Concerned Citizens of Lapeer

Concerned Citizens of Lapeer

Important information about items that concerns Lapeer

03/11/2023
01/11/2023

Remember,
Ma*****na was brought to Lapeer by the Commission prior to the current one.

30/10/2023

Re-elect Atwood, Cattane, Pattison & Stroh.
Forward not back

25/10/2023

Use your common sense and re-elect Atwood, Cattane, Pattison & Steph.
Keep Lapeer moving forward.

23/10/2021

Our City Manager told you about the effects of this proposal. Your taxes will go up,
Services will be cut
VOTE NO

20/10/2021

Save our city
Vote NO
so we can afford our
tax 💵

19/10/2021

Voting yes WILL result in HIGHER TAXES
VOTE NO

17/10/2021

Huge tax bill coming when you vote yes.

13/10/2021

I’m so tired of other people judging my family values
VOTE NO on
November 2

13/10/2021

Make sure you vote on November 2.
Vote NO.
Protect your right to
Choose

10/10/2021

If you don’t believe the mayor or city attorney believe the city manager
“Cost about $8100 per property “

07/10/2021

A YES vote will cost every property in Lapeer $8000
minimum!

06/10/2021

The information on the city website is
true and will happen if the prop passes

05/10/2021

Voting YES
will result in a great tax increase and reduced city services

03/10/2021

In the past year in Lapeer crime and accidents haven’t soared.

03/10/2021

In the past year in Lapeer property values have gone UP

03/10/2021

In the past year in Lapeer old abandoned buildings have new life

03/10/2021

In the last year Lapeer has added 300 jobs with more to come

30/09/2021

VOTE NO
PROTECT PROPERTY RIGHTS

26/09/2021

Voting YES will cost over 300 jobs and will raise your taxes.

19/09/2021

Vote
NO
Save jobs

23/08/2021

The Pfizer vaccine is now F.D.A. approved.
Get one.

22/08/2021

Less than 50% of Lapeer County is vaccinated. Step up, stop this pandemic, and get the shot.

19/08/2021

200 new, good paying jobs coming to Lapeer. Great news.

09/08/2021

It’s not to late to get your vaccine. Protect your family, your friends and even yourself.

04/08/2021

Have you had your vaccine?
Delta is real.

28/07/2021

Get vaccinated.

20/07/2021

Over 100 new jobs in Lapeer.

20/05/2021

July 4th fireworks are coming!

21/04/2021

Get your vaccine. Wear your mask. Wash your hands. Watch your social distance. Let’s get back to normal.

27/12/2020

Have a safe and wonderful
New Year.
Wear masks and
social distance

04/12/2020

We all love Lapeer.
Let's extend that to our friends and neighbors.
Wear a mask.

23/11/2020

Be safe.
Happy Thanksgiving to everyone.
Protect the people who have higher risk than you do...wear your mask.

17/11/2020

Remember our local businesses.
Take out meals .
Tip your server.

Wear a mask.
Wash your hands.
Stay Safe.

05/09/2020

THE MARKET FOR AND ECONOMIC IMPACT OF THE ADULT-USE RECREATIONAL MA*****NA INDUSTRY IN MICHIGAN
Abstract:
Michigan State University Product Center Food-Ag-Bio
William Knudson, Ph.D. Steven Miller, Ph.D. March 2020
With recent passage of adult-use (recreational) ma*****na, the industry in Michigan appears to be maturing rapidly. However, some obstacles to growth exist. Undeveloped testing systems and local options to ban the sale of recreational ma*****na induces uncertainty throughout the value chain. Despite this, the supply chain is maturing rapidly, with several well-funded vertically integrated firms already operating. Both indoor and outdoor growing operations are in place but over time it appears that much of the production will take place in dedicated indoor growing facilities. It is estimated that the level of retail sales once it becomes widely available is approximately $3 billion with a total economic impact in excess of $7.8 billion. Employment in businesses along the ma*****na supply chain is estimated to be 13,500 with a total economic impact on employment in the state of 23,700. Total tax revenue raised is $495.7 million of which $298.6 million is excise taxes and $197.1 million are in the form of sales taxes. These figures are extrapolated from the experience in Colorado and adjusted for Michigan’s population.

