As oversupply hammers prices and the industry remains walled off from other states’ markets, Michigan’s largest cannabis company is heading south to sell a different kind of weed.
Evart-based Lume Cannabis Co. has founded a new company, Lume Hemp Co. in Florida, to capture a portion of the massive and growing national market for hemp-derived THC.
The national cannabis landscape is a complicated web of state laws and a federal loophole that’s created dual industries competing for dominance. THC derived from hemp, legal under federal rules, is rapidly proliferating across the country, even in states where recreational cannabis isn’t legal.
The 2018 Farm Bill effectively removed hemp’s designation as a controlled substance, stating that any cannabinoid derived from hemp — defined as cannabis containing less than 0.3% THC by dry weight— could be sold in the market, free of federal intervention.
Due to the rules, with enough additive ingredients, gummies and drinks could be created to offer similar psychoactive effects to traditional marijuana that’s heavily regulated in states like Michigan.
This has led to a recent boon for operators in other states — as Michigan regulates all hemp and cannabis products, regardless of the Farm Bill — who can not only federally produce THC products, but can ship them across state lines from states like Michigan that don’t allow exports of cannabis.
Oregon-based Whitney Economics projects “conservatively” that the hemp-derived cannabis market in the U.S. hit $28.4 billion in 2023, the same size as the craft beer industry, and growing exponentially.
Meanwhile, Michigan’s marijuana THC market — the nation’s strongest in marijuana sales per capita — is plateauing under intense pricing pressure.
Prices have fallen more than 28.6% since January 2024 to an average cost of $66.50 for an ounce of marijuana in the adult-use market last month. Those are the lowest prices in the country. In Oregon, the average cost of a gram of marijuana flower in January was $3.50, or about $99.22 per ounce.
While Michigan sold a record $3.29 billion in marijuana THC products last year, Whitney Economics predicts sales will drop in the coming years due to new markets in Ohio and elsewhere and the rising hemp-derived market to $2.7 billion or $2.8 billion by 2026.
That’s bad news for Michigan’s marijuana industry, which is only using 64% of its total capacity, and a missed opportunity, Lume CEO Dave Morrow said.
“We would love to launch Lume Hemp Co. in Michigan and invest those millions of dollars here and use the infrastructure we’ve already got, but we can’t,” Morrow said. “A lot of the products already being made here are Farm Bill compliant. Michigan has one of the best THC processing infrastructures in the world — high volume, high quality and low cost. Allowing Michigan companies to be able to export products that are compliant with the Farm Bill allows the industry to take the infrastructure they’ve already invested in and expand with new opportunities in like 40 states.”
Untapped markets
Lume wants access to the larger U.S. market largely to sell its popular THC drink brand Buzzn.
The company launched the seltzer drinks, which contain 7.5 mgs of marijuana THC, in April. But those drinks are regulated by the Michigan Cannabis Regulatory Agency and are prohibited for sale outside of licensed marijuana dispensaries and can’t be exported.
It sold around 1 million cans last year, Morrow said, at 38 dispensaries across the state.
Meanwhile, hemp-derived THC drinks are storming markets all over the country. They are sold at liquor stores, bars and even at grocers. Total Wine & More, for instance, sells hemp-derived THC drinks in Texas, Florida, Minnesota, California and several other states.
And major beverage producers have already jumped on board. Seattle-based Jones Soda Co. Jones launched its own hemp THC drink under the brand Mary Jones in 2022. Mary Jones recently launched in Michigan with marijuana THC drinks, licensing Mount Clemens-based Emerald Canning Partners to make and distribute those products. Emerald Canning, a joint venture between cannabis company Pleasantrees and Armada-based Blake’s Hard Cider Co., also cans Lume’s Buzzn in Michigan.
“THC beverages are going mainstream,” Morrow said. “Most of the major distributors around the country are carrying them. Total Wine has it in their stores. Publix and Winn Dixie are joining in. It can be poured (at the bar) nearly everywhere in Florida and other states. And the only thing you need is a $450 (U.S. Food and Drug Administration) license.”
For instance, Massachusetts-based competitor Cantrip distributes hemp-derived THC drinks to 39 states thanks to the Farm Bill.
Morrow believes THC drinks could make up 15% of Florida’s $20 billion alcohol market, making its first investment there a no-brainer, because Michigan’s infrastructure is off-limits.
“We’ve got a co-packer in Ohio. That’s our solution for now,” Morrow said. “But we can’t get enough volumes there or at Emerald here. If we could pack Buzzn here and ship a Farm Bill-compliant (product) out of state, those additional units would lower our cost and boost production and create more investments.”
Credit: Lume Cannabis Co.
Lume’s Buzzn is manufactured in Mt. Clemens and at in Ohio.
