Six Months In, What's The State Of Traverse City's Recreational Cannabis Industry?

It turns out the grass really is greener on the other side.

More than six months into Traverse City’s long-awaited entry into recreational marijuana, local dispensaries say they’re thriving, with sales up exponentially compared to the medical-cannabis-only days. But has Traverse City become the kind of marijuana mecca industry leaders had hoped for? And can the this 8.6-square-mile town support 16 dispensaries long-term?

On March 8, the City of Traverse City released a list of 16 locations approved for retail marijuana dispensary licenses. That announcement came nearly four and a half years after Michigan residents voted to legalize adult-use cannabis, and almost four years after the lottery that distributed medical marijuana licenses in the city.

Cannabis companies from all over Michigan flocked to Traverse City for that lottery, many assuming TC would eventually become the next hot market. But city leaders took years to iron out adult-use rules, and the city’s dozen medical-only shops floundered in the meantime. Speaking to The Ticker in August 2021, Cloud Cannabis co-founder John McLeod said his Traverse City store was “losing money every single day.” Another dispensary, Skymint, temporarily ceased TC operations.

Now, McLeod tells The Ticker the city’s long-awaited adoption of recreational marijuana has given the local market new life.

“It wasn't everything we hoped it would be,” McLeod says. “But I think it's everything we could have expected it to be, based on the amount of time it took to get here. The allure of recreational cannabis has kind of worn off, so I don’t think we saw the initial rush of customers we would have gotten two years ago. With that said, we’re still doing 4-5 times what our sales were before. With medical, we would sometimes be stoked if we had more than a couple customers in a day. Now, we’re seeing more than 100 people each day.”

It’s a similar story for other local operators. Justin Elias, president and founder of PUFF Cannabis, says the company’s Traverse City store is getting 80-90 percent more foot traffic than it did before – and, more importantly, no longer has to turn customers away.

“We would have to explain to 70-100 customers every day that we were only medical,” Elias says, noting that most walk-in customers would then take their business to nearby towns, like Kalkaska or Honor, that did have adult-use dispensaries. “Now, that transaction, that tax dollar, and that consumer gets to stay in the vacation town they came to visit, which is Traverse City.”

Both the City of Traverse City and Grand Traverse County are in for a windfall of cash next spring thanks to recreational cannabis. Counties and municipalities in Michigan typically receive a five-figure tax payout for every adult-use marijuana dispensary in their jurisdiction.

“So, let’s say every county and municipality gets $60,000 for each active adult-use license,” says Michael DiLaura, general counsel and chief corporate officer for House of Dank. “Multiply that by the 16 licenses in Traverse City, and that puts $960,000 in in the coffers [for the city and the county]. That’s a huge direct economic impact of having this industry operating here.”

Not all 16 licensed stores have opened their doors, though. Twelve of the 16 were licensed as medical dispensaries prior to this spring’s adult-use opt-in, and 11 of those are now selling recreational cannabis. The 12th, located at 314 Munson Avenue, never actually opened as a medical store, but is still licensed, according to Deputy City Clerk Sarah Lutz. That location and its license, Lutz notes, recently “transferred ownership” to a new LLC. “I believe their intent is to open,” she says.

The city also licensed four new operators in the spring, two of which are now up and running. On September 1, Verts Neighborhood Cannabis opened at 117 South Union Street, above Union Street Station. Verts is a Colorado-based company, and Traverse City is its first store in Michigan.

A few days later, on September 7, Lume Cannabis Co. – one of the largest marijuana brands in Michigan – kicked off operations at 401 West Front Street (pictured), across the street from North Peak. Though Lume has nearly 40 stores statewide, President and Chief Operating Officer Doug Hellyar says Traverse City has always been one of the company's bucket-list markets, even after Lume missed out on a medical license in the 2019 lottery. Now, Hellyar says the company is working to build a local following by bringing “premium value and volume pricing” to the market and by integrating itself into the community through partnerships with Up North Pride, the Traverse City Trail Festival, and more.

The other two new licensees haven’t yet opened their doors. One, Dunegrass, is a locally-owned cannabis brand with seven stores – including a “TC West” location in Grawn. According to CEO Nick Piedmonte, Dunegrass plans to open its downtown Traverse City dispensary “early next year” at 440 East Front Street, right next door to The Little Fleet.

Traverse City Cannabis Company, another newly-licensed operator, has a space at 934 Hastings Street, but hasn’t opened and hasn’t publicly announced plans to do so. Owner Mike Rudolph couldn’t be reached for comment.

So does Traverse City have enough demand to support 16 marijuana stores?

Unanimously, the business owners The Ticker interviewed say no.

“I think 20-25 percent [of Traverse City’s stores] will end up shutting down, or at least selling to another company that's already active,” Elias says. Hellyar, meanwhile, anticipates “a 25-30 percent reduction over the next 2-3 years.” And McLeod points to Gaylord as an example of what could happen in Traverse City.

“The city initially gave out more than 20 licenses,” McLeod says of Gaylord, where Cloud has another dispensary. “There have maybe been 10 stores that opened, and three of those have closed. So, it’s one of those things where the market will determine how many stores is the correct amount.”

Which shops will close? A big question mark is Skymint, a Lansing-based brand with 24 stores statewide, including the one in Traverse City. In March, Tropics LP, one of Skymint’s creditors, took the company to court, claiming $127 million in unpaid debts. Skymint ended up in receivership, and Tropics LP subsequently bought all the company’s assets in an August auction. It isn’t clear yet what the ownership shift will mean for Skymint’s stores, though the TC location currently remains open for business. The brand did not return a request for comment.

“Some of these big companies, they’ve stretched themselves way too thin,” Elias says. “They’ve accumulated too much debt, and they're not growing organically. PUFF just opened up a store in Monroe; it’s our 10th store, and the company still has no debt and is still 100 percent privately owned by me. Could I have had 24 stores, like Skymint? Yes, but I would have ended up in receivership too, because stretching your infrastructure that quick and taking that much investor money is shooting yourself in the foot. Cannabis is such a new commodity industry that I think you really have to baby it.”