THE MARKET FOR AND ECONOMIC IMPACT OF THE ADULT-USE MA*****NA INDUSTRY IN MICHIGAN
Introduction
This study outlines the market and potential economic impact of the adult-use (recreational) ma*****na industry in Michigan. The state is one of 11, plus the District of Columbia, that have legalized recreational ma*****na. Canada has also legalized ma*****na for recreational use. Ma*****na use is still against federal law, and therefore interstate shipment of ma*****na is problematic. As a result, at least in the short run, most of the ma*****na consumed in the Michigan will be produced in Michigan. Federal regulations place restrictions on the sale, production and funds from state recreational and medical ma*****na activities. If the federal government does legalize recreational ma*****na, those states that can produce ma*****na at the lowest cost will dominate ma*****na production. This is especially true for outdoor production.
Estimating the impact of recreational ma*****na in Michigan is difficult due to the lack of data specific to the state. However, other states, particularly Colorado, are developing a record of several years’ worth of information on legal ma*****na. It also provides a case-study of the trajectory of industry formation over five years of development. We extrapolated from the Colorado data to derive estimates for ma*****na consumption, economic impact, and tax revenues. While based on survey data, consumption patterns in Michigan appear to be similar to those in Colorado.
It is estimated that the retail value of ma*****na sales will be in the range of $3 billion a year once the market matures. It is also estimated that the total employment in activities along the ma*****na supply chain is approximately 13,500. IMPLAN, a standard economic impact software package, was used to estimate the total economic impact including the impact of related industries (indirect impacts) and household spending (induced impacts). The total economic impact is estimated to be $7.85 billion with a total impact on employment of 23,700. Total tax revenues are estimated to be $495.7 million of which $298.6 million is excise tax on ma*****na and $197.1 million is sales tax revenue.
It is very important to note that these figures are based on the assumption that the industry will grow over the next several years. If barriers to expansion persist, these estimates will overstate the expected economic impact and the tax revenue resulting from the legalization of recreational ma*****na. Additional threats to these estimates are a change in national policies. As tax revenues for ma*****na sales are largely attributable at the retail sales level, state tax revenues will likely be minimally impacted compared to the potential disruption to the in-state supply chain. That is, we would expect that grower operations in southern states will be able to outcompete in state production, and dominant national firms will develop in the processing of THC-based products.
There are two possible barriers to the growth of the industry. The first is the lack of acceptance by local communities. Currently, there are relatively few communities that allow recreational ma*****na. Many appear to be taking a wait and see approach and assessing the experiences of those communities that do allow for the sale of recreational ma*****na before passing their own ordinances. The second barrier is the lack of testing facilities and capacity. Ma*****na needs to pass testing before it can be sold, and currently, it takes several weeks before growers and processors receive their results. The slow rate of local approval and the backlog of testing has created a bottleneck in the supply chain and are factors that partially explain why ma*****na prices in Michigan remain quite high.
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The supply chain for recreational ma*****na appears to be maturing rapidly. Vertical integration appears to be a major attribute of the supply chain in Michigan with some licensees growing ma*****na as well as processing it. Growers and processors also sell directly to retailers eliminating the need for independent wholesalers. While ma*****na is grown both indoors and outdoors, indoor production appears to be more efficient and a better way to control the quality of the product.
Supply Chain
The supply chain – or value chain – of recreational ma*****na is outlined in figure 1. One important agent in the supply chain that is often overlooked are input suppliers. Seeds, clones, land, greenhouses, fertilizers, lighting, labor and harvesting equipment are all examples of input supplies. Access to sufficient electricity generation capacity is particularly important for indoor ma*****na growing facilities.
Figure 1: The Adult-Use Recreational Ma*****na Supply Chain
Input Suppliers
Producers
Initial Processing (Drying and Curing)
Secondary Processing (Edibles and Concentrates)
Wholesaling
Retailing
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Growers provide resources and make management decisions that result in the growing of ma*****na. Two forms of ma*****na are produced by growers. The first is the flower, or the bud, which has a higher THC content. The second, resulting from the process of harvesting the flower, generates leaves and other plant material known as trim. While having a lower THC content, this material also has value which is discussed below.
There are two primary production technologies for commercial ma*****na production, the first is outdoor production, and the second is greenhouse/indoor production. Outdoor production has the advantage of requiring less initial investment and lower production costs. Greenhouses and indoor production have the advantages of producing higher yields, year-round production, and the potential to grow a more consistent product. Because of this, indoor production generally commands higher prices than outdoor production. For example, in Oregon, the price of ma*****na grown indoors is approximately twice the price of ma*****na grown outdoors (Oregon Liquor Control Commission). Given the climatic and quality control factors, greenhouse/indoor production will probably be the dominant technology used in Michigan. After the ma*****na is harvested, it is then dried and cured. This process is similar to hop or to***co production. This initial processing can be carried out at the grow and makes ma*****na suitable for further processing or retail sales. Based on other states’ experiences, most of this ma*****na then goes to the wholesaler and then the retailer.
Some ma*****na, mostly trim, is used to make ma*****na products that are eaten – edibles - or used to make concentrates. Concentrates are becoming more popular with consumers, and this further processing creates a market for the trim and provides greater cash flow along the value chain. CBD oil, a co-product with a very low THC content, provides a second source of generated revenues.
The role of wholesalers is to link ma*****na production to retailers. Wholesalers provide storage, transportation service, and aggregate raw materials for retailers. Wholesalers may take shipments from initial processors and from secondary processors. A stand-alone wholesale market does not exist in Michigan and it will take time to see how the supply chain develops. The retailers sell to consumers, where their primary role is to meet consumer expectations with respect to different product offerings and quality standards.
