The article has been reprinted from Crain’s Detroit Business with the permission of Crain’s.
Michigan’s biggest cannabis company, which is a result of oversupply and industry isolation from markets in other states, has decided to move south for a boost to its bottom line.
Lume Cannabis Co. based out of Evart in Florida has founded Lume Hemp Co. to grab a share of the huge and rapidly growing THC-derived hemp market.
A complex web of state and federal laws has created two industries that are competing to dominate the national cannabis market. THC from hemp is legal according to federal regulations, and is spreading across the nation, including in states that do not allow recreational marijuana.
The 2018 Farm Bill effectively removed hemp’s designation as a controlled substance, stating that any cannabinoid derived from hemp – defined as cannabis containing less than 0.3% THC by dry weight – could be sold in the market, free of federal intervention.
The rules allow for gummies, drinks, and other additives to be made that could have a similar effect to marijuana. This is a highly regulated substance in many states, including Michigan.
This has led to a recent boon for operators in other states – as Michigan regulates all hemp and cannabis products, regardless of the Farm Bill – who can not only federally produce THC products, but can ship them across state lines from states like Michigan that don’t allow exports of cannabis.
According to Whitney Economics, a firm based in Oregon, “conservatively”, the hemp-derived marijuana market in the U.S. will reach $28,4 billion by 2023. This is the same as the craft-beer industry and it’s growing exponentially.
Meanwhile, Michigan’s marijuana THC market – the nation’s strongest in marijuana sales per capita – is plateauing under intense pricing pressure.
The average price of an ounce marijuana on the market for adult use last month was $66.50. Prices had fallen by more than 28,6% from January 2024. These are the lowest prices across the nation. The average price of one gram of marijuana flowers in Oregon was $3.50 or $99.22 for an ounce.
While Michigan sold a record $3.29 billion in marijuana THC products last year, Whitney Economics predicts sales will drop in the coming years due to new markets in Ohio and elsewhere and the rising hemp-derived market to $2.7 billion or $2.8 billion by 2026.
Lume CEO Dave Morrow remarked that the Michigan marijuana industry is missing out on a great opportunity by only using 64 percent of its capacity.
Morrow explained that “we would love to open Lume Hemp Co. Michigan, invest the millions here, and take advantage of our infrastructure. However, we cannot.” A lot of products made already here comply with the Farm Bill. Michigan has one of the best THC processing infrastructures in the world — high volume, high quality and low cost. The ability of Michigan-based companies to export products compliant with Farm Bill legislation allows them to leverage the existing infrastructure and create new business opportunities across 40 states.
Untapped markets
Lume’s main goal is to expand its market in the U.S. to allow it to sell Buzzn, a popular THC beverage.
Seltzer beverages containing marijuana THC of 7.5 mgs 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.
Morrow told me that 38 dispensaries throughout the state sold approximately 1 million cans of tequila last year.
Hemp-derived THC beverages are sweeping the nation’s markets. The drinks can be purchased at bars, grocery stores, and liquor shops. Total Wine & More, for instance, sells hemp-derived THC drinks in Texas, Florida, Minnesota, California and several other states.
Major beverage producers are already onboard. Seattle’s Jones Soda Co. Jones has launched its hemp THC beverage under the Mary Jones brand in 2022. Mary Jones recently launched in Michigan with marijuana THC drinks, licensing Mount Clemens-based Emerald Canning Partners to make and distribute those products. Emerald Canning is a joint-venture between Pleasantrees, the cannabis company, and Blake’s Hard Cider Co. in Armada, Michigan. They also can Lume’s Buzzn.
Morrow stated that “THC drinks are becoming mainstream.” The majority of major distributors across the nation carry these products. Total Wine offers it at their store. Winn Dixie and Publix are also joining the party. You can get it (at bars) almost anywhere in Florida or other states. You only need a license from the U.S. Food and Drug Administration (for $450).
Cantrip, a competitor based in Massachusetts that distributes hemp THC-derived drinks into 39 states due to the Farm Bill.
Morrow thinks THC drinks can make up 15 percent of Florida’s 20 billion dollar alcohol market. This makes its initial investment in Florida a no brainer, since Michigan’s transportation infrastructure is not available.
“We have a copacker in Ohio.” Morrow stated that this is our current solution. But we cannot get enough volume there, or here at Emerald. We could lower costs, boost production and increase investments if we were able to pack Buzzn and ship out of the state a Farm Bill compliant product.
