Less than two years after legal cannabis sales began in Arizona, the state’s marijuana industry is expected to bring in more than a billion dollars in revenue for 2022.
According to the state Department of Revenue, by August 2022, the total sales of adult-use and medical marijuana in Arizona had already surpassed $936 million for the year. These figures are perhaps not surprising considering how quickly the state rolled out its legal adult-use cannabis program.
On Election Day 2020, Arizona voters approved Proposition 207, which legalized the possession of up to an ounce of cannabis and set up a system to regulate and license retail cannabis businesses. Under the licensing system, pre-existing medical cannabis dispensaries were allowed to transition to the adult-use marijuana market, allowing them to hit the ground running.
As of November 2022, there are 169 licensed adult-use cannabis retail businesses (dispensaries) in the state, according to the Arizona Department of Health Services. This is in addition to 26 recreational-only social equity licenses the state has issued.
Legal adult-use sales began in Arizona in late January 1st, 2021, a little over two months after Election Day. The first month only saw about $7.4 million in recreational marijuana sales, as opposed to more than $42 million in medical cannabis. In December 2021, adult-use sales eclipsed medical for the first time, totaling more than $70 million versus just under $58 million.
According to the Department of Revenue, the medical cannabis program has continued its decline in the state, reaching just over $34 million in revenue in August 2022.
More than a billion in excise taxes by the end of 2022
Legal cannabis in Arizona has been a boon to the state’s tax coffers. Since May 2021, when the state collected $22,263,896 in cannabis tax revenue, the state has raised an average of more than $20 million in total marijuana tax revenues per month, according to the report. These funds have been allocated to various state needs, including more than $4 million to the state general fund in only one month since July 2021.
According to the Department of Revenue, by the end of 2022, the state will have brought in more than $1.2 billion in excise taxes since adult-use sales began in January 2021.
And according to the state’s joint legislative budget committee, the tax revenue generated by recreational and medical cannabis sales now surpasses those of alcohol and tobacco combined.
Under Proposition 207, the state collects a 16 percent excise tax on recreational cannabis sales in addition to the state’s 5.5 percent sales tax. The tax revenue is split among various state budget needs - including 31 percent to public safety and 10 percent to the justice reinvestment fund - which assists people from communities adversely affected by the marijuana prohibition.
Like elsewhere, cannabis prices in Arizona have fallen
While inflation has driven up the prices of all types of consumer goods, in legal cannabis states, marijuana is one of the few things that has become more affordable as of late. This is especially true in more mature legal cannabis markets like Colorado, but newer ones like Arizona also feel the squeeze of price compression.
In July, Ryan Hermansky, the board president of the Arizona dispensaries Association said that “although there are nearly 200,000 medical marijuana patients and numerous adult-use consumers in Arizona, marijuana sales have not increased and have declined in many areas.”
According to Heransky, wholesale cannabis prices in Arizona range from $500 per pound for cannabis flower grown outdoors to $2,200 for top-tier indoor cannabis flower.
Unlike in other states, there is no limit on how much any licensed cultivator can grow. The Phoenix New Times highlighted Arizona’s Copperstate Farm in Snowflake, Arizona, which reported in May that it produces more than 200,000 dry pounds of cannabis annually. As the Phoenix New Times reported, Arizona’s total medical marijuana transactions for the first half of 2022 were 42,699 pounds.
But despite what some observers have noted is a concerning development, Hermansky sounded a more optimistic note.
“Flower is being sold at competitive prices, and that enables well-run grows to function and be profitable."
“They were able to hit the ground running”
As Vicente Sederberg Associate Attorney Jason Adelstone puts it, the Arizona adult use market “matured extremely quickly.”
“On day 1, the Arizona Department of Health Services allowed all medical operators to shift to adult use, and we were seeing clients receive their approval within minutes. They were able to immediately transfer and hit the ground running.”
But while this has benefited Arizona cannabis consumers and the state’s already established cannabis companies, “for those trying to buy licenses or get into the market, it’s very difficult,” according to Adelstone.
Adelstone stated that people looking to purchase a dual-use license could have to pay as much as $25 to $50 million.
Adelstone also issued praise for the Arizona Department of Health Services, saying the [cannabis] agencies I’ve dealt with, ADHS is very industry-friendly, so they try to do whatever they can to try to help the operator become successful.”
These sentiments were echoed by Genevieve Meehan, the Director of Regulatory Compliance for Vicente Sederberg.
“I do find ADHS to be very collaborative in their approach to supporting operators with achieving compliance,” Meehan said.
She added that cannabis compliance enforcement should increase in Arizona as the cannabis market in the state matures.
“This is kind of an ebb and flow that we’ve seen in other markets where after that initial licensing round, there’s pressure to begin to enforce the rules that have been implemented. So I think we’re seeing that shift now in Arizona with a real increase in enforcement.”
In 2023 the state will need to implement track and trace for the cannabis industry.
Neither gave any predictions of significant changes to the cannabis program that could come about due to the 2022 midterms.
“If we get a Republican governor, I have no idea what priorities she’s going to have, but I doubt it’s anything that will hurt the industry because a billion dollars in sales is a lot of tax revenue.”