In Michigan it appears that processors also undertake the role of wholesalers. They contract with growers on a harvest-by-harvest basis, with price depending on the quality of the ma*****na. At the present time there is comparatively little, if any, forward contracting; processors agreeing to buy a certain amount of ma*****na at a determined price before the ma*****na is grown. The lack of forward contracting increases the level of risk faced by ma*****na growers and therefore impedes supply.
It should be noted that while all of these activities need to take place, one firm can act on multiple levels along the supply chain. This is sometimes referred to as vertical integration. For example, a retailer or a retail chain could work directly with growers to carry out its own wholesale activities. Another example would be if a retailer undertook its own manufacturing activities in order to produce edibles and concentrates. It is also conceivable for growers to process and market directly to consumers through wholly owned retail outlets, though the largest share of the statewide value chain will be distributive across different parties along the value chain.
Control of the supply chain is still being developed. Currently, it appears that the production and distribution of ma*****na is not concentrated. This will likely be the case as long as recreational ma*****na
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is against federal law. However, some major firms are interested in the industry, especially beverage firms. Constellation Brands, Molson Coors, and Heineken are investing in cannabis or THC-infused beverages. Major pharmaceutical firms are also interested in the market, although perhaps primarily for the medical market.
The situation may be somewhat different in Michigan. While the market is still being developed, Michigan growers and processors appear to be larger and more likely to be vertically integrated. Most, if not all, processors sell directly to retailers. There is little, if any independent wholesaling. Also, several of the larger processors grow their own ma*****na, often in a controlled indoor environment. Because of the short supply chains in Michigan, the supply chain for ma*****na may mature faster than it has in Oregon, Colorado, and other states that legalized recreational ma*****na before Michigan.
The Life Cycle of Ma*****na
Ma*****na is an annual plant. There are both male and female ma*****na plants and, as a result, growers will buy seedlings or use their own clones as opposed to seeds. Only the female plant is of economic value, and it is important to ensure that there are no male plants that would fertilize the female plant. Seeds generally take 3 to 7 days to germinate (Leaf Science, 2017). Once the seed has grown its first pair of leaves it is considered a seedling. At this point the plant needs up to 18 hours of light per day. The seedling stage generally takes 2 to 3 weeks. The vegetative state takes 3 to 16 weeks and also requires up to 18 hours of light per day. In this stage the demand for fertilizers is the greatest, primarily nitrogen and potassium. The final stage is the flowering state and takes 8 to 11 weeks. During this stage the light requirement falls to 12 to 14 hours per day. Currently, indoor growers cultivate ma*****na plants by hand.
At the present time there are no federally registered pesticides for use on ma*****na. The state of California allows pesticides that are approved for organic farming on cannabis (California Department of Pesticide Regulation). Ma*****na also prefers relatively dry soil, with predictable moisture and moderate humidity. While the level of light in Michigan during the late spring and summer make it possible to grow ma*****na outdoors, the variation in rain and humidity makes indoor production far less risky than outdoor production. Furthermore, indoor production is capable of producing three to four crops per year as opposed to one. If managed intensively, a light that generates three to four plants a year can produce 2.50 to 2.75 pounds of ma*****na per year.
Market Price Estimates
In March of 2016 in the state of Washington, the retail price of ma*****na was $9.32 per gram and the wholesale price was $2.99 per gram (Schwartz, 2016). In Washington the grow price is approximately 30 percent of the retail price. This is similar to retail/farm price ratios for fresh fruits and vegetables. As an illicit substance, ma*****na prices are highest in states where it is illegal. Prices are subject to the laws of supply and demand.
Where demand outstrips supply, buyers will bid up the price of ma*****na, but as supply increases relative to demand, prices will tend to abate. The long-term price floor, unfettered by regulatory supply constraints would be expected to approximate the cost of production, processing and selling plus normal, or competitive, markups.
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Colorado presents an interesting test case because recreational ma*****na has been legal since January 1, 2014. From that date to July 1, 2018 the price of ma*****na declined from $1,876 per pound to $846 per pound. The trend in prices in Colorado is shown in figure 1.
Figure 2: Grow Price of Ma*****na per Pound Colorado Jan. 1, 2014 to July 1, 2018
2,500 2,000 1,500 1,000
500 0
Jan. 2014
Jul-14 Jan. 2015
Jul-15 Jan. 2016
Jul-16 Jan. 2017
Jul-17
Jan. Jul-18 2018
Date
Source: Laxen
It appears that the price of ma*****na was fairly consistent from January 2014, to July 2016 from about $1,860 to $2,000. As the industry has matured the price has dropped precipitously to about $846 per pound of flower in the summer of 2018. It is expected that prices in Michigan will also decline, perhaps faster than it did in Colorado because the national ma*****na market has become more mature; entrepreneurs in the industry have learned from both their own mistakes and the mistakes of others.
Market Dynamics
There are a few potential barriers to the growth of the industry in Michigan. The first is that, as of November 2019, more than 1,400 communities, including Detroit, have opted out of recreational ma*****na, and several local jurisdictions have been slow to adopt ordinances to regulate the sale of recreational ma*****na (Nicols, 2019). Over time it is assumed that more local governments will allow ma*****na sales as ma*****na consumption becomes more acceptable, and local communities obtain a more complete picture of the ma*****na industry.
The second is the lack of sufficient numbers of facilities to test ma*****na. According to some in the developing Michigan industry it, takes more than a month to get the results of tests to determine if the ma*****na can be sold or processed.
Other factors are relevant, including the trajectory of federal regulations of ma*****na production and sales. Federal deregulation has the potential to increase consumer demand in Michigan while inviting competition in production from states with more suitable growing environments.
Ma*****na Production
6
Flower Price per lb.

