Ranking of Best States for Cannabis Investment #3, Arizona, Part 2

August 4, 2017


1 (least attractive) – 10 (most attractive)

  1. Colorado: 7.00
  2. Oregon: 6.71
  3. ARIZONA: 6.29
  4. Washington: 5.14
  5. Washington: 5.14
  6. California: 5.00


Score 1 (least attractive) to 10 (most attractive)

  • Regulatory environment: 2
  • Current level of saturation: 9
  • Size and potential of current market: 4
  • State´s willingness to accept new investors: 10
  • Legal and political respect of investments: 6
  • Possibilities for growth: 8
  • Current legal conditions – medical / recreational: 5

Average score: 6.29

Arizona State Snapshot

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Medical marijuana was legalized in the state in 2010, winning approval by a very slim margin, though the first Arizona dispensaries did not open until in late 2012. Medical marijuana was legalized in the state in 2010, winning approval by a very slim margin, though the first Arizona dispensaries did not open until in late 2012.  

o   A 2014 legal ruling that paved the way for the sale of cannabis oils and other concentrates, along with the recent addition of post-traumatic stress disorder (PTSD) to the qualifying condition list, have helped fuel a boom in medical marijuana (MMJ) sales over the last year.[1] Cannabis sales increased by 36% between 2014 and 2015, and are expected to increase by another 44% between 2015 and 2016. 

o   Furthermore, the opening of more MMJ dispensaries over time, combined with the fact that a patient who lives within 25 miles of a dispensary is not authorized to cultivate their own medical marijuana,[2] has led demand for “store-bought” cannabis to rise and dispensary sales of cannabis to increase greatly over time. Until the cap is eventually reached on the number of dispensaries permitted statewide, demand for store product should continue to increase as dispensaries drive home-cultivators out of the market.

o   Though a minimal percentage of patients currently cite PTSD as their ailment, veterans make up 8% of Arizona's population[3] (a relatively large number when compared with other states) and as many as 31% of veterans may be suffering from PTSD[4]. Thus, the recent authorization of PTSD as a qualifying medical condition is a great sign for medical marijuana sales in the state. Sales of MMJ for PTSD patients should continue increasing as stigmas around marijuana's medical use diminish, encouraging veterans to consider relief through cannabis and causing the market to grow.

  • The Arizona Marijuana Legislation Initiative, which would legalize recreational marijuana possession and consumption for those 21 and up, is very likely to appear on the November, 2016 ballot in the state. However, there is still heated debate about whether the measure will pass.[5] If recreational marijuana possession and consumption are indeed legalized, sales are expected to skyrocket – more than quadrupling by 2019 to $700 million dollars - a tremendous market for investors to capitalize on.
  • Those considering investment in Arizona-based dispensaries have two incentives to invest:

o   Unlike many states where MMJ is legal, Arizona still has licenses left to be granted, and in smaller population areas, dispensaries run into almost no competition. With only 82 dispensaries in the state (and a cap set by Prop 203 at approximately 124) [6], even the largest metro areas have only a few dozen dispensaries, compared with the hundreds present in larger cities outside of Arizona.

o   By obtaining a nonprofit dispensary certification and opening up in a relatively populated area, investors will automatically drive many home-cultivators from within a 25-mile radius to purchase from their stores, given that these patients will be legally required to purchase from dispensaries as a result.

o   Dispensary owners will have a great competitive advantage in a state likely to legalize recreational cannabis in the near future, as they will be well positioned and prepared to vie for licenses and compete for sales when the time comes.

  • Investors in marijuana grows and manufacturing operations in Arizona, on the other hand, are still facing steep barriers to entry and their investments are generally riskier.

o   The state´s vertical integration requirements[7] and the inability of cannabis businesses to qualify for loans in Arizona make it difficult for large-scale cultivation or manufacturing operations to develop. To establish one´s own grow operation or manufacturing plant, as well as the accompanying dispensary required by the vertical integration clause[8], requires new investors to dedicate a significant amount of startup capital – which they must be able to acquire without borrowing.

o   The state has no limits on cannabis production - and no publicly available information that marijuana growers can analyze before pursuing expensive grow operations. Though strong market growth is expected to continue, and 2016-17 may bring a flood of new recreational users to the market, current and interested cultivators should be wary of potential gluts and price instability in the cannabis market.


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[1] MJBizDaily (Dec 2015): http://mjbizdaily.com/chart-week-arizonas-mmj-market-gaining-steam-infused-product-sales-take-off

[2] https://medicalmarijuana.azdhs.gov/GeocodeAddress.aspx

[3] https://www.washingtonpost.com/blogs/govbeat/wp/2014/11/11/what-each-states-veteran-population-looks-like-in-10-maps/

[4] https://www.nlm.nih.gov/medlineplus/magazine/issues/winter09/articles/winter09pg10-14.html

[5] https://mjbizmagazine.com/batter-up-the-next-states-to-legalize/. January 2016.

[6] http://www.unitedpatientsgroup.com/legal-states-arizona

[7] http://azdhs.gov/documents/licensing/medical-marijuana/dispensaries/Dispensary%20Handbook%202015-2016.pdf

[8] Note that in order to cultivate or manufacture cannabis, investors must also have a license to operate a dispensary. However, dispensaries are not subject to this provision. Each dispensary is allowed one property to grow marijuana, but there is no requirement that they cultivate any of their own product or operate a grow facility.http://www.azcentral.com/story/news/arizona/politics/2015/03/21/arizona-moving-toward-toward-medical-pot-glut/25170547/