When a market explodes from 300,000 customers to up to 6 million customers for any industry, the result is a supply chain shake-up. For a brand-new industry, the effect is more profound. Arizona, which had a medical marijuana program, recently launched adult-use, recreational sales. The state has the fastest launch to date in history.
Initial sales in Arizona started just 80 days after voters approved recreational cannabis legalization. Businesses reported long lines and solid sales immediately. But, just like recreational launches in Maine and Illinois, operators are predicting supply shortages. Nonetheless, MJBizDaily indicates the Arizona recreational market will have $400 million in sales this year, with sales topping $760 million by 2025.
Each vertically-integrated license allows for cannabis cultivation, but the issue isn’t with cultivation licenses per se. The sticking point at this stage is capital. Right now, about half of the current licensees are fully functional with operational, offsite cultivation. Industry advocates are optimistic that after a few months of infrastructure build-out, the supply will meet market demand.
Actual sales data is unavailable right now; the state requires businesses to remit tax payments for the current month’s sales the following month. That said, January’s details will be tabulated once payments are received in February.
The state had 130 licenses available. On January 22, 73 of those licenses were approved. By January 27, the total of approved licenses was 95. Most of the licenses issued are for operations in Maricopa County, outside Phoenix.
Existing medical marijuana dispensary operators had the first opportunity to get recreational licenses.
Any looming shortages should be resolved once new offsite cultivation permits are issued. Recreational licensees can apply for those in April. The state’s quick launch of recreational cannabis, including the new cultivation license opportunities, is an unexpected yet exciting opportunity for the industry.
The first weekend of recreational, adult-use cannabis sales was brisk. Harvest Health & Recreation, a publicly-traded company, has the most licenses in the state so far, with 19 licenses and 15 dispensaries open for business. Steve White, the company’s CEO, said in an interview with MJBizDaily, that the launch, combined with COVID-related restrictions, “tested the stores’ capacity,” adding, ““We did a good job of ensuring that our inventory was where it needed to be to not have early supply-chain disruptions,” he said.
One licensee with two retail locations, The Mint Dispensary, served more than 7,200 customers in three days. The business estimates an average basket size of approximately $78.
And with initial recreational sales exceeding medical — up to three times the value of typical medical sales — the demand is there, especially for flower.
Another industry heavy-hitter, multi-state operator Curaleaf, has nine licenses and eight dispensaries open in the state right now. Their initial recreational sales are estimated by Curaleaf Arizona President Steve Cottrel are around twice-daily medical cannabis sales. Their average basket size has been around $85. Flower made up approximately 65% of sales; vapes were about 22% of sales.
Some operations prepared for recreational sales by building inventory from third-party suppliers. Still, with such high demand, the recreational supply situation could change quickly. The pandemic didn’t help matters. Construction on cultivation sites was delayed as a result, and the rec market kicked off earlier than anticipated.
New cannabis testing requirements took effect in November, which added to supply chain issues before the recreational market opened up. To mitigate supply shortages, some operators are deliberately not wholesaling others, just so they can keep their own stores in supply.
On the horizon
While Arizona’s cannabis licenses are limited in number right now, there are changes on the horizon. The state will issue another 26 licenses as part of a social equity program. Additional licenses will be available in specific “empty counties” (those with no more than one dispensary).
Samuel Richard, with the Arizona Dispensaries Association, anticipates the final license tally will be 165-170, at least until the state’s ratio of one license per ten pharmacies requires adjusting.