This article is reprinted by Crain’s Detroit Business.
Quality Roots, a Michigan-based marijuana retailer, is hoping to grow in the Garden State while local prices on the legal cannabis market continue to decline.
Quality Roots of Birmingham opened their Marlton New Jersey dispensary in Marlton earlier this week. They were looking to capitalise on the high prices and consumers nearby from Philadelphia.
Pennsylvania has not yet legalized recreational marijuana sales.
Aric Clar, Crain’s CEO said: “We are able to remain profitable because we don’t have outdoor grows yet. There is also no new biomass on the market.” “Our store’s location is near Philadelphia and in a highly populated area. “It’s the combination of market.”
Michigan’s marijuana prices are basement-low due to product oversupply, largely from the large amounts of cannabis grown outdoors and typically harvested in October.
For instance, there were 1.84 million pounds of fresh frozen product, largely from outdoor grows, at processors and growers in January — a 296% increase over January last year.
The oversupply has cratered prices to just $66.50 for an ounce of marijuana in the adult-use market in January, down 28.6% year-over-year.
Klar stated that he sells three marijuana vape carts for $100 each at his New Jersey shop, while in Michigan, 15 cartridges can be purchased for $75.
Klar stated that the spread in profitability per unit was much larger.
Klar stated that Quality Roots eight Michigan stores are profitable, however the margins were much smaller.
Other Michigan companies are looking at expanding into other markets in order to compensate for the low margins.
For instance, Evart-based Lume Cannabis Co. founded a new company, Lume Hemp Co. in Florida, to capture a portion of the massive and growing national market for hemp-derived THC.
Lume, Washington’s biggest cannabis firm, is seeking access to the U.S. marketplace to primarily sell Buzzn, its THC-infused drink.
Seltzer beverages containing marijuana THC of 7.5 mg were launched by the company in April. These drinks, however, are regulated and unable to be purchased outside of marijuana dispensaries licensed by the Michigan Cannabis Regulatory Agency.
Hemp-derived THC beverages are sweeping the nation’s markets. The drinks can be purchased at bars, liquor shops and even grocery stores. Total Wine & More, for instance, sells hemp-derived THC drinks in Texas, Florida, Minnesota, California and several other states.
Michigan operators might have no choice but to seek out other markets if the prices aren’t recovering.
Growing companies are beginning to collapse. In February, Bay County marijuana operator Pincanna temporarily shuttered 31,500-square-feet of its grow facility and laid off employees to mitigate losses. Chicago-based PharmaCann shuttered its 207,000-square-foot LivWell Michigan cultivation site in Warren, laying off 222, in January. Fluresh closed its 105,000 square-foot, $46-million grow facility in Adrian in November.
Klar explained that opening a shop in New Jersey is not a simple process. But we saw an opportunity. While our Michigan stores are profitable and we continue to open more, it is financially advantageous for us expand into Jersey.
Quality Roots plans to open two new stores in New Jersey and two in Michigan in 2019.
Klar explained: “We’re giving out flyers because no one here knows us. We got this energy boost. We worked hard in Michigan, and this company is not one that will spread itself too thin. But we have a great opportunity to concentrate on two markets.