Business

Status update: Arizona

By Alex Halperin Jan 21, 2021
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Alex Halperin is the founder, editor and publisher of WeedWeek. Before he started covering marijuana legalization in 2014 he reported on topics such as fracking, health care, technology a...
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Alex Halperin is the founder, editor and publisher of WeedWeek. Before he started covering marijuana legalization in 2014 he reported on topics such as fracking, health care, technology and finance. His work has appeared in The Guardian, Slate, Fast Company, Quartz, the Washington Post, Mother Jones, The New Yorker and many other publications. His first book, The Cannabis Dictionary, was published in March. He lives in Los Angeles.
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Arizona, one of the four states to legalize REC in November, is on the brink of opening its market to all adults. In a region where full legalization has become fairly routine, the state has attracted plaudits from the industry for its business-friendly climate and what insiders describe as an attentive and well-run regulatory process.

  • The Grand Canyon State legalized MED in 2010 and saw dispensaries do roughly $800M in 2020 sales. The pace of its growth could be closely tied to how much the pandemic allows for tourists to return. 

It has evolved into what Joe Hodas, Chief Marketing Officer at Colorado-based edibles maker Wana Brands, which entered the state in 2018, called “quasi-medical” market. 

He means: 

  • It made cannabis available to patients with a wide range of conditions.
  • It offers a product range and branding sophistication comparable to REC markets. 

On election day, Proposition 207 passed handily with just over 60% of the vote. It’s framework, considered well-suited to bigger companies, attracted support from MSOs like Curaleaf and Tempe-based Harvest House of Cannabis which together control about 20% of the dispensaries in the state:

  • Vertical integration is mandatory, which tends to keep smaller operators out of the market.
  • It also limits the number of dispensaries to about 130, slightly more than there are now, though the total can climb later tied to the state’s pharmacy count.
  • While Arizona’s MED law required dispensaries to be non-profit, the REC initiative gives the existing MED dispensaries priority for REC licenses which they will be able to run under a for profit structure. They’ll also be able to convert MED dispensaries into for-profit businesses. For profit MSOs already ran many of the existing MED dispensaries
  • Critics on the left called the regulatory structure a recipe for “oligopoly.”
  • The law also enables the state to create social equity licenses and licenses for underserved rural counties, but the process for doing so is still in the works.    

The market has attracted a great deal of interest from out of state operators. Laura Bianchi, a partner with Scottsdale-based cannabis law firm Bianchi & Brandt said.

Prop 207 required the state health department to open REC licensing in January 2020 with the expectation that the businesses would open several months later. It’s now been reported that the department will be processing these licenses on a first come, first-served basis and REC businesses are likely to open within days. (By contrast, New Jersey, which also legalized REC on election day has yet to pass its regulations through the state legislature and adult-use shops aren’t expected to open for months, at the earliest.) 

“The system is pretty simple,” in Arizona, Vicente Sederberg attorney Jason Adelstone said. “The more states try to complicate it, the longer it takes to implement.”

  • One complication Bianchi cited is that as existing MED operators add their REC license, they have to ensure both are compliant with the two separate sets of regulations, both at their dispensaries and in their grows and processing facilities.
  • There may be temporary supply shortages as businesses adjust.
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Alex Halperin
Editor/Publisher