Weed industry thrives in COVID-19 economic drought - Crain's Detroit Business

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Sales were steady, if a little slow, last Wednesday during the lunchtime hour at High Profile cannabis dispensary in Ann Arbor. A single mask-wearing customer browsed the small shop's selection of marijuana flower grown at the company's operations 45 miles northwest in Webberville. A handful of others meandered in the front door of the turn-of-the-century multitenant college town home turned commercial building, showing IDs to the receptionist for a pickup order. Employees emerged moments later onto the sidewalk two blocks away from the University of Michigan's Ross School of Business to deliver the goods.

But Ankur Rungta, CEO of C3 Industries LLC and its four retail shops in Ann Arbor, Detroit, Grant and Buchanan, said despite a lack of college kids during the summer months in Ann Arbor and an seemingly neverending pandemic, the Packard Street store is exceeding sales expectations since opening in March. Sales are exceeding everyone's expectations in the middle of a recession worse than any in history. Adult-use recreational sales and medical marijuana sales hit new records in Michigan the week ending Aug. 1, totaling $14.24 million and $12.35 million, respectively. In fact, recreational marijuana sales have more than tripled since the Gov. Gretchen Whitmer's Stay Home, Stay Safe order went into effect in late March. Medical marijuana sales more than doubled. Marijuana businesses were allowed to continue operations, first only through curbside pickup, then as the state relaxed restrictions, inside sales have returned.

Experts believe marijuana sales reached new highs for a multitude of factors. There simply are more retail outlets open — 90 retail outlet licenses have been issued in 2020 through Aug. 7. The pandemic has allowed the legal market to cannibalize the illicit market as consumers are reticent to trust not-regulated sellers who could spread the virus. The recession tied to COVID-19 has also left cannabis consumers with more time to partake and a federal stimulus package that has buoyed the economy.

"It's all of these factors coming together at once that's moving the needle," said Andrew Brisbo, executive director of the Michigan Marijuana Regulatory Agency. "I think it's absolutely true that COVID-19 increased these numbers. For people who have been able to continue to work, there's more access to discretionary income as maybe they aren't commuting. For medicinal consumers, because these are trying times, they may be using more. A lot of cannabis consumers are utilizing products more during the pandemic. The availability of the retail operations is increasing. It all adds up to more sales."

Consumer spending began to tank in mid-March as the coronavirus made its way to the shores of the U.S. and then to Michigan. Consumer spending in the state fell by more than 30 percent between January and March 30, six days after nonessential businesses were ordered to close, according to Harvard University's Opportunity Insights economic tracker.

However, sales figures appear to indicate cannabis consumers value rolling paper as much as toilet paper during the pandemic.

Recreational cannabis sales rose to $5.8 million the week before Whitmer's shutdown order from $1.8 million during the first full week in January. Sales dropped $1.2 million the following week as it's likely consumers stocked up on product fearing their stores would close as the pandemic surged in the state.

But federal stimulus checks, $1,200 payments to Americans to buoy the economy during pandemic closures, began to hit bank accounts the week ending on April 19, one day before the cannabis culture's biggest holiday, 4/20. Brisbo believes the holiday is responsible for a huge uptick in sales that week. Recreational sales surged to $7.2 million during that week from $4.8 million a week prior. Coincidently, many medicinal marijuana patients must have faced a sciatica flare-up as medical sales increased to more than $8.6 million for the week ending April 19, compared to less than $6 million the week prior.

But the sales never came back down.

By May 17, recreational sales hit $8.9 million and medical sales reached nearly $10 million. By July, both markets had exceeded $12 million weekly before surpassing a new record earlier this month.

Alcohol has followed a similar path during the pandemic. Spirits sales were up 18 percent between March 1 and May 31, led by a major 48 percent spike in April over the year prior, according to monthly sales data released by the Michigan Liquor Control Commission.

In fact, alcohol is recession proof. U.S. beer, wine and liquor sales actually increased from the start of the Great Recession in December 2007 until its end in June 2009.

"A lot of these sin businesses — like alcohol, tobacco and cannabis — they hold up better in periods of recession than other traditional businesses," Beau Whitney, an Oregon-based economist who has worked for multiple cannabis firms, told Marijuana Business Daily in March. "Consumers budget for cannabis. And they will budget and spend consistently, even when they pare back payments on other things, like that latte or going to the movies."

Andrew Livingston, director of economics and research for law firm Vicente Sederberg LLP in Denver, said sales are being suppressed, not by the pandemic but by product availability.

"If you want to talk about supply constraints, it's inventory," Livingston said. "There wasn't enough hours in the day to sell to everyone when adult-use opened up in Michigan. It's gotten better, but more supply still needs to come online before sales can truly reach their market potential."

Brisbo and the MRA projects the state's recreational marijuana market to grow to a $3 billion annual market. Since Dec. 1, 2019, recreational sales are $210.7 million and growing exponentially.

Those growing sales figures are reflective of pulling more users into the market.

Rungta said as the retail network continues to flesh out in Michigan — C3 opened its Grant High Profile shop in May and is starting the licensing process in Grand Rapids — the legal market is becoming more appetizing for consumers who have remained on the black market.

"We're continuing to see changes in customer behavior, pulling people in from the illegal market, as more stores come online and we're still nowhere near capacity, so I expect sales to keep rising," Rungta said.

But the COVID-19 recession, or the Great Suppression, is more complicated than a regular recession.

The U.S. government's Pandemic Unemployment Assistance program, which provided $600 a week in extra jobless benefits to tens of millions of unemployed workers, certainly boosted overall consumer spending and likely cannabis sales as well.

That program ended on July 31 and U.S. Congress continues to debate a second round of the package, which may see a reduction of the benefit to as little as $200 per week.

"It's pretty stark for younger people," Livingston said. "It's not just cannabis. Consumer spending writ large will take a hit if the House and Senate don't come to an agreement."

But the pandemic has ramifications for the industry beyond unemployment benefits.

For Rungta and C3, the return of more than 30,000 students to UM's campus and Ann Arbor is the difference between a boon or a bust.

High Profile's Ann Arbor store is mere blocks from the university and a 10-minute walk to Michigan Stadium, where more than 100,000 gather on football game days in the fall, which are now expected to have a significantly reduced number of fans or no fans at all.

"We expected this store to have heavy seasonality," Rungta said. "This close to campus and the stadiums. We thought fall would be a boon for us. But how many come back now? Maybe 20 percent or maybe 50 percent? It's going to be a weird year."

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