What should I do?
Lume is unable to enter the market for hemp products in Michigan due to its fuzzy regulations.
Whether Michigan operators – those licensed to process hemp products – can export hemp-derived THC products out of state has always been up in the air. Many operators, including industry lawyers, believe this is illegal. Crain’s confirmed that it is legal as long as the rules are adhered to.
Nothing in Michigan law prevents licensed processor-handlers from shipping industrial hemp – with a THC content less than 0.3% on a dry weight basis – out of state, David Harns, spokesperson for the CRA wrote in an emailed statement to Crain’s. Cannabis with a THC level greater than 0.3% is considered to be marijuana by state law, and is regulated through the MRTMA. The federal laws are not our concern.”
It’s actually more complex than that.
CRA has the responsibility of regulating food-related marijuana products like Lume Buzzn edibles and drinks. Hemp products fall under the Michigan Department of Agricultural Development’s stricter rules for food.
The proposed changes to the CRA rules would further limit Lume’s ability to access the hemp market.
This proposed regulation, which is still being finalized, will limit THC content in hemp products at 1.75 mg/serving and 10 mg/package, well below state-regulated limits for THC, 200 mg/package.
The state regulators, however, are stuck between those who want to enter the hemp industry and those, such as Lume, that think it’s too late to stop the business.
Colorado regulators decided to give up the fight against hemp-derived products at the end of 2023 due to the oversupply in Colorado and the plummeting prices for marijuana. Colorado’s Safe Harbor Hemp Manufacturers program allows industry to create hemp-derived THC for export. The Safe Harbor Hemp Manufacturer program allowed manufacturers to take part in the rapidly growing hemp market in the U.S., while also protecting the marijuana sector from the industry’s growing production within the state.
“One goal of this program was to protect Colorado’s established medical and adult-use marijuana markets by restricting the in-state sale of high-potency hemp-derived products,” Genevieve Meehan, director of regulatory compliance for Denver-based cannabis law firm Vicente, told Crain’s. However, it is still too early to gauge its impact. I believe the Colorado businesses expanding into hemp operations are doing so primarily for export, aiming to establish market share and brand recognition in states without regulated marijuana programs.”
Michigan’s cannabis cultivators and processing companies could create regulations to help the oversupply in the hope that they would allocate capacity for hemp-derived products.
Whitney says that even if Michigan farmers reduced the number of plants they had to grow in order to comply with their licences, an excessive amount would remain.
Michigan has a wide range of licenses. As an example, the Class C Grow License is from 501 to 2,000 plants. If a Class C grower reduced his plant count to 1,503, for example, he would have three licenses.
According to Whitney, even if Michigan’s thousands of growers disposed of tens and thousands of marijuana plants each, the state would still be able to produce three million pounds more marijuana to meet the needs of the legal market, as well as the black market.
Morrow: “We could either spend this money in Michigan, or leverage our Michigan operations.” Right now, the $250 million that we spent in Michigan cannot be leveraged.
Colorado’s marijuana investment can also not be leveraged. The safe harbor rule prohibits marijuana and hemp-derived facilities from sharing the same location to stop marijuana processors using hemp-derived as a supplement to product.
For the … kids
Michigan lawmakers are trying to develop a legal framework to intoxicate hemp-derived product, but it is not for the benefit of legal cannabis.
Rep. Donovan McKinney (D-Detroit) introduced in Michigan a set of bills designed to establish a licensing structure and labeling standards for the hemp industry.
These bills were born from a Detroit Police Department’s investigation of a Hookah Lounge on Seven Mile Road just one block south of Pershing High School, which was selling illegal hemp products to kids.
McKinney said to Crain’s that this is a serious problem for our school districts. These unregulated, dangerous products are getting into kids’ hands. To figure out how we can stop the products from entering our state, first we need to regulate them. We’re already in the state, how do we put some safeguards and legal restrictions around this product? “We can’t let this flood into the schools.”
Illegible is if a legal framework for state sales of intoxicating products made from hemp would help prevent imports. Large hemp-derived businesses, like Oklahoma-based Mood operate sophisticated online retail operations. A consumer, for example, can order gummies that are legal and contain thousands of mgs THC with just a credit card number, shipping address, and no age verification.
Morrow claimed that Michigan was the global leader for compliant THC manufacture. Morrow said, “We are in a good position to help clean that industry up and improve safety throughout the United States.”