Steep decline for medical cannabis registries after adult-use sales begin

(This is the first installment in a series – a collaboration with the Marijuana Policy Project – highlighting demographic shifts within medical cannabis registries nationwide.)

The expansion of adult-use marijuana sales to 21 states has ushered in a new era of commercialism in the U.S. cannabis industry.

For some retailers, that means a concentration of certain well-performing products.

For some medical marijuana patients, that means less access to full-spectrum cannabis stock-keeping units (SKUs).

Inventory rightsizing is a key element for retail success, particularly given the dramatic shifts in customer and product demand after a market’s conversion to recreational sales.

“In most adult-use legalization states, the number of registered patients has dropped significantly since legalization passed,” Karen O’Keefe, director of state policies for the Washington, D.C.-based Marijuana Policy Project (MPP), told MJBizDaily.

“This is the case even though most states allow patients to buy cannabis without paying the excise tax.”

According to MPP data, the total number of medical marijuana patients on average decreases by roughly a third after a market launches recreational sales, a shift that might impact business strategy, product availability, marketing and customer relationships.

In some states, such as Arizona and Michigan, the decline has been far more dramatic.

These ongoing retail shifts, according to industry sources and MMJ patients, have prompted store operators and suppliers to propagate certain product categories and offerings over others as they adjust to find the right mix to meet demand.

Operators in several states spoke with MJBizDaily about the changes they’ve implemented over the years to capture more adult-use consumers but still stay true to their original customers, MMJ patients.

The convenience factor

Vertically integrated multistate operator Planet 13 Holdings has experienced a steep decline in MMJ patients since it first opened an MMJ dispensary in its home state of Nevada in 2017.

Most of those patients transitioned to recreational shoppers out of convenience, forgoing the annual task of renewing medical marijuana cards, according to the company’s co-CEO, Bob Groesbeck.

The ability to purchase higher-potency products has failed to stem the exodus as Nevada had a little more than 10,600 MMJ cardholders in December, down 60% since adult-use sales launched in July 2017, according to MPP data.

Planet 13, like other MMJ operators, pivoted to meet product demand from an exponentially larger customer base, a tenfold to twentyfold increase, Groesbeck estimated.

“Once you transition to adult use, that’s really the focus for operators,” he said.

Planet 13, however, has made concerted efforts to provide an array of products to MMJ customers, though they comprise a fraction of overall sales, according to Groesbeck.

“That was our customer base for a significant period of time,” he said, “and we made a decision at the corporate level to continue to honor that and service them.”

Use cases changing

Even though MMJ registries are decreasing in states after the launch of adult-use sales, research shows an increasing number of recreational customers are using marijuana for health reasons.

According to Washington, D.C.-headquartered cannabis analytics firm New Frontier Data, 21% of marijuana consumers in 2023 cited “medical” as their primary reason for use, including treating pain and/or a condition.

Another 14% cited reducing anxiety and 11% said sleep was the prime factor.

“Folks are moving from being registered patients to over-the-counter medical patients,” MPP’s O’Keefe said.

“A lot of adult-use consumers aren’t actually recreational users.”

In an effort to understand how and why these shifts are playing out in the market, MJBizDaily highlighted developments in three key states with significant declines in medical patients: Michigan, Arizona and Ohio.

Michigan

Many patients opt out of registries for fear of reprisal, according to existing and former MMJ patients as well as industry sources.

And reasons run the gamut, from job security and mistrust of government to backlash from financial service providers.

In Michigan, the MMJ patient count fell to 79,022 in December, down 71% since the state launched adult-use sales in December 2019.

The percentage drop is the second steepest, behind only Oregon, whose registry has plummeted 81% since recreational sales began in October 2015.

But Michigan’s slide highlights only part of the story.

The state has seen adult-use sales surge the past few years with annual sales eclipsing $3 billion, trailing only California.