Initially, demand for ma*****na and ma*****na-based products will exceed Michigan’s production capacity. Because of federal regulation, which forbids interstate transport of THC products, supply will likely be limited until the in-state industry adjusts and ramps up production to meet demand. With a lag, it appears that ma*****na production will eventually match the demand for ma*****na.
In 2017, ma*****na production in Colorado was 340.7 metric tons, which was slightly higher than the 301.7 metric tons consumed (Orens et al, 2019). Conversely, Oregon, another state that has legalized recreational ma*****na, has a serious over-production problem.
The Size of the Market
Obtaining an accurate estimate of the size of Michigan’s market for ma*****na is difficult. It is likely that, at least in the short run, consumption of ma*****na will increase due to the fact that ma*****na consumption will be legal at the state level. For example, in 2014, 13.6 percent of adult residents of Colorado reported using ma*****na in the previous 30 days; that figure rose to 15.5 percent in 2017 (Reed, 2018). The experience in Colorado suggests that legally produced ma*****na supplants illicitly grown ma*****na (Orens et al, 2019).
It appears that people in their twenties are the largest consumers of ma*****na. In 2018 it was estimated that 35.9 percent of high school seniors, 42.6 percent of college students and 39.1 percent of young adults used ma*****na or hashish. Furthermore, approximately 25 percent of college students and young adults consumed ma*****na or hashish in the previous month (Schulenberg et al, 2019). Education appears to be negatively correlated with ma*****na use, as people with no college education tend to be heavier users. Additionally, as people age, the consumption of ma*****na appears to decline. It should be noted that these figures are based on self-reported surveys and the actual level of consumption may be somewhat different. However, given the increased acceptability of using ma*****na, these figures may be relatively accurate.
Prices will eventually decline as output increases to meet demand. Lower prices will also be a factor in increased ma*****na consumption. Also, the medical ma*****na market will likely decline as the recreational market expands. Based on projected sales, the Michigan Department of Treasury estimates that sales tax revenues from ma*****na sales will be $97.5 million in 2020 and $143.0 million in 2021 (Eubanks and Guilfoyle, 2020). Because the Michigan tax on recreational ma*****na is ad-valorem, actual tax revenues will fluctuate in proportion to the sale price and quantity sold at the retail level. A major decline in the price of ma*****na could reduce tax revenue. If the percentage decline in the price is greater than the percentage increase in consumption, tax revenues will decline.
One difficulty in determining the size of the market is the changing ways in which ma*****na is consumed. Ma*****na flower (or female buds) is the traditional form of consumption but other forms are becoming more common. Va**ng ma*****na is a new but increasingly popular method of ma*****na consumption; 21.6 percent of 19 to 28 year olds surveyed indicated that they vaped ma*****na at least once (Schulenberg et al., 2019). The figures from Colorado provide an example and are shown in table 1.
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Table 1: Forms of Consumption Colorado 2017, Flower Equivalent
Source: Orens et al 2019
From 2014 to 2017, Colorado retail sales of flower increased by 516 percent, infused edibles increased by 226 percent and infused non-edibles increased by 135 percent (Reed, 2018).
A common unit of measure is required to obtain a good estimate of the amount of ma*****na consumed. Since flower is the most popular form of consumption, all products will be in flower equivalents. This is shown in table 2.
Table 2: Ma*****na Equivalency
Product Form
Percent of Consumption
Flower
61.8
Concentrate
27.3
Trim
5.7
Infused Edibles
4.9
Infused Nonedibles
0.3
Product Type
Solvent
Purchase Amount
Trim Used in Production
Flower Equivalent
Edible
Butter
10mg.08 grams07 grams
Edible
Butter
100 mg.77 grams69 grams
Edible
Butane
10mg.08 grams07 grams
Edible
Butane
100 mg.82 grams72 grams
Edible
CO2
10mg.09 grams08 grams
Edible
CO2
100 mg.92 grams82 grams
Concentrate
Butane
1 gram
5.84 grams
5.20 grams
Concentrate
CO2
1 gram
6.59 grams
5.84 grams
Concentrate
Ethanol
1 gram
5.86 grams
5.21 grams
Concentrate
Water
1 gram
10.29 grams
9.15 grams
Source: Orens et al, 2015
While there is some variation of raw inputs depending on the size of the amount purchased and the type of solvent used, the band is very narrow. For the purposes of this analysis, the ratio used for edibles is 1.14 units of trim to 1 unit of flower, and in the case of concentrates, 1.12 units of trim to one unit of flower. Conversely, 1 gram of flower equals to 0.3 grams of concentrate, and 1 gram of flower equals three 10 mg. edible units (Orens et al, 2015).
Overall, residents and visitors to Colorado consumed 301.7 metric tons of flower equivalent. However, concentrate accounted for 27.3 percent of all ma*****na consumed. Consumers appear to be interested in products that have a higher concentration of THC, the psychoactive ingredient in ma*****na. In Colorado, from 2015 to the end of 2017, the THC content in flower increased from 16.6 percent to 19.9 percent and the THC content of trim increased from 14.9 percent to 17.2 percent (Orens et al, 2019).
