

If recreational marijuana were legalized in Michigan, the regulated market “will likely serve as a catalyst for other states in the Midwest to rethink existing laws and follow suit with full legalization,” Matt Karnes, founder and managing partner at GreenWave Advisors, told Benzinga.

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Michigan As A Proxy For Middle America

“Michigan is a very large market that has been legal but unregulated, similar to California, so there’s a huge potentially addressable market there,” Matt Karnes said. “Being in the Midwest means we are now seeing cannabis hit mainstream U.S.A.”

According to the firm’s calculations:

• There are about 850,000 potential patients that would qualify for medical marijuana in Michigan.
• The medical marijuana market in the state hit roughly $630 million in sales in 2017.
• There are enough signatures to put recreational use on the ballot in November. “We expect this bill to pass, so we have already factored this into our estimates,” Karnes said. 
• A combined recreational and medical marijuana market would be operational by 2020 and could reach approximately $1.2 billion in annual sales, according to GreenWave.

When Will Marijuana Be Legal In Michigan?

In 2008, Michigan voters approved a law that allowed patients to medicate with cannabis, as long as they held a medical marijuana card issued by the state. But the law did little to address the actual sale of cannabis: the state structured its system around self-supply and caregivers instead. People could either grow their own plants, up to 12, or have a licensed caregiver grow for them.

“There was a big gray area within the law, which did not address the dispensaries issue,” Jamie Cooper, owner of Cannabiz Connection and Canna Media Works, told Benzinga during a recent conversation.

Only patients and caregivers were allowed to touch the plant, Cooper said — and not for a commercial purpose.

“Yet, people across the state were trying to open up dispensaries. Some communities were fine with that; they had other crimes to worry about, so they allowed dispensaries to continue to operate without regulations. Others, however, weren’t OK with dispensaries popping up, so they would have the police raid them and take all the product." 

The disorder finally led lawmakers in Michigan to change cannabis laws. In December 2016, Gov. Rick Snyder signed legislation that set criteria for licensed medical marijuana businesses, allowing them to grow, sell and process pot.

One year later, the state began taking applications for this system, releasing emergency rules to regulate the emerging medicinal cannabis market. As of Jan. 19, only 20 applications had been submitted to the licensing board. People familiar with the topic argue that the cost of obtaining a license and the complexity of the process are responsible for the low figure.

“It takes a lot of people, one could say ‘a small town,’ to file a successful application,” Cooper said. “In addition to this, there’s the municipalities, which have a lot of control over the process — and many of them wanted to see the rules and what other districts around them are affected by medical cannabis businesses.”

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Ancillary Businesses Dominate The Market

While the number of plant-facing businesses applying for a license in Michigan remains low, the number of ancillary businesses emerging in the state is not. 

One such business is Jamie Cooper’s Cannabiz Connection, an “all-in-one platform for building a successful business in the cannabis industry.”

Cannabis businesses opening in Michigan are mindful of the possibility the state could legalize recreational marijuana, said Greenwave's Karnes. 

“Any investment in medical marijuana is actually a ‘call option’ for when the recreational use market materializes," he said. 

Another cannabis business set to debut soon in Michigan is Cannabis-Aid, which defines itself as a “hands-on” services company.

“Cannabis-Aid is a business- and compliance-themed company. We believe in doing things right and enabling all stakeholders: state government, local government, licensees, investors and caregivers/patients,” said CEO Thomas Tong. “Our mission is to be the cause of optimism, results, and success for cannabusinesses."

At first, Cannabis-Aid will offer facility optimization, production optimization, harvest and processing services, Tong said. “We do not intend to go live until the end of Q1, as our customer base is just emerging and the market solidifying."

To help catalyze and strengthen the Michigan cannabis industry, Cannabis-Aid will hold the 1st Commercial Cannabis Conference Aug. 22 and 23 at Cobo Center. "We want to bring together key stakeholders and out-of-state experts to help foster a healthy commercial cannabis industry," Tong added.

Michigan doesn't have enough businesses that provide information and services to the cannabis sector, said Cannabiz Connection's Cooper. 

“I call Michigan ‘the Sleeper State.’ I don’t think people realize the demand and opportunity that exists here. Everyone I know is focusing on California, but Michigan is the second-largest medical marijuana market after California, with 262,000 patients. That's a huge demand and 20 licenses aren't going to support that huge need.”

BioTrack THC has provided seed-to-sale cannabis software in Michigan for nearly four years. “[We’ve been] helping businesses to be proactive about their compliance, their data collection and optimizing their business processes,” Steve Flaks, vice president of sales, told Benzinga.

“Now that the state's medical program is really starting to take shape and get closely regulated, the biggest challenge licensees face is getting their operation compliant and getting workflows established from the start,” Flaks said. “Many businesses will need to make adjustments at the beginning to fit into the new, regulated market."

Stock Plays

Some public companies exist that could benefit from expanded access to cannabis in Michigan, as well as from a potential legalization vote later this year.

420 Investor Alan Brochstein pointed Benzinga to CanniMed Therapeutics Inc CMMDF, which has a wholly owned subsidiary, Michigan-based SubTerra LLC, that recently applied for a medical marijuana production and processing license from the state after receiving municipal approval from Carp Lake Township.

Before CanniMed’s pending acquisition by Aurora Cannabis Inc ACBFF, the company was “pursuing a DEA-licensed cultivation facility for cannabis research in Michigan. To the best of my knowledge, Aurora Cannabis hasn't stated its plans following the acquisition,” Brochstein said. 

Another way to play on ancillary stocks that could benefit from the Michigan cannabis market expansion is Scotts Miracle-Gro Co SMG. The gardening and hydroponics products company has substantial investments in the cannabis space and a Michigan presence.

Image Credit: Javier Hasse.