Some retailers worry market could become oversaturated
By Nick Buckley
Battle Creek Enquirer
BATTLE CREEK, Mich. (AP) — John Kassa did his due diligence in scouting a location for his cannabis business in Battle Creek.
When looking at a map of available space for potential provisioning centers, he spotted an an area on the city’s north side medical corridor along North Avenue, between a dialysis center and an Arby’s.
“We saw a little blip of green in this parking lot, and I was like, ‘Let’s go for that,” he told the Battle Creek Enquirer. “The reason I love this location is there is not anybody around me. ... Am I going to draw people off of I-94? Probably not. But I can supply the neighborhoods and I have the hospital and the college right there.”
Kassa manages Nature’s Finest, a medical and adult-use cannabis dispensary that officially opened June 8 following two years of development. It’s one of five dispensaries currently operating in the city limits, and among 12 in Calhoun County.
Since 2018, Battle Creek has conditionally approved 48 medical marijuana facility applications, and six adult-use applications. Emmett Charter Township, located on the eastern border of Battle Creek, has approved 38 medical facility applications at 26 locations to date.
Since recreational sales became legal in Michigan in December of 2019, municipalities have determined how they will regulate the burgeoning industry on top of state oversight. One way has been to impose a cap on the number of cannabis businesses permitted.
Battle Creek has no cap, but there are limits based on available real estate and buffer zones. Still, there is concern among retailers that the market could eventually become oversaturated.
“When you make it unlimited, you have the businesses already operating discouraged to invest more money into that city,” Kassa said. “Now I’m going to have 25 open doors, and it discourages other people from opening their doors because the competition is going to be stiff here, and these are not cheap to open.
“Competition is good for all businesses. But at the same time, too much is not.”
Michigan voters approved recreational marijuana sales in 2018, with legal sales beginning in December of 2019. Nineteen municipalities in Calhoun County opted out of the Michigan Regulation and Taxation of Marihuana Act.
Medical and adult-use dispensaries have remained open during the COVID-19 as they have been deemed an essential business. By July, Michigan’s adult-use cannabis industry had sold more than $200 million in recreational marijuana products, generating nearly $35 million in excise and sales tax revenue, according to the Marijuana Regulatory Agency.
The way taxation on recreational marijuana works is that the state charges a 6% sales tax along with a 10% excise tax. Municipalities that have a recreational marijuana facility receive a portion of 15% of the funds generated by the excise tax. The rest of the money is divided between counties, the school aid fund, and the Michigan transportation fund.
Economists from Michigan State University projected in a report released in March that sales of adult-use cannabis alone would surpass $3 billion per year within several years.
In June, recreational cannabis sales surpassed medical sales for the first time, a trend that is likely to continue. Adult-use demand in the state currently outweighs the supply, with the shortage coming as legal weed becomes cheaper.
According to the MRA, the price per ounce of recreational marijuana has dropped from $516.21 in December 2019 to $409.76 in May of this year. Medical marijuana was $267.30 per ounce in December, dropping to $251.50 in May.
The price is expected to continue to drop.
If Michigan is being cautious in its approach to cannabis supply, it’s likely due in part to Oregon’s difficulties managing its grow industry. In 2019, the state had 1 million pounds of unsold cannabis surplus, causing prices to fall to the lowest in the country and a number of growers to go out of business.
“It’s a very new industry, but we’re just now seeing stores coming online and it’s something we are very intentional about keeping an eye on to make sure there is no detrimental effects to neighborhoods,” said Christine Zuzga, planning manager for the city of Battle Creek. “When we initially did this (ordinance), it was unknown. We didn’t know what the demand would be and what the investment would be.”
The Michigan Supreme Court has said that a municipality can enforce zoning laws for medical-marijuana growers, as long as it doesn’t ban or penalize growing or impose unreasonable restrictions.