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The price of ma*****na is also difficult to estimate. It is fair to say that as the market matures the price will decline. For example, in Colorado the pretax price of flower declined from $14.05 to $5.34 per gram from 2014 to 2017, and the price of concentrate fell from $41.43 to $21.57 per gram (Orens et al, 2019). The price further declined by 2019 to $1.78 per gram for flower and 97 cents per gram for trim (Colorado Department of Revenue, 2019). In Oregon, the retail price of usable ma*****na declined from $7.00 per gram in December 2017, to approximately $4.80 per gram in December of 2018 (Oregon Liquor Control Commission, 2019). This is despite the fact that the potency of ma*****na increased.
Over-production could put further downward pressure on prices. Excitement over a new market could lead to overinvestment in production with resulting lower prices. For example, the Oregon Liquor Control Commission (2019) estimated that in 2018, the excess supply of ma*****na equaled 6.5 years of demand. However, over- and undersupplied markets may have negligible impacts on the overall size of the market measured in dollars. For example, in cases of undersupply, supply constraints may reduce the volume to be sold – reducing the market value. However, the supply shortage will cause the unit price to increase – increasing the market value. The extent to which the undersupply impacts the overall market value depends on how consumers respond to price changes. If consumers are price sensitive, such that they reduce demand by proportionately more than the increase in price, then overall market value will decline. Alternatively, if they are not price sensitive and will seek to maintain a level of consumption regardless of price, then a supply shortage will increase the overall economic size of the market.
Another variable in determining demand is how much ma*****na users consume. As is the case with many products, a minority of consumers ingest the majority of ma*****na, with heavy consumers using on average 1.6 grams of flower or flower equivalent per day (Orens et al, 2019). These consumers tend to be less sensitive to price changes.
Additionally, approximately 20 percent of Oregon adults consumed ma*****na in 2018, with an average annual per capita consumption of 224.6 grams of flower equivalent (Oregon Liquor Control Commission, 2019). It should be noted that the majority of ma*****na is a consumed by a relatively small number of consumers. Colorado estimates that 21.8 percent of ma*****na users account for 66.9 percent of consumption and that 30 percent of consumers account for 87.1 percent of all ma*****na consumption (Schwartz, 2016).
In order to assess consumption in Michigan data from the National Survey on Drug Use and Health was used. In this survey, individuals were asked to indicate whether they had used ma*****na within the last 12 months and whether they had used it within the last month. Use in Colorado, Michigan, Oregon and Washington were compared.
As shown in Table 3, people between the ages and 18 and 25 were more likely to indicate use over the past 12 months and over the last month. More importantly, Table 3 indicates that the three states with recreational ma*****na had a higher rate of usage by 4 to 9 percent over Michigan for 18 to 25 year olds. Similarly, this rate was between 5 and 9 percent for all adults. Additionally, Table 3 shows that ma*****na consumption is common among young people in all four states, including in Michigan where, at the time of the survey, recreational ma*****na use was illegal. Assuming that Michigan will experience similar rates of usage as those in Colorado, Oregon and Washington when recreational use is legalized seems to be reasonable, if not slightly conservative.
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State Colorado
Oregon Washington Michigan
18-25 Yr-Olds 33.21 33.11 30.44 27.50
All Adults 18.12 19.65 17.01 13.08
Table 3: Percent Indicating Ma*****na Use: Colorado, Michigan, Oregon and Washington
Within last year 18-25 Yr-Olds All Adults 49.23 27.77
49.57 28.56 44.50 24.18 40.92 18.91
Within last month
Source: 2017-2018 National Survey on Drug Use and Health
The final data point to consider is the population of Michigan. Michigan’s population count of adults is higher than that of the referent states, though Michigan has a slightly larger share of 18-25 year olds, as shown in Table 4.
Table 4: Estimated Population 2017: Colorado, Michigan, Oregon and Washington
Source: U.S. Census Bureau
We use Colorado estimates of per-capita use by 18-24 year-olds and 25 or older, along with total annual sales to project expected Michigan sales. While 18-24 year-olds make up about 12.3 percent of Colorado’s adult population, they consume about 21.9 percent of ma*****na based on self-reported usage. Hence, it is important to recognize demographic differences between Colorado and Michigan in generating usage projections, where Michigan has a higher share of the adult population in the age group of 18-24 years of age.
