In the Mitten State…In just a few weeks, the State of Michigan begins accepting applications for recreational marijuana licenses. The current legislation favors those who already have medical licenses since others cannot apply for recreational licenses for two years.
The upside for the market is enormous. There are currently almost 300,000 medical users in the state, most of which likely convert to recreational users beginning early next year, when the legislation becomes fully operational. Some estimates have MJ sales in the state topping $2 billion annually. That prediction is because Michigan is the second-largest medical marijuana in the country. By comparison, Colorado, which is the oldest marijuana market in the nation but 4.3 million fewer residents, surpassed $1.5 billion in sales in 2018.
Michigan is also experiencing a serious shortage of medical-grade, legal flower. This shortage is causing prices to continue to rise. Currently wholesale prices are around $4,000 per pound, contrasting sharply with Colorado’s $1,000/pound wholesale price.
Michigan growers need to be cautious regarding the current inflated prices, however. As more and more growers come on line, prices are expected to drop. A well managed grow operation should still be very profitable, even at a lower price point.
Meanwhile, in the Land of Lincoln…Last week, Illinois began accepting applications for dispensary licenses. The state has not yet begun licensing new large grow operations. Based on what we’ve seen in Michigan, which followed a similar timeline, this will create large shortages in the Illinois, as well.
This situation could result in an ideal situation for cultivators. In the first few years of the program, Illinois grow licenses will likely prove especially lucrative. Cannabis shortages drive up the cost of wholesale product and allow growers to sell their harvests easily. This is the perfect storm for generating huge profits at the grow level.
The Take Away
In both Michigan and Illinois, the window to take advantage of this product shortage won’t last forever. Having an extra year or so of high-margin sales can allow your cannabis company to capture these profits and build financial resources for future growth. For this reason, consider using cannabis real estate loans and cannabis construction loans to kick off your project sooner vs. later. We have several lenders who can close and fund real estate loans for cultivation facilities within 30 days, which allows our clients to take the fullest advantage of today’s wholesale prices.
At Seed To Sale Funding, we maintain relationships with over 20 cannabis private money lenders, family offices high net worth individuals and others, who lend their own money, make their own decisions, and therefore can make cannabis loans that banks cannot. Transactions include cannabis real estate loans, cannabis construction loans, sale/leaseback transaction, working capital, and acquisition financing. Many of these loans are available for marijuana startup financing, including new cannabis grow facilities, while others are more suitable to established businesses.
Contact us today and let us assist you in raising the cannabis debt financing that your business needs.
Judy Rinkus is a former bank executive who is CEO and Founder of Seed To Sale Funding, a unique consulting firm specializing on providing debt capital to marijuana and hemp businesses located in the United States and Canada, including both Michigan and Illinois.