In Battle Creek, retail dispensaries must be in commercial properties located 1,000 feet from schools, churches, parks, libraries and residentially owned properties, or they are allowed in industrial districts when located with a grower and processor.
Application fees for any of the five licences offered by the city cost $5,000, and must be renewed annually. But not all of the applicants will open storefronts or grow operations, as properties can be purchased with the intent of buffering out competition or held on to until they can be sold for profit.
Zuzga noted that four of the five dispensaries in the city are renovations of existing buildings. “That’s an investment in the community that would otherwise not have happened,” she said.
The industry is also bringing jobs to the area.
Marshall was the first municipality in Calhoun County to allow medical marijuana business after a regulatory framework for licensing them was signed into law in 2016, though it doesn’t allow dispensaries. There are currently nine active grower licenses in the city, including five held by Common Citizen, which opened a cannabis manufacturing facility in March that is expected to create 400 jobs over the next five years.
Battle Creek Unlimited sold 100 acres of land in the Fort Custer Industrial Complex for $1 million to DB3 Aggricultural Solutions to build a 5-million square foot “cannabis campus” called Sensi Park. There, space can be leased as custom “condos” that cater to different marijuana licence types: grow processing, testing (safety compliance) and secure transportation. The campus will not include cannabis retail operations.
“It’s a relatively young, immature market in Michigan,” said Joe Sobieralski, president and CEO of BCU. “As the market matures, I expect you will see some losses and consolidation. If there is going to be no limits, that should be expected in the years to come.”
Currently, there are eight dispensaries located on Columbia Avenue/East Michigan Ave. between Battle Creek and Emmett Township: 3Fifteen (2), Remedii, Highly Cannaco (formerly The Cannabar), Great Lakes Holistics, Common Citizen, Quality Roots and Amsterdam Premium Cannabis Co. There is also Trucenta, a growing operation, along the road in Emmett Township.
Savinder Singh, a former occupational therapist from New York, moved to the area to build and run Amsterdam Premium Cannabis Co., located across the street from FireKeepers Casino Hotel. The dispensary officially opened its doors June 26 for medical use and Aug. 1 for recreational.
“I believe that this whole cannabis industry is a budding industry,” Singh said. “We are all learning and making mistakes together... The next six-to-12 months will be tight with a supply and demand issues, but that’s OK. We’ll continue to serve our medical patients and continuing on our recreational brand.”
Tucker Kulish, a Battle Creek native and co-owner of Great Lakes Holistics, said he was surprised Emmett Township didn’t initially have limits on the number of cannabis facilities approved.
“It’s insane and sometimes it’s scary for a little guy, because we’re local,” he said. “I think we’ll have that influx and oversaturation that Oregon saw, then it will start to level out and then that’s when you will see it shake out where the bigger guys come in, knock out the little guys and you have a more established market... This is capitalism. Somebody is going to go down.”
Pat Dougherty, Emmett Township trustee and chair of the township’s marijuana committee, said they initially expected four or five dispensaries before realizing the number of licenses granted would not be sustainable, so they established stricter guidelines that require action on the permits within two years of applying.
The township has yet to approve its marijuana ordinance, which has cost the township at least $10,000 to draft between hiring a consultant and lawyer fees.
“We’re not putting a cap on, but we are trying to control the growth,” Dougherty said. “The market will decide that.”
Dougherty added that the biggest threat to business owners is competition from the black market, which can eat away at market share and undercut prices.
“Where do we go from here? We’ve crossed this hurdle. But the next hurdle will be what is allowable,” he said. “Will we allow people to set up grow operations in residential areas? If people want to grow their own that’s OK, but having commercial growing in residential areas, where our biggest concerns are because of the odor and traffic. The dispensaries haven’t created the issue. But what do we do to protect the neighborhoods and the integrity of the neighborhoods?”
“The professionalism they have at these places is remarkable. The business is still just a business. It’s not like Cheech and Chong. It’s a business. It’s going to be an interesting competition.”
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