One additional source of demand that needs to be considered is nonresident consumption. Tourism is a major industry in Michigan, and some believe that Michigan could become a destination for ma*****na tourism. Of the Great Lakes states, only Illinois has legalized recreational ma*****na, although ma*****na consumption for medical purposes is legal in Ohio. Given the fact that ma*****na is legal in Canada, tourism from Ontario is unlikely, especially given the weakness of the Canadian dollar. Colorado is also a tourism state. Using Colorado as an example, in 2017, it was estimated that 9.1 percent of the ma*****na consumed in Colorado was from non-residents (Orens et al, 2019). We implicitly assume that about 9 percent of the ma*****na sold in Michigan will go to other states, primarily to Indiana and Ohio. While ma*****na tourism may arise from these states, it is also likely that ma*****na use will also arise from passive tourism demand of those visiting Michigan for other reasons.
Recreational ma*****na tourism can be a significant draw, especially along borders with states without recreational ma*****na. At least one small town near the Indiana border appears to be drawing customers as far as 200 miles south of their location (Beggin, 2020). While tourism demand is projected to be relatively small compared to in-state use, the total value of tourism sales is not insignificant. Additionally, passive tourism demand – those who travel to Michigan for other reasons but take up recreational use while visiting – may increase, as a larger share of U.S. residents will be accustomed to ma*****na use.
State
Population 18-24
Total Population 18 and Over
Percent 18-24
Colorado
516,709
4,184,186
12.3
Michigan
997,075
7,717,047
12.9
Oregon
362,918
3,160,871
11.5
Washington
658,536
5,282,568
12.4
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However, we anticipate the net effect of federal regulation will be a decrease in tourism-based demand for Michigan ma*****na and that the vast majority of recreational ma*****na will be consumed by Michigan residents. Before then, there may be some potential for retailers along the border between Michigan, Ohio, Indiana, and Wisconsin (along the border with the Upper Peninsula).
Table 5 shows calculations used in projecting Michigan sales. Using Colorado estimates, we estimate the volume purchased by our two age groups: 18-24 years and 25+. We start with total volume of flower- equivalency for Colorado, which was estimated at 301.7 metric tons. Since nine percent of total sales was estimated to be sold to non-residents, we subtract out 24.9 metric tons from in-state purchases. As 18- 24 year-olds consumed 21.9 percent of the instate ma*****na sales, we estimate that 60.6 metric tons were consumed by this group. The remaining 216.2 was allocated to the 25+ age group. Dividing the two age groups by respective populations provides our per-person average usage in volume (metric tons).
To project Michigan usage, we work backwards. As shown in Table 5 and starting with population counts, Michigan has just under a million 18-25 year-olds and 6.7 million adults over the age of 25. Multiplying these by per-person consumption rates in Colorado provides our projected usage volume in metric tons. We also exert that tourism uptake is proportional to that of Colorado, at 9 percent in-state sales. From these volume estimates, we project that Michigan demand will be just under 560 metric tons a year.
Table 5: Projection Calculations of Volume of Sales
Colorado
18-25 25+
Tourismψ 24.9
NA NA
Total 301.7
4,184,186
NA
Total 7,717,047
NA
559.2
Volume (metric tons) 60.6 Population 516,709 per-cap Consumption 0.0001173
18-25 Population 997,075 per-cap Consumption 0.0001173 Volume (metric tons) 116.9
216.2 3,667,477 0.0000589
Michigan
25+ Tourismψ
6,719,972 NA 0.0000589 NA
396.1 46.2
ψ Tourism volume of purchases based on 9 percent of residential sales
Assuming a retail price of $5.34 (the pretax price per gram) yields a total market value of $2.986 billion per year; this is at the retail level and assumes that the rate of consumption in Michigan will be similar to that of Colorado once the Michigan industry matures and more retail operations are established. We project this will take between four to six years based on the experience in Colorado.
Expected Tax Revenue
There are two taxes that will be derived from the sale of ma*****na. The first is a 10 percent excise tax that retailers will pay on the sale price (Oosting, 2019). The second is 6 percent retail sales tax. The Senate Fiscal Agency estimates that the total revenue raised could be $262 million a year once the industry matures (Oosting, 2019), without going into detail on expected sales volume tied to those revenue projections (Michigan Senate Fiscal Agency, 2018). Using our retail sale volume projections, we anticipate Michigan Excise tax revenues will increase by $298.6 million annually, and sales tax (sales price plus excise tax) to be $197.1 million. Collectively, we project that public revenues will increase by $495.7 million
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annually from the direct sales of recreational ma*****na when the market stabilizes in about four to six years. This does not include estimates of reduced revenues through other, foregone, taxable purchases that may include medical ma*****na and/or other sales and excise taxable goods and services that compete with recreational ma*****na sales.
