Legal Cannabis States Facing Supply Shortages
While cannabis may the same across the country, not all legal-cannabis states regulate it in the same way. Ironing out the particulars of marijuana laws isn’t always straightforward, with regulations leaving some states struggling to keep pace with demand.
Recreational cannabis sales haven’t yet begun in Michigan, but it’s the state’s medical marijuana market that’s been experiencing a serious supply shortage.
In 2016, Michigan passed a law that implemented a five-tiered licensing system to grow, process, test, transport, and sell medical marijuana. The Michigan Medical Marijuana Licensing Board issued licenses to 54 medical marijuana dispensaries but only 31 cannabis growers, leading to a supply shortage. Michigan has 297,515 registered medical marijuana patients.
Before the 2016 change to the medical marijuana program, licensed dispensaries could buy cannabis from more than 40,000 registered caregivers in the state. Under the medical marijuana law approved by voters in 2008, caregivers could grow up to 72 plants and sell the excess to dispensaries. In 2016, lawmakers changed the system, requiring licensed dispensaries to buy cannabis from licensed growers.
Under emergency rules in effect up until late last year, around 215 unlicensed dispensaries were still able to buy medical marijuana from caregivers, putting licensed dispensaries at a disadvantage. As of Dec. 31, 2018, all unlicensed dispensaries were forced to close, and the shortage of product from growers forced even some licensed dispensaries to shut their doors temporarily.
In an effort to solve the cannabis supply problem and the slow licensing process, newly-elected Gov. Gretchen Whitmer (D) issued an executive order to eliminate the state licensing board and create a new Marijuana Regulatory Agency. The executive order will also allow unlicensed cannabis facilities to temporarily reopen and allow them to purchase cannabis from caregivers while new licensing regulations are put in place.
Illinois isn’t currently facing a cannabis shortage, but a new study commissioned by state legislators has found that legal recreational marijuana demand could exceed what licensed growers could supply. The report found that demand for recreational cannabis could be as high as 555,000 pounds of marijuana a year.
Under the state’s medical marijuana program, there are 16 licensed cannabis cultivators. The study found that with the current number of marijuana growers, they could only meet 35 to 54 percent of the demand for recreational marijuana. While shortages are a concern, the report notes that oversupply of cannabis is equally important to avoid.
“Systems that either dramatically fall short of demand or that oversupply the market create public policy challenges,” according to the report. “Avoiding both is an important expectation from the public, from producers, and from public health and public safety officials.”
If market demands were met, the report found that Illinois could bring in at least $440 million in tax revenue annually.
State Sen. Heather Steans (D) and state Rep. Kelly Cassidy (D) commissioned the report ahead of introducing a bill to legalize recreational marijuana.
Similar to the medical marijuana situation in Michigan, slow-licensing and expiring temporary permits may cause a recreational marijuana shortage in California. Before the state finalized recreational marijuana regulations last year, most cannabis companies were operating under temporary licenses. Nearly 10,000 temporary licenses are set to expire this year, and the backlog of applications means that some dispensaries and cannabis grows may need to close temporarily before they are issued full annual permits.
Last month, state Sen. Mike McGuire (D) introduced Senate Bill 67 in an effort to keep cannabis companies with temporary permits in operation. The bill would allow the state’s three licensing authorities to extend existing temporary licenses while the bottleneck in licensing is addressed.
In a hearing for the bill, Terra Carver, the executive director of the Humboldt County Growers Alliance, told lawmakers, “Without passage of this bill, there will be dire consequences, such as the imminent market collapse of hundreds of businesses.”
However, the soonest the bill could pass in the state legislature and be signed into law by Gov. Gavin Newson (D) won’t be for at least two months.
“Best-case scenario, making it through all policy committees and off the floor of the Senate and Assembly in the next 60-90 days,” McGuire told Marijuana Business Daily. In the meantime, thousands of cannagrows and recreational marijuana dispensaries could be forced to close temporarily.