In January 2021, recreational marijuana became legal in Arizona thanks to the passage of Prop 207 in November 2020. In the months since, dispensaries have opened their doors to recreational marijuana sales and proved to be a powerful economic engine.
“It looks like Arizona is set to hit the $1 billion sales mark at the end of the year, which is huge in comparison to other states in their first year of recreational sales,” says Greta Brandt, president of The Flower Shop, mentioning that Colorado took about two years to do the same. Taxes collected from these transactions have added $75 million to the state’s coffers to date.
But besides increasing tax revenues, is Prop 207 on track to achieve its stated goals after six months of legalization?
UNLOCKING AN INDUSTRY
Before marijuana was legalized for recreational users ages 21 and older, Arizona voters approved Prop 203 in 2010 which created the state’s medical marijuana (MMJ) program.
“The Arizona Department of Health Services has run a wonderful, tight-knit MMJ program, and they’re doing the same for recreational. They shut down rogue operators and are trying to regulate that side of the industry very seriously,” Brandt contends.
In the years since, a network of dispensaries opened across the state to serve patients with qualifying conditions. These dispensaries, already in place when recreational marijuana sales were legalized, served as the springboard that launched recreational sales.
“I would be shocked to hear if all dispensaries weren’t dual licensees,” Brandt remarks, referring to dispensaries holding licenses to serve both MMJ patients and recreational users. “There are approximately 130 dispensaries operating in the state. In April, the number of licenses were maxed out, so you won’t see more storefronts opening until the Department of Health Services runs through the social equity program, which was part of Prop 207.”
The social equity program directs the Department of Health Services to set aside 26 dispensary operator licenses for individuals from communities disproportionately impacted by the enforcement of previous marijuana laws. According to the department’s website, 51% of ownership from the applying entity must belong to principal officers or board members who meet three of four criteria, which include having a conviction of a prior marijuana-related offense or earning a household income of less than 400% of the federal poverty level in at least three of the previous five years. Valid applications will be entered into a lottery in spring 2022, from which 26 licenses will be awarded.
Brandt believes the social equity program is important because the industry is tough to break into without substantial financial backing. “The basic purpose of the social equity program is to tilt the scales in the favor of ordinary people who want to enter this market. The barrier to entry today is extremely high. Some licenses are going for $30 million,” she says, adding that the costs of doing business outside of securing a license is also expensive.
Finding properly zoned property is especially difficult. “When you then look at the map, there might only be two areas with viable locations for a dispensary. If you then try to purchase that property, you may have to go through some zoning issues to get a special-use permit, get some variances because your setbacks for a residential property is too close, etc.,” Brandt comments.
Still, Brandt encourages people to get into the recreational marijuana sales business despite the difficulties. “Whether you want to work or invest in the industry, start a brand or enter the cultivation side of things, this would be the time to do it,” she argues.
The cultivation of marijuana is a prime onramp into the business, since cultivators can operate under an existing license holder. “I have three licenses. If I didn’t want to use one of my offsite cultivation licenses, I would look to a third party who would want to come into the space, enter into a license agreement with them, and they would operate their facility underneath my license,” Brandt explains.
Much like how grocery stores work with companies to create a house brand, dispensaries typically have their own line of products. “We have products on our shelves from 50 different vendors along with my in-house brand. What differentiates stores that might have similar products is their niche,” Brandt notes.
The Flower Shop, with locations in Phoenix, Mesa and Ahwatukee, specializes in flower — the colloquial term for the bud of the marijuana plant that is smoked rather than an extract or infused edible. “Our focus is on a customer experience centered around flower options and having the largest selection of strains from different farms across the state,” Brandt says.
Ultimately, Brandt is confident that the voters’ will is being faithfully executed.
“The state has collected more than $75 million in taxes to date and is anticipating $150 million in the next three months. Prop 207 has delivered its promise to the people to come online as fast as possible. The state is relatively slow in every other area, except rolling this out,” she remarks. “It has only been six months. Operators will continue adapt, get smarter, and diversify their product offerings and retail experiences to meet the demand of customers and patients.”