One often overlooked issue when assessing the expected tax revenue impacts of legalized ma*****na is the impact on alcohol consumption. While good data is difficult to obtain it appears that as ma*****na consumption increases, alcohol consumption declines (Schulenberg et al, 2019). Some people apparently substitute ma*****na consumption for alcohol consumption. While legalized ma*****na will raise revenues, there appears to be a somewhat offsetting reduction in alcohol consumption. One study indicated that alcohol sales declined by 20 percent in counties where recreational ma*****na is legal (Vittert, 2019). This figure may be somewhat high and alcohol sales appear to be declining with or without legal recreational ma*****na.
Economic Impact
Economic impacts arise when a new industry or economic activity is introduced in the local economy which infuses new transactions into the economy. It is important to properly account for what constitutes new transactions. Technically, transactions generated can only be considered new if they do not supplant other transactions which would have taken place in the absence of the new industry or activity. That is, if consumers increase expenditures on ma*****na products by $10 and subsequently reduce expenditures on beer by $10 – and that ma*****na products are a substitute for beer for these consumers – then no new expenditures have taken place. Similarly, expenditures on ma*****na products may be substituted for other expenditures like those for movies, lottery tickets and other products or services. Based on this understanding of what is not new expenditures, the only new expenditures generated that we can be sure of are those generated by recreational ma*****na tourists who made the trip into Michigan for the pursuit of recreational ma*****na. Other tourists, who are likely to purchase ma*****na during their trip but made the trip on other grounds, are likely substituting other planned trip expenditures to purchase ma*****na products. That is, overall, we expect the true economic impact, in terms of new economic activity to be modest.
Rather than measure the economic impact in isolation, an alternative measure by which to gauge the economics of recreational ma*****na is an economic contribution analysis. An economic contribution analysis provides a snapshot of the importance we attribute to the projected Michigan ma*****na products and services sectors to the overall economy. To this extent, an economic contribution study of Michigan’s projected ma*****na industry shows the extent to which this industry contributes to the overall macroeconomic environment, including direct and secondary effects as dollars re-circulate throughout the economy. However, the results should be interpreted with care. Economic contribution estimates assert the size of the economy that the ma*****na product value chains contribute but does not assert the economy will expand by the estimated values.
The IMPLAN Pro. 3.0 economic simulation model was used to model economic expenditures. The modeling framework traces transactions across industries and institutions (households and government units) to account for secondary transactions and recognizes that one’s expenditures are another’s revenues. Secondary transactions arise as dollars spent in the state economy are respent multiple times. For example, when consumers purchase ma*****na-based products from a retailer, the retailer will re- spend a portion of the earnings to restock, purchase services and other inputs to retailing. A portion will
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be directed to households in the form of labor income and payments to shareholders, and to government, in the form of tax and license payments. Much of these expenditures will go to instate purchases, but the share that is used to purchase inputs from outside the state will cease to re-circulate further. This process repeats itself through subsequent rounds of expenditures and revenues. This process continues, only hampered by the extent to which subsequent expenditures leave the state.
Transactions are distributed across supply sectors for modeling. We start with agricultural marketing dollar provided by the USDA. However, these industry expenditure shares must be modified to reflect expected expenditure breakouts reflecting the average ma*****na product value chain. The breakout shown in Table 6 are the resulting estimates derived from heuristic adjustments to baseline agricultural value chains. Specific adjustments include more weight on processing – accounting for the myriad different CBD and THC consumer products derived from ma*****na plants, on grow production recognizing increased value-added activities tied to greenhouse operations, and energy – also accounting for greenhouse operations with year-round production.
Table 6: Estimated Sector Inputs Shares
Input Industry Group Percent
Agribusiness 4.9 Processing 22.5 Transportation 4.9 Retail trade 21.5 Finance & Insurance 3.1 Legal & accounting 1.0
A custom industry was generated using the value chain breakout in Table 6 to model the Michigan ma*****na value chain. Standard agricultural value added attributes were included. These attributes allocate net income payments to labor, capital and indirect business taxes levied on grow production. Value added attributes of other supplying firms remain unchanged from their baseline values. Because the 10 percent excise tax is allocated at the retail price and because agricultural products are usually not assessed Michigan’s six percent sales tax, direct tax estimates are added to simulation results in the aggregate.
