Experts predict cannabis companies will thrive despite rise in receiverships

Posted at 1:01 PM, Mar 14, 2023
and last updated 2023-03-15 21:49:53-04

DETROIT (WXYZ) — Cannabis sales in Michigan hit record highs last year, with companies profiting more than $221 million in the month of December alone according to a state report. But as the fast-growing industry continues to expand, some companies are beginning to fall behind.

Just last week, Skymint, one of the biggest cannabis producers in the state entered into receivership after defaulting on a $127 million loan. Receivership is a process where a court-appointed official takes over a business to help a company avoid bankruptcy. As reported by Crain's Detroit Business, this is the fifth cannabis company to recently enter into receivership.

While the rise in receiverships has concerned some, many in the industry say it was expected.

"I think it’s a natural part of the ebbs, flow and growth of an emerging industry. In any new industry and certainly any industry at all when you get an influx of dozens of businesses, not all of them are going to succeed," said attorney Denise Pollicella.

Pollicella is the managing partner at Cannabis Attorneys of Michigan in Howell and Troy. She says she began representing cannabis companies in 2009. Pollicella says a nearly 90% price drop in wholesale cannabis prices over the last 18-24 months also made making money challenging for some cannabis companies.

"Cannabis I should say is an incredibly capital-intensive industry. It takes a lot of money to make your first couple of dollars. So a lot of these businesses have been borrowing copious amounts of money from private lenders in other states and these private lenders have much higher rates than traditional businesses," said Pollicella"

She says the industry consolidation happening is also due in part to a lack of federal infrastructure. Because of the difference in federal and state marijuana laws, cannabis companies cannot seek traditional banking or loans. They also do not have bankruptcy protections like traditional businesses so when businesses falter, receivership is one of their few options.

"Insurance is more expensive. Banking is more expensive. You can’t get credit cards so just the entire challenge of the industry. And we’re incredibly highly regulated in Michigan," said Pollicella. " I think it’s is very past time that the state and the federal government start taking this industry seriously and start looking at it like an industry and start providing some of the resources other industries take for granted."

Pollicella says the receiverships aren't indicative of the industry's success as a whole as many businesses continue to expand and thrive.

Dreams Canna, which is located near Telegraph and 12 Mile Rd., recently opened. While the business only sells marijuana to medical users, they're looking to expand to recreational soon.

dreams canna

"I’ve been in the cannabis industry a couple years now," said Charles McCreary who is the floor supervisor at Dreams Canna. "From a retail standpoint, there are a lot more brands, people putting their name and product out there trying to make a name for themselves. Then from the consumer standpoint, prices have dropped. It’s very competitive."

McCreary says since legalization, there’s been an overwhelming amount of budding businesses coming to market. He says while not every company will survive, he believes the industry will only grow larger.

"They’re weeding themselves out and now you see it coming to light," he said. " I only see (cannabis) progressing. It brings people together. Cannabis is about love and happiness so you do that, you put people with it and only good things can come from it."

Jason Tueni, who is the founder and CEO of Oak Canna and The Clinic Dispensary in Detroit, says his business is a direct example of the growth potential still within the industry.

"We’re thriving. We’re selling hundreds of thousands of individual units a month," said Tueni as he stood in his westside manufacturing facility.

Tueni says he first began working in cannabis as a caregiver more than 10 years ago. He and his business partner entered the licensed cannabis space in 2021. He says since that time, their business has grown so much they're now working to double their operations going from employing about 75 people to 150 by June of this year.

The company produces edibles, pre-rolls, flower and THC wax from scratch for their brands Banned, J's, Toker's and Cannaboys. Tueni says the because the company was self funded and slowly scaled, they've been able to avoid many issues.

"Today the industry is like a bunch of racehorses going. The industry is going through some compressions right now and having its own problems due to the fast growth of the industry," said Tueni. "The industry as a whole is healthy but the really large companies that were first to market, really have a lot of shortcomings because those were the money guys, not the industry guys."

Tueni says there needs to change at the federal level to make cannabis a more viable industry for even more businesses.

"We definitely need federal legalization to happen, that’s very important. Without it, we’re paying extra taxes and the green tax is just hurting right now. It’s hurting everybody because the green rush is over for most," said Tueni.

Even still, cannabis professionals say they’re looking toward a lush green future.

"Ten years from now, I’d like to see cannabis just like any other retail product. Of course, you want it to be tested, you want it to be safe because you’re putting it in your body but at the end of the day cannabis isn’t hurting anybody," said McCreary.