Published in Economic Development

Michigan cannabis leaders see more M&A, minority ownership in 2022

BY Sunday, December 19, 2021 06:45pm

Michigan’s cannabis industry is coming off a record-setting month with $128 billion in recreational sales in October, and industry leaders expect the state’s market to further mature in 2022.

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In particular, mergers and acquisitions are expected to continue next year as smaller operators are approached by larger companies about potential deals. Despite this, local operators still see a spot in the market for smaller operations that are creative, and hopefully for more minority ownership of new cannabis businesses.

However, just two years after Michigan’s first recreational cannabis dispensary opened, some West Michigan communities are experiencing signs of retail saturation, which experts say creates a landscape ripe for consolidation.

Just this past year, New Standard acquired three Agri-Med cannabis dispensaries in West Michigan; Cloud Cannabis acquired a 70,000-square-foot commercial grow facility in Kalamazoo Township from KKind; vertically integrated Gage Growth Corp. is poised to be acquired by TerrAscend Corp.; and Skymint Inc. acquired 3Fifteen Cannabis.

“There is obviously a saturation point for everything, and licensing will probably begin to slow down somewhat next year,” said Robert Hendricks, senior counsel at Grand Rapids-based Warner Norcross + Judd LLP who leads the firm’s cannabis practice. “We will probably see some more consolidation and people will maybe start looking for partners to team up for market share and also as some find out they are good at some parts of the business but not at others.”

In Big Rapids, the market is “definitely oversaturated,” said Ken Bryant III, purchasing manager at Premiere Provisions dispensary. 

“The theme for 2022 is going to be a lot of mergers and acquisitions for stores trying to position themselves in Big Rapids, and people teaming up to survive,” Bryant said. 

Premiere Provisions has been approached with multiple offers to consolidate, Bryant said. 

“I think it’s a great opportunity,” Bryant said. “There will still be some standouts in the community and people that will always support their local store.” 

Casey Kornoelje, owner of Pharmhouse Wellness Co. in Grand Rapids, said he also has received multiple inquiries about consolidating or selling. 

“I originally started this business with the goal to pursue something I’m passionate about and something I love,” Kornoelje said. “An exit is something always in the back of your mind, but I’m not ready to fade off into the sunset just yet. I also feel that Pharmhouse represents a really unique spot in the Grand Rapids marketplace.”

The rise of cannabis M&A presents a veiled threat for Pharmhouse Wellness, which is a smaller operation with a single storefront. But Kornoelje is banking on people supporting local dispensaries like his. 

“The growth we saw from recreational retail has afforded us to double down on our business,” Kornoelje said. “We’ve been quietly saving money and taking that support and have invested in a cultivation facility that is two doors down from us.”

Minority ownership opportunities

Despite consolidation activity, Black and Brown Cannabis Guild Executive Director Denavvia Mojet expects to see more microbusinesses and smaller operators enter the market in 2022, which could lead to an increase in minority-owned cannabis companies. The amount of time it takes to get to market is usually longer for small and minority-owned operations compared to larger companies that may have access to large amounts of capital. 

Additional municipalities opting in to adult-use could also increase access to the industry for more people, she said.

“A lot of the big companies came in right away and set up shop, but the road has taken a lot longer for smaller businesses,” Mojet said. “A lot of those businesses are coming to fruition in the next quarter. For the first time in Michigan, we’ll see a boon in minority operators getting to market, which will create more options for conscious consumers who really care.”

The lack of minority-owned cannabis businesses in Michigan remains a problem, despite the fact that the 2018 ballot initiative passed by voters was intended to “promote and encourage participation” in the cannabis industry by communities that have been disproportionately affected by the war on drugs.

“Unfortunately, most cities haven’t done a good job in actually implementing and making sure social equity participants have gotten licenses,” Bryant said. 

Bryant’s family first opened a dispensary in Ann Arbor, which branded itself as supportive to minority communities. Despite being one of just two Black-owned stores in the city, the company didn’t see benefits from the local social equity program, Bryant said. 

Other companies are taking matters into their own hands. Grand Rapids-based vertically integrated companies Fluresh LLC and Terrapin Care Station have each launched mentorship-style programs for entrepreneurs looking to get in the industry.

Mojet helped launch the Fluresh Five Accelerator, which provides mentorship opportunities with new business owners.

“We actually helped produce viable businesses for entrepreneurs who would not have had those stepping stones otherwise,” Mojet said. 

The program’s first cohort recently completed the educational program that connected minorities looking for ways to get their foot in the door in the cannabis industry. The program is currently accepting applications for its 2022 session.

“Participants had tours of both of (Fluresh’s) facilities and got a sense of cultivation and what it takes to make an infused product, and all of the regulations in the industry,” said Fluresh Vice President of Marketing Christine Shollenberger. “People were pleased with how the program unfolded and some of our graduates have been able to move forward and get pre-qualified for their cannabis business.”

Read 2198 times Last modified on Friday, 17 December 2021 11:28