How Michigan Created A $10b Weed Market

Michigan is on the verge of hitting $10 billion in weed sales just five years after legalizing the recreational cannabis industry.

Only California — which has nearly four times as many residents — has a bigger legal marijuana market. And only Alaska — undoubtedly reflecting the unrelenting cold and darkness — has a higher volume of sales on a per capita basis.

“We're breaking sales records every quarter, but that's just a piece of the story,” said Brian Hanna, executive director of Michigan’s Cannabis Regulatory Agency. “We're trying to adapt with the industry, learn what should be regulated and what cuts we can make to save businesses money.”

Legalization has proven very messy across the country. Illicit sales remain rampant in many states. Rogue operators in Oklahoma, Oregon, Maine and beyond have used legal markets to camouflage criminal activities. And the promise of providing consumers access to safe, tested products has been undermined by lab shopping and outright fraud.

Michigan is certainly not immune to any of these challenges. But it’s arguably made greater inroads than any other state in addressing them and could provide a blueprint for others. 

Hanna was appointed to his post just over two years ago by Democratic Gov. Gretchen Whitmer. He is somewhat unusual in coming to the job from a law enforcement background. He previously worked as a criminal intelligence analyst for the Michigan State Police and as a deputy sheriff in Kalamazoo County.

POLITICO spoke with Hanna about a wide range of issues confronting the country’s most dynamic weed market.

This transcript has been edited for length and clarity.

You've been on the job for a little over two years. How would you characterize the state of Michigan's cannabis market at this point?

It’s continued progress. We continue to listen to stakeholders on what is important to them and how we can improve the regulatory landscape for the industry. We've been working on new rules since May of 2023. We got a lot of feedback, hundreds and hundreds of emails and phone calls and live testimony during public sessions.

As far as the sales go, we're breaking sales records every quarter, but that's just a piece of the story. At the end of the day, we're trying to adapt with the industry, learn what should be regulated and what cuts we can make to save businesses money.

Are there themes that emerged from all that feedback that you would highlight?

Enforcement challenges still remain. They continue to exist. We recently started issuing press releases on the most egregious behaviors. These are examples in which licensees clearly have no intention of following the laws and rules.

Our new rules address some of the things that we found as we continue to do our investigations and what new tools we need. We're adding new language that we think is necessary to prevent the inversion of marijuana from illicit sources and the diversion of marijuana to illicit markets. We want to keep untested, unsafe products out of the hands of consumers.

We also want to prevent involvement in the industry of individuals prohibited from owning or operating a marijuana business. We're making some rule tweaks to address those. Specifically on our summary suspension language, we're making some very large adjustments there to give us better tools to quickly identify those who are doing the most egregious behaviors and get them out of the industry.

Another theme, though, is we want to eliminate unnecessary regulations. I’ll give you an example. We heard feedback from the industry: “If we're a retailer, why do we have to have a lobby?” And currently in the rules, they do. You know what? They have a point. If you want to have a lobby in the marijuana retailer space, have at it. If you don't want to have a lobby, you don't have to have a lobby. That, to us, makes sense.

You mentioned the illicit market and diversion. That's obviously been a massive challenge for states across the country. How would you characterize where Michigan is on that front?

It's hard to put a percentage or quantify where we are compared to other states. But we continue to learn best practices from other states.

We're very transparent. We will put everything out there once an investigation is closed. We are tackling the most egregious behavior aggressively by putting it out in the public for a couple reasons: One, to show people that we're working towards these efforts; and two, to show those that are thinking about doing these illicit, egregious behaviors that we're paying attention.

Due process takes time. People want to see strong enforcement and they want to see fast enforcement, but that due process is an important part of investigations. We want to make sure that we are doing it right, and that anybody that we accuse of any kind of regulatory violation is afforded due process.

Testing has been another big challenge for states, with allegations of lab shopping and even fraud. What challenges does Michigan face on that front, and what are you doing to address that?

We're seeing that Michigan is not any different than any other regulatory body. There's two main themes: One, lack of standardization and consistency in analytical methods; and then two, lab shopping and lab fraud. Our new rules really revamps our testing rules. We want to implement safeguards. We want to promote standardization and consistency in testing methodology.

The second big thing we're doing is we're in the process right now, in the early construction process, of our new state reference laboratory. You really need a reference laboratory in this space. And so our goal for that lab, there's several of them, but here are the main ones. One, investigative support. It takes 45 days right now at a minimum to investigate Illicit material in the market. We think we can really speed up that process of investigations with the reference lab. But we also want to audit licensed labs. We want to audit product on the shelf. We want to have randomized audits of the labs with our reference laboratory to keep labs in check and to make sure that they're testing in accordance with the way they say they are.

Michigan’s medical market has really shrunk to the point that it's almost non-existent -- less than a million dollars in sales last month. Is that a concern? And is there anything you're doing to address that?

We still have 84,000 registered patients in the state of Michigan. The reduction of medical sales in the regulated market is something that happens in every state that has an adult-use market. Do I think the medical market is going to go away in whole? No, it will continue to exist, even though we're losing approximately 3,000 registered patients a month. There still is a need for people who want to have their patient card. There's still incentives for them to do this. There is the tax incentive. They only pay the 6 percent sales tax, as opposed to the 10 percent excise tax.

But there's also an opportunity here for lawmakers. I know that lawmakers are working on potentially combining the [medical and adult-use] acts in the future. From a regulatory perspective, that makes a lot of sense, because it'd be a lot easier for our agency to regulate one law as opposed to two.

Michigan has become a great market for consumers, just in terms of very cheap prices. An ounce of weed, on average, is under $80. But it's very tough for businesses to make money. You mentioned some of the ways you're looking to ease regulatory burdens. Are there other steps that should be taken to make this a more financially viable market for businesses?

Our motto is the CRA will establish Michigan as the national model for a regulatory program that stimulates business growth while preserving safe consumer access to cannabis. That's the theme for our new rules. What does that really mean? That means no unreasonable burden on licensees. We want to eliminate some unnecessary regulations.

We've heard from marijuana grows that it is cost prohibitive to have to mix their marijuana waste with some other material. And in working with our environmental partners at the state level and working with licensees, we agree. Why do we have that? The original intention was this fear that there would be massive amounts of people accessing marijuana products through waste receptacles. Now, we understand that there's still a homeless population that does that, and we're addressing those concerns by making sure that our licensees are properly securing their waste receptacles. But if they can save money by not having to mix marijuana waste with some other material, we think [that’s] positive.

And also we have the social equity grant program. We gave out a million dollars to small businesses, or social equity businesses, last year, and we're excited to announce year two. We have another million dollars for our social equity licensees, and we're in the application process for that right now.

You mentioned the possibility of combining the medical and adult use statutes. Anything else that you'll be asking for from lawmakers?

Our Michigan hemp laws, they need revamping, specifically regarding the intoxicating hemp products. We've heard that children have access to these products. We want to work with lawmakers on a regulatory solution to rein in these products and protect kids. It just has to happen. We understand that there are loopholes to the 2018 farm bill, and we’ve got to control what we can in the state of Michigan. We have to have some form of regulatory revamping regarding these unregulated, possibly untested, non-age-gated products that are going throughout the entire United States.