Business
Retail slotting fees a new cost for Michigan marijuana brands and manufacturers
(This story has been updated to delete a reference to an affiliation between C3 Industries and Cloud Cannabis Co.)
Michigan is the latest state where marijuana retailers are charging manufacturers and brands for premium shelf or display space – a practice expected to gain prominence nationwide as new recreational markets open and others expand.
Local advocates contend the practice of charging extra fees for coveted space is simply a cost of doing business and both partners benefit, particularly in Michigan’s close-knit, heavily vertically integrated industry.
But opponents counter that so-called slotting fees are just another economic squeeze, a pay-to-play ploy that could price out small operators, especially minority-owned companies and social equity licensees.
Slotting fees, common for decades in traditional retail, are a relatively new trend in cannabis.
California and Nevada retailers started implementing them within the past few years.
“As much as I hate to say it, this is a normalization of cannabis in the mainstream retail market model,” said George Sadler, co-owner of Gelato, a San Diego brand that sells cannabis products in Michigan.
“Grocery stores and retail outlets have established this practice for years. It is unfortunate, but it is a reality.”
Larger chains driving trend
Troy, Michigan-headquartered Cloud Cannabis Co. is among the companies weighing far more slotting-fee proposals these days from local retailers interested in offering the multistate operator’s house brands.
All the pitches are from larger state retailers – those with more than six locations – that want to lock in these fees across their retail network, according to Nic Shafer, vice president and director of marketing.
“Zero percent of them are mom-and-pop shops,” he said. “It’s all the larger chains.”
The company has slotting fee agreements at more than 25 outlets.
Deals are structured differently at nearly every store.
Flat monthly fees for premium placements, minor store renovations or build-outs in exchange for floor space as well as in-kind product and service tradeoffs are all part of the mix.
Most slotting fee contracts in Michigan, typically for three or six months, cost around $3,000 on the low end but can run as high as $25,000, according to industry sources.
Shafer said he has no problem paying slotting fees, which are typically on the lower end of that spectrum.
“These are all premium partner stores that purchase large orders on a monthly basis,” he said. “We’re working with them.”
Retailers ‘have leverage’
C3, which operates 11 stores in Michigan, was one of several retailers who told MJBizDaily it doesn’t charge slotting fees.
Neither does Lume Cannabis, a major retail chain with more than two dozen locations across the state.
Troy-based Lume declined to comment beyond that, joining several other state operators who wouldn’t discuss the topic with MJBizDaily.
C3 co-founder and President Vishal Rungta doesn’t regard slotting fees as a sign of industry maturation.
He views them as a leverage play.
“Retailers know they have leverage,” he said. “Producers are desperate, and supply is high in the market.”
Wholesale recreational marijuana prices in Michigan have plummeted this year, a consequence of oversaturation as more cultivators enter a market with uncapped business licenses.
That has led to big price cuts on consumer products and fierce competition among brands and manufacturers to capture the attention of buyers in-store.
Industry chatter has also picked up recently regarding under-the-table slotting-fee deals, where operators pay cash off the books for store access.
“I don’t think there’s necessarily an even playing field in that regard,” Rungta said.
Competing for shelf space
Exclusive Brands, a vertically integrated cannabis company based in Ann Arbor, operates four dispensaries in the state.
None of them charge slotting fees, instead opting for a more traditional sales model.
“We bring a brand in – if it sells, we keep it on the shelves,” Chief Development Officer Narmin Jarrous said.
“If it doesn’t, we kind of phase it out. That’s worked well for us.”
Jarrous, who also serves as the executive director of Cannabis Business Association of Michigan, expects more retailers to start charging slotting fees, and she’s concerned smaller and minority-owned companies won’t be able to compete for shelf space.
“There are a lot of women-owned brands, people of color-owned brands, brands that were built in Black and brown communities, these communities that have been disproportionately impacted by marijuana prohibition,” she said.
“I hope they just take that into consideration. And they make exceptions in some cases.”
Source: https://mjbizdaily.com/retail-slotting-fees-a-new-cost-for-michigan-marijuana-brands-manufacturers/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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