Plus, many of the state’s former MMJ patients are now recreational consumers who still use cannabis products for medicinal benefits, according to Narmin Jarrous, chief development officer of Exclusive Brands, the first licensed adult-use retailer in Michigan.

“It’s not like the medical patients are shrinking, the registries are shrinking,” she said.

The conversion to a consumer-driven market, however, has led to other ramifications, including product accessibility and diversity.

“Medical patients had access to vastly different products, and we’re seeing less of that,” Jarrous said.

To combat that, the vertically integrated Exclusive Brands ensures full-spectrum products with a variety of cannabinoids are stocked in its 15 stores.

The retail chain also offers MMJ patients a 10% discount on adult-use products.

With medical marijuana sales now accounting for less than 1% of total cannabis sales in the state, some lawmakers are proposing to overhaul Michigan’s bifurcated system, which requires separate labels, tags, packaging, licenses and retail space for recreational and medical marijuana products.

“It made sense for a bit, and I think now it’s making less sense, and they’re working on it,” Jarrous said.

Arizona

In Arizona, the continued high cost of obtaining and renewing a medical marijuana card has significantly decreased the number of patients, according to industry sources.

The state’s MMJ registry through late December had fallen 70%, or by 206,696 members, since adult-use sales launched in January 2021.

Most cardholders can expect to pay $200 to $250 annually, which includes a nonrefundable $150 state application fee ($75 for food assistance recipients).

Even with the state’s 16% cannabis excise tax waved for MMJ registrants, they would have to spend around $2,000 per year to see any cost savings.

“A lot of people have done the math, and that’s one of the reasons that the numbers are down quite a bit,” said Raul Molina, co-owner of Mint Cannabis, which operates stores in Arizona, Michigan and Florida.

Molina estimates about 15% of his Arizona customers are MMJ patients.

To bolster customer loyalty and retention, Mint’s six stores in the Phoenix area offer MMJ shoppers a 13.2% discount on their total bill, effectively offsetting the excise tax.

When the state transitioned to recreational sales, stand-alone medical marijuana dispensaries were effectively eliminated.

Retail operators could opt for a dual license to serve both medical marijuana patients and adult-use consumers, or they could convert their MMJ permit to adult-use only, as Mint did.

A 2023 bill to lower the price of MMJ cards to $50 for the general public passed the Arizona Senate but failed to advance in the House.

Ohio

Despite regulatory efforts in Ohio to nearly eliminate the cost of obtaining a medical marijuana patient card, the state’s MMJ registry has fallen to about 122,000, down roughly 30% since recreational sales began six months ago.

In the leadup to converting from a medical market to adult-use sales last August, registered patients and sales were already dropping.

An initial spike in product prices after market launch irked patients, according to longtime Ohio lobbyist and industry consultant Tim Johnson.

Johnson, who receives a tax break and discounts as an MMJ patient and veteran, said an ounce of flower at some retailers rose from about $200 an ounce to upward of $600 an ounce.

“I think that affected a lot of the patients’ attitudes towards the licensees,” he added, driving many to forgo renewals and back into the unlicensed market, or to neighboring Michigan, where the cost of regulated marijuana is exponentially cheaper.

Johnson’s sources in Michigan indicate Ohioans are spending upward of $65 million per month there on marijuana products.

Since that initial price hike, the cost of marijuana products in Ohio are showing signs of contraction, with price drops in almost every category, according to an MJBizDaily analysis in late January.

The Ohio market also is dominated by MSOs, a model that increasingly relies on wholesale business,or essentially supplying other retailers in the state with products.

In the early going, many chains in Ohio are offering similar SKUs, typically with higher-THC potencies, sources told MJBizDaily.

The squeeze, which is muscling out smaller, independent growers, has ultimately led to less product choice for patients, who are more interested in terpenes and flavonoids, according to Johnson.

“We want to know what that entire profile is because that’s what really affects us,” he said.

“So we’re constantly shopping.”

Chris Casacchia can be reached at chris.casacchia@mjbizdaily.com.