Blog

What's next for cannabis in Michigan in 2022?

Rebecca Hawkinson
July 19, 2023

As 2022 gets underway, it is time for in-state operators to get bigger, better, and stronger in Michigan. The relatively mature and robust Michigan cannabis market has seen a dramatic increase in capacity across the supply chain yet remains highly fragmented.

In 2022, all players in Michigan better be making moves.

As 2022 gets underway, it is time for in-state operators to get bigger, better, and stronger in Michigan. The relatively mature and robust Michigan cannabis market has seen a dramatic increase in capacity across the supply chain yet remains highly fragmented.

Wholesale prices for biomass plummeted in late 2021, resulting in a plethora of new and inexpensive carts and infused products flooding the market. Marginal market participants need to seek acquirers as their businesses are not sustainable over the long term. Larger, stronger market participants need to consolidate to take cultivation capacity out of the market and stabilize pricing.

Ranked #4 in the U.S., Michigan generated nearly $1.8B in total cannabis sales in 2021. Despite the large market size, Michigan has generated little interest from the major MSO's. They have seen fit to deploy scarce capital resources in states with much more restrictive licensing regimes. The previously mentioned market turmoil in late 2021 ensures a continuation of the MSO's "wait and see" approach and will constrain capital flows into the Michigan market. In other words, in-state operators are effectively on their own for the foreseeable future.

If you intend to be a market consolidator, you need to have a sufficiently strong balance sheet and market position to acquire aggressively. If you are a consolidatee, it is time to get your house in order and hire an advisor to run a professional marketing process to achieve the highest valuation and best terms (e.g., non-cash consideration).

Time is of the essence as valuations are relative to the growth trajectory of the market, and the growth of smaller operators is likely to remain stagnant, if not decline, as the market consolidates.

One fact that is certain, in the end, there will be a finite number of uber-efficient operators in the Great Lakes State. One axiom has always proven true in such markets, "either you're growing or you're dying." And why die when you can sell and monetize the value you have worked hard to create?

The pertinent questions then become to whom do you sell, and at what value? If all players are making moves this year, what's your move?

Sharp Capital Advisors has over 25 years of experience advising privately-held companies with mergers, acquisitions and private sale processes. We have provided advisory services to multiple cannabis companies, helping them determine the most practical and efficient next steps to achieve their goals. Our services are invaluable when considering a sale or merger and/or responding to unsolicited in-bound buyer interest.

Let's schedule time to begin the discussion regarding a path to monetization for your business.

Authors:
Rebecca Hawkinson
Stephen Miles