Since adult-use cannabis sales kicked off in Michigan in 2019, the market has experience rapid growth. In April 2022, total market sales (medical and adult-use sales) in the state nearly eclipsed $200M in a single month, falling just $5M short. However, when we start digging into the drivers of the growth in the Michigan cannabis market, we see also see prices of products declining steadily. Below, we take a close look at the recent trends in cannabis sales growth in the Michigan cannabis market and the underlying drivers.
Let’s start our analysis by comparing the sales growth of Michigan to a comparable market. This first graph shows total market cannabis sales, including medical and adult-use sales, for Michigan and its midwestern neighbor Illinois. Both are are relatively young cannabis markets that have experienced strong growth over the last two years.
Throughout 2021, monthly sales for both states trended fairly close together. When we look at the last six months from December 2021 to May 2022 however, we can see that Michigan’s sales growth began to outpace that of Illinois, with Michigan producing 12.4% growth in the period compared to -7.3% in Illinois in the same time.
So, what’s driving this growth in Michigan over the last six months?
The first data points we should look at when trying to understand the drivers of sales growth are the number of units and the price at which they were sold. Here we look at the monthly unit sales in Michigan over the last two years. You’ll notice that the trend of units sold closely mirrors the sales trend we saw on the previous graph, which is to be expected. But when we look at the average item price (AIP), we can see a steady downward trend beginning from the end of 2020 and continuing through May 2022.
Interestingly, in the six month period where we saw 12.4% sales growth, there was a -19.3% decrease in AIP. This means in order to produce the 12.4% sales growth with a sharp decline in AIP, unit sales grew a whopping 39.3%.
Now the next question we should be asking is, what are the drivers of this pricing decrease?
Let’s take a look at cannabis product categories next. When we break down the total -19.3% decrease in AIP in the past six months into the different product categories, we can get a more complete picture of what’s going on. In this graph, we can see each category’s AIP change from December 2021 through May 2022.
The Flower category accounted for 47.8% of total market sales in the last six months, so this tells us the -21.3% decrease in Flower AIP is the primary driver of the -19.3% decrease in the total market AIP. The next four largest categories by sales share (Vapor Pens, Edibles, Pre-Rolls, and Concentrates), all saw AIP decreases of more than -10%, which also contributed to the overall trend.
Next, let’s explore the underlying drivers of the decrease in Flower AIP that we saw in the prior graph. In this graph, we look at the Average EQ Price, Average EQ Cost, and EQ Margin of Flower. EQ means “equivalized”, meaning we are using per gram measures.
One noteworthy trend to call out here is Flower’s Average EQ Cost, which fell -14.8% over the same six month period. The main takeaway here is that while we saw the -19.3% decrease in AIP over the last six months, which was driven primarily by Flower, we also saw a commensurate decrease in Flower EQ Cost. This tells us that the cost of Flower to retailers has been dropping, and retailers have passed the savings onto the customer. One likely reason for this drop in Flower cost is the increased competition among Flower producers in Michigan as production has begun to catch up with demand.
With total market sales increasing 12.4% in the last six months driven by a 39.3% growth in unit sales, the Michigan cannabis market is one to watch as it continues to mature. If you’d like to keep track of the Michigan market or other legal cannabis markets, sign up for a personalized demo of Headset tools today.