Findings
The estimated economic contributions of Michigan’s new recreational ma*****na industry, at $3 billion in output, are shown in Table 7. Starting with employment, we project that as the sector reaches an initial state of maturity, the value chain will employ some 13,500 people directly. A rough breakout suggests that about 10,000 of those positions will be on the retail and wholesale trade sectors, including shipping,
All industries
100.0
Grow production
14.3
Packaging
2.5
Wholesale trade
13.3
Energy
10.0
Advertising
2.0
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supplying around one thousand retail outlets. Because all Michigan retail sales will come from instate production. We anticipate about 1.25 million pounds of wet harvest to be harvested and processed commercially. Accordingly, grower operations will employ about 3,500, while process operations will employ around 3,500. The average wage of these direct jobs will be about $28,600, contributing about
1
Accounting for respending of direct dollars by industry participants and all subsequent recirculation of dollars in the state economy, we estimate that total employment contributions will be just over 23,700 Michigan jobs with annual pay of just under $1 billion. When accounting for all associated transactions, recreation ma*****na will contribute some $7.9 billion in annual transactions and contribute $4.7 billion to the state’s gross state product, which includes the approximate $500 million dollars in direct public revenues from the sale and licensing of ma*****na products.
$384.7 million to labor income and $1.8 billion to total annual gross state product.
Table 7: Estimated Economic Impacts
Direct Effects Secondary Effects Total
Employment 13,500 10,300 23,700
Labor Income $384,743,000 $559,284,000 $944,027,000
Value Added $1,797,627,000 $2,855,060,000 $4,652,687,000
Output $2,986,000,000 $4,866,919,000 $7,852,919,000
Totals may not sum up due to rounding
We should be careful to note that these estimates are not to be interpreted as economic impacts that would not exist in the absence of Michigan’s new recreational ma*****na sector. Rather they represent the contribution this sector will have on the existing economy at the end of the first four to five years. There is sufficient reason to assert that the true economic impact may be lower as recreational ma*****na sales will crowd out other expenditures for medical ma*****na, beer and alcohol and possibly other recreational expenditures. Hence the actual effect on the state’s economy is not easily predicted.
Other conflating factors may impact these estimates. The time span we selected draws from the primary referent state, Colorado, experience. In this time span of four to five years, as seen in Colorado, we anticipate that the sector will largely reach an initial state of equilibrium. This is likely not a long-run steady state, but rather at some point, firms along the value chain will start to consolidate such that there will likely be a few dominant firms with higher levels of efficiency than fringe firms that make up the periphery of the value chain. Gained efficiencies from economies of scale will likely be further advanced by national and global efficiencies as national demand for customized processing equipment come online. That is, as more states legalize recreational ma*****na, national equipment manufacturers will increase interest in developing processing and product innovations for industry adoption. The combined efficiency impacts will likely reduce the overall economic contribution in terms of employment and likely reduce the cost of final goods for consumers. Whether consumers will respond to lower costs by increasing overall demand sufficient to generate larger economic contributions remains to be seen, as no state has surmounted the initial industry consolidation phase of industry development.
1 Gross state product is a term to describe total state earnings by private and public entities.
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Summary
The ma*****na industry in Michigan appears to be maturing rapidly. An improved testing system and a wider acceptance of recreational ma*****na by local communities would assist in the maturation process. It is estimated that the level of retail sales once it becomes widely available is approximately $3 billion with a total economic impact in excess of $7.8 billion. Employment in businesses along the ma*****na supply chain is estimated to be 13,500 with a total economic impact on employment in the state of 23,700. Total tax revenue raised is $495.7 million of which $298.6 million is excise taxes and $197.1 million are in the form of sales taxes. These figures are extrapolated from the experience in Colorado and adjusted for Michigan’s population.
The supply chain for ma*****na was also analyzed. It appears that the supply chain is maturing rapidly, with several well-funded vertically integrated firms already operating. Both indoor and outdoor growing operations are in place but over time it appears that much of the production will take place in dedicated indoor growing facilities.
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