Should I stay or should I go?
Michigan’s fuzzy rules make the hemp-derived market a non-starter for Lume.
Whether Michigan operators — those licensed to process hemp products — can export hemp-derived THC products out of state has always been up in the air. Most operators and industry attorneys believe it’s not legal. But the CRA confirmed to Crain’s it is legal, as long as rules are followed.
Nothing in Michigan law prevents licensed processor-handlers from shipping industrial hemp — with a THC content less than 0.3% on a dry weight basis — out of state, David Harns, spokesperson for the CRA wrote in an emailed statement to Crain’s. “Cannabis with THC content greater than 0.3% on a dry weight basis is considered marijuana under state law and is regulated under MRTMA. We don’t speak to federal law.”
But it’s more complicated than that.
The CRA is in charge of regulating marijuana food products, such as Lume’s Buzzn drinks and edibles. Hemp products are regulated by the Michigan Department of Agricultural Development, which has stricter food rules.
And the CRA’s proposed rule changes would also further restrict the ability for Lume and others to enter the hemp-derived market.
The proposed rules, which are not yet finalized, would restrict THC in hemp products to 1.75 mg per serving and 10 mg per package, well below the state’s regulated marijuana THC limits of 200 mg per package.
State regulators are caught between trying to halt hemp-derived products to protect Michigan’s $3.3 billion regulated marijuana industry, and those in the industry, like Lume, who think the cat is out of the bag and want into that business, too.
Colorado regulators threw in the towel on excluding hemp-derived products in late 2023 as the state was also suffering from oversupply and plummeting marijuana prices. Colorado created the Safe Harbor Hemp Manufacturer program, allowing the industry to produce hemp-derived THC products for export only. This move allowed for manufacturers to participate in the growing hemp-derived market across the U.S. while protecting the marijuana industry from that industry growing production in the state.
“One goal of this program was to protect Colorado’s established medical and adult-use marijuana markets by restricting the in-state sale of high-potency hemp-derived products,” Genevieve Meehan, director of regulatory compliance for Denver-based cannabis law firm Vicente, told Crain’s. “However, it may still be too early to assess its full impact. I believe the Colorado businesses expanding into hemp operations are doing so primarily for export, aiming to establish market share and brand recognition in states without regulated marijuana programs.”
Michigan could, likely, create rules to aid the industry with oversupply, hoping the state’s marijuana cultivators and processors would dedicate capacity for hemp-derived exports.
Whitney predicts that if Michigan growers reduced their plant totals to the lowest levels of their licenses, there would still be excessive oversupply.
Licenses have ranges in Michigan. For example, a Class C grow license is 501-2,000 plants. So if a grower with three Class C licenses reduced its plant total to 1,503, for instance.
Even if the thousands of growers across the state scrapped tens of thousands of marijuana plants, Michigan would still produce 3 million more pounds of marijuana than is needed to supply the entire legal market and the illicit black market in the state combined, according to Whitney.
“We can either leverage our operations in Michigan or spend that money out of state,” Morrow said. “Right now, we can’t leverage the $250 million we’ve spent here.”
But in Colorado, those marijuana investments can’t exactly be leveraged, either. Its safe harbor rules prohibit marijuana and hemp-derived locations from being located at the same facility to prevent marijuana processors from using hemp-derived to supplement product.
For the … kids
Legislators in Michigan are attempting to create a legal framework for intoxicating hemp-derived products, but not to benefit the legal cannabis industry.
Rep. Donovan McKinney, D-Detroit, introduced a series of bills in December designed to create a licensing framework and labeling requirements for a hemp-derived industry in Michigan.
Those bills were born out of a Detroit Police Department investigation last year of a hookah lounge on Seven Mile Road one block from Pershing High School that was selling unregulated hemp-derived products to children.
“This is a major problem in our school districts; these unregulated and dangerous products getting into the hands of kids,” McKinney told Crain’s. “To figure out how to stop these products from coming into the state, we have to regulate it first. It’s already here, so how can we do it legally and put some guardrails around it. We can’t allow this stuff to flood the schools.”
It’s unclear whether creating a legal framework in the state for in-state sales of intoxicating hemp products would prevent the products imported in. Large hemp-derived companies, such as Oklahoma-based Mood, operate advanced online retail operations. For instance, a consumer can order gummies without thousands of mgs of THC, legal under the Farm Bill, with nothing more than a shipping address and credit card number without any real age verification.
“Michigan is the world leader in compliant THC manufacturing,” Morrow said. “We’re in a position to clean up that industry and boost safety across the country.”
Dustin Walsh is a senior reporter for Crain’s Detroit Business, covering health care with a focus on industry change and operations, as well as the state’s emerging cannabis industry. He is also a regular columnist on all things health, labor, economics and more.
