Why opening a cannabis business in Detroit requires ‘tenacity’
Image: Natalie Peeples/Axios
Every cannabis billboard and punny weed storefront started with an idea—an idea that someone wanted enough to navigate the maze of Michigan cannabis licensing.
Why it matters: Aspiring entrepreneurs pulling the strings of the cannabis industry have watched as layers upon layers of processes and hurdles unfold, all requiring time, funding, and tenacity to overcome.
- As this burgeoning multi-billion dollar industry develops in Detroit, it’s important to understand how difficult it is to get a foothold there.
The big picture: After a long delay in launching its recreational cannabis program after Michigan voters approved adult use in 2018, Detroit is finally rolling out recreational retail opportunities this winter.
How it works: Generally, before a prospective owner can apply to become a licensed recreational cannabis business in the city, they must already own property and go through land division and permitting.
- Pot operations have been confined to limited areas away from schools and libraries, and real estate in these “green zones” has been snapped up for years.
- Real estate is likely to be the most expensive part of the entire venture, West Coast Meds’ Mark and Jay Snipes tell Axios.
Remarkable: People living in communities harmed by cannabis prohibition or by cannabis-related crimes may qualify for Michigan’s Social Justice Program. It offers resources, application discounts, and a joint venture option.
- But despite stock programs, ownership is still extremely white — in a recent state survey, 352 licensees said they were white, compared to 19 black and 11 Hispanic or Hispanic licensees.
Next, The state says companies should apply for a preliminary “prequalification.” It includes analyst analysis, a background check and a $3,000 non-refundable fee.
Then Applicants begin the city’s application process, which follows a permit-type-specific checklist for a grower, processor, carrier, promoter, retailer, micro-enterprise, or consumption lounge.
- Detroit allows unlimited cultivation licenses, but retail, microbusiness, and consumption lounges are limited and more competitive.
- Applicants earn more points on the city’s evaluation rubric for their business plans, “good neighbor” plans, and even community leadership.
- Social Justice applicants are evaluated separately and with different rubrics.
What you say: “One tick can make all the difference” in the competing city’s bids, so Mark and Jay advise hiring a lawyer and accountant who know the bid papers and tax laws inside out.
- “You save yourself a lot of time and heartache,” says Mark.
The second of the state licensing step follows with more checklists, document reviews, inspections and then reviews of those inspections. If successful, the license comes by mail.
Using the numbers: The funding needed to support a Detroit cannabis business varies greatly depending on factors such as type and location. License and renewal fees range from $1,000 to $24,000.
- It could cost $500,000 to $1 million to open a retail location and $2 to $4 million to grow or process — but it’s hard to say, especially given the high cost of real estate, said Rebecca Colett, founder of the Detroit Cannabis Project incubator program. says Axios.
- “I always like to tell our students that you can start from scratch by building a Toyota or a Porsche. Everything is customizable.”
The bottom line: As cannabis is illegal nationwide and state guidelines are changing, “there are a lot of restrictions and regulations that the average person or business owner just isn’t ready for,” says Colett.
- It takes “Toughness and perseverance. It’s not a get-rich-quick thing.”
It’s not easy being green
While Detroit is the first With recreational cannabis stores opening this winter, the nationwide industry is going through a rough patch.
Driving the news: Major operator Skymint is among at least five pot companies that have court-ordered third parties to help solve hefty debts, Crain reported last week.
- The state has publicly accused an oversupply leading to a price collapse. The average cannabis bloom in January was $80 an ounce, compared to $512 the same month three years ago, according to state records.
Yes but: Amid the challenges, Detroit is still looking for operators for its coveted retail licenses. It completed the first of three application periods for its limited licenses in December and awarded 33 retail licenses.
- There are two more chances for companies to apply in an as yet undisclosed timeline. A total of one hundred retail licenses are available, plus 30 for micro businesses and 30 for consumption lounges – split evenly between equity and non-equity applicants.
What you say: In a competitive atmosphere, “you have to serve a certain niche,” says Colett. In the incubator, “we start with the business plan and really create a unique selling proposition.”
- “There’s a price war out here with prices going down,” says Mark Snipes. In times like these, branding is king.
Between the lines: Detroit-based law firm Honigman has noticed a “significant” slowdown in the number of people seeking licenses, cannabis and government attorney Doug Mains told Axios.
- Most of the firm’s recent work is in corporate expansion or mergers and acquisitions as the industry continues to consolidate and larger operators come out on top.