The rapid growth of Arizona’s cannabis industry began in 2020 at the ballot box, as voters approved Proposition 207. This measure legalized the recreational possession and use of marijuana and related products. Previously limited to medicinal use, the floodgates were now officially open for more widespread cannabis usage in Arizona. Not surprisingly, what followed was a meteoric rise of the cannabis industry in America’s 48th state.
Arizona Proposition 207
Proposition 207 enabled the Arizona Department of Health Services (ADHS) to issue licenses to marijuana retail establishments, marijuana cultivation establishments, and marijuana testing facilities.
Guidelines were created to limit the number of license holders and ensure that access to dispensaries was spread across different parts of the state. Regulation of the marketing of cannabis products also went to ADHS, including measures to prevent products from being marketed to children, plus specific packaging requirements. Cannabis products are required to leave the dispensaries in childproof packaging and be conspicuously labeled while also displaying appropriate product warnings. Potency limitations are also put in place, including hard limits on the THC levels of individual servings (10mg) and total package content (100mg).
DHS Guidelines Regarding the Number of Licenses*
- Issue no more than one marijuana establishment license per 10 pharmacies
- Issue no more than two marijuana establishment licenses in counties that contain no registered nonprofit medical marijuana dispensaries
- Issue no more than one marijuana establishment license in counties with one nonprofit medical marijuana dispensaries
- Issue 26 licenses, notwithstanding the other limits, to entities qualified under the Social Equity Ownership Program.
By decriminalizing many aspects of cannabis, the state secured itself a significant financial benefit from the accompanying 16 percent tax on marijuana sales. This “vice tax” played a significant role in securing the passage of the proposition, citing a statewide benefit for Arizonans. Marijuana tax revenue is divided between community college districts, law enforcement, fire departments, and other public programs in Arizona.
Along with the newfound freedoms resulting from the passage of Prop 207, The ballot initiative provided local governments with significant oversight powers. These include the power to ban marijuana facilities and testing centers, as well as the power to assign control over regulation, zoning, and licensing to individual municipalities. Proposition 207 also allowed anyone convicted of certain marijuana-related crimes to petition for the expungement of his or her criminal record. The expungement process is free and can be initiated online by clicking here.
Crimes eligible for record expungement**
- Possessing, consuming, or transporting two and a half ounces or less of marijuana, of which not more than 12.5 grams was in the form of marijuana concentrate
- Possessing, transporting, cultivating, or processing not more than six marijuana plants at home for personal use
- Possessing, using, or transporting marijuana paraphernalia
Future Arizona Cannabis Dispensaries
Arizona can expect the next wave of cannabis dispensaries to open in the not-so-distant future, as the Arizona Department of Health Services has recently awarded 26 additional dispensary licenses as part of its social equity initiative. This program established specific eligibility requirements for license applicants, and prioritized eligibility for those had been disproportionately impacted by the enforcement of previous marijuana laws. Requirements for social equity eligibility included specified income levels, zip codes, and past cannabis-related criminal charges. In essence, lower-income people with past drug-crime records who reside in lower-income communities were presented with an opportunity to participate in the highly lucrative cannabis industry.
Social Equity Program Requirements***
- Residence in one of 87 designated zip codes
- Household income less than 400% of the poverty line
- Previous low-level marijuana conviction
License recipients were randomly chosen from a pool of eligible applicants via a lottery system. This latest batch represents the last of the 169 licenses the state plans to award. This comes on the heels of the 2021 license lottery in which 13 new licenses were awarded to recipients in rural communities. By limiting the number of available dispensary licenses, the value of each license is all but assured of remaining high. Each license has an estimated market value of between $4 million and $8 million.
By 2024, the industry is projected to be worth at least $30 billion.** Limiting the supply also helps ensure that no single neighborhood becomes populated by rows of cannabis dispensaries. An already booming industry could see even greater growth starting in 2023 with the launch of recreational cannabis home delivery. Customers hesitant to visit dispensaries in person will be able to order and receive deliveries from the convenience of home. Given the fast adoption and sustained popularity of home delivery for things like groceries, medications, and restaurant food, there’s no reason not to believe we won’t see a similar surge in sales of marijuana products.
Each group that entered the lottery was required to have 51% ownership by an individual who met the aforementioned social equity requirements. The minority ownership stake, however, could consist of individuals, partners, investors, and/or corporations with no eligibility requirements. The combination of high-dollar application fees and the huge potential windful for license holders attracted a number of financial backers who partnered with license applicants and invested in the possibility of owning a stake in one of Arizona’s fastest-growing industries. The application fees alone totaled more than $7 Million in revenue for Arizona.
The speed at which the new licenses will translate to actual new facilities depends on a number of factors, including planning, approval, and construction. Social Equity license holders are on the clock to find a properly zoned location to build their respective dispensaries and submit applications for approval. With approximately 70% of these new license recipients backed by corporate entities – including some with previous dispensary experience – the normally lengthy process for launching a cannabis storefront could be a quicker process for some. Estimating conservatively, Arizonans can expect to begin seeing these new dispensaries open for business in mid-2023.
Much like Arizona’s liquor licenses, a dispensary license can be sold on the open market. Current prices are hitting upwards of $18 million for a turnkey dispensary business, underscoring just how valuable these 169 licenses are. Arizona’s now ranks in the top-10 for states with the highest number of licenses.
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**azcentral.com, June 4, 2021
***National Hispanic Cannabis Council