Arizona legalized medical marijuana back in 2010. Recreational cannabis was legalized in 2020, but this comes with a few restrictions. For example, if you live in Scottsdale, you can kiss your dream of owning a recreational cannabis dispensary goodbye, at least for now.
But don't lose hope just yet. The state is still working its way through creating laws on the sale of cannabis. Here is a complete guide on how to open a cannabis dispensary in Arizona without landing on the wrong side of the law.
Opening a Cannabis Dispensary in Arizona
1. Establish your business
Like any other retail business, you have to establish your cannabis business as a legal entity to get a license. If you plan to open a medical marijuana dispensary in Arizona, you need to register it as a non-profit. Recreational cannabis dispensaries can be registered either as a for-profit or non-profit entity.
If you register your dispensary as a non-profit entity, you will be heavily regulated and might even receive more oversight. On the upside, you'll get to enjoy lower tax benefits of 6%. This is much lower compared to for-profit recreational dispensaries. For-profit dispensaries have to pay as high as 16% state tax.
You can incorporate your dispensary as an individual, a partnership, corporation, limited liability company, joint venture, or cooperative. While you're at it, remember to register with your federal and state authorities.
2. Get proper documentation
Applying for a sale license for an Arizona cannabis dispensary is no easy feat. For your application to push through, you'll need to present a business plan. This business plan should include:
- The site and floor plans
- Expected expenditures for before and after your dispensary is up and running
- Job descriptions
- Revenue projections
- Your company's by-laws
- Policies and procedures for security, inventory control, and patient recordkeeping
If you've never dealt with any of these documents, you should seek the help of an experienced entrepreneur. You could also hire a consultant. And, most importantly, remember to always plan ahead.
3. Get funding
It's hard to get funding if you want to establish a cannabis dispensary in Arizona. Federal law prohibits most investment firms and banks from funding cannabis ventures.
The good news is that some financial firms specialize in raising funds explicitly for cannabis businesses. You’ll want to do thorough research to ensure you choose the best bank or financial institution for your needs.
4. Secure your dispensary’s physical space
A strategically located space can highly improve your chances of getting a license. So, make sure you have a decent physical premise on lock before investing in anything else.
This is because you need to rent or own a qualified space before submitting your license application. When searching for physical premises for your Arizona cannabis dispensary, make sure it complies with local zoning laws and restrictions. For example, you cannot own or operate a cannabis dispensary near a school or daycare center.
The state of Arizona prioritizes license applicants based on two factors:
- The number of registered cannabis patients within a 10-mile radius of the location
- The proximity of your proposed location to other cannabis dispensaries.
5. Get your license
Unfortunately, most licenses for cannabis dispensaries in Arizona are already called for. The state will be accepting new applications in December 2021, and new license owners will be randomly selected in spring 2022.
If you can’t wait until then, your best chance of getting a cannabis dispensary license in Arizona is buying one on the secondary market. You can then adapt the business in the way you see fit. However, this can be costly and time-consuming. There’s also no guarantee that you'll secure a license.
If you're patient enough to wait for the next draft, you'll need to submit an application with the following documents:
- All the documents listed above
- Information about all your investors and top directors
- Proof of ownership of the property where you plan to set your dispensary
You should also meet the following requirements:
- You must provide evidence that you have been a permanent resident of Arizona for the last three years
- You should have an Arizona-licensed doctor as part of your staff
- You can't operate more than one medical marijuana dispensary
Registering a new cannabis dispensary in Arizona can cost a pretty penny. In addition to registering the dispensary, you'll also need to register ID cards for all your. This involves submitting all their information as well as proof that they agree to background checks.
6. Set up shop
You've got your real estate on lock. You also have a business license and a great plan to make your Arizona cannabis dispensary a success. But, before you can get your cannabis business underway, you need to fill in a few missing pieces.
First, you need employees. Unless you had them lined up from the start, now is a good time to start advertising jobs positions. You'll also need a well-designed interior to impress your customers. Of course, you also need products to sell, so make sure you have reliable suppliers.
Also, your retail business will need professionally designed and installed POS and security systems. If you don't have any experienced people in your team who can help you set up shop, you should probably bring in some experts. This will include:
- General contractors
- Interior designers
- An IT company with experience in cannabis retail in Arizona.
7. Launch your business
This is the most exciting moment for any aspiring cannabis dispensary owner. You have everything sorted, and you're ready to get started. Now, all that's left is getting the word out about your cannabis dispensary in Arizona.
Arizona doesn't put too many restrictions on cannabis marketing and advertising. Proposition 207 only stipulates that you must put your license number and dispensary's name on all your ads. It also limits you from using any messaging or design that might appeal to people under 21.
How to Market a Cannabis Dispensary in Arizona
Marketing cannabis products is highly regulated throughout the country, and Arizona is no exception. This means that you'll have to tread very carefully when marketing your new dispensary. From the channels you choose to advertise on to the signs you put in front of your dispensary, you'll have tons of regulations to follow to stay compliant.
Since you're working in a highly-regulated industry, it would be advisable to partner with a digital marketing agency with specialized experience in limited cannabis markets.
Can you open a recreational cannabis dispensary in Arizona right now?
Unfortunately, you can’t open a cannabis dispensary in Arizona at the moment. On July 1st, 2021, Arizona unveiled a social equity program that is meant to provide 26 additional cannabis dispensary licenses. As previously mentioned, the state won’t start accepting new license applications until December 2021.
The social equity program is meant to right the wrongs committed during the past drug enforcement efforts. As a result, applicants who were affected by the war on drugs will be prioritized. To be eligible for this program, at least 51% of your company's ownership must meet the following requirements:
- Have a past conviction relating to marijuana charges in the state of Arizona
- Have a total household income of below 400% of the federal poverty level for at least three of the past five years
- Be closely related to a person with a past conviction relating to marijuana charges in the state of Arizona
- Has lived in an area previously affected by the war on drugs for at least three of the past five years
How lucrative is it to open a cannabis dispensary in Arizona?
Arizona is the 14th most populous state, with a total population of 7.2 million residents. In 2020, the sale of cannabis was projected to rack in between $770 million and $910 million, and that's for medical marijuana alone. These figures are expected to rise considerably as the sale of recreational cannabis picks up.
The Arizona Cannabis Market
The Arizona cannabis market is one of the toughest cannabis markets to get into. For starters, you have to deal with the caps on the total cannabis licenses available. And then there's the issue of stiff competition from large multi-state operations, which have unlimited resources. That said, the market already has strong existing revenue and huge growth potential.
According to Marijuana Business Daily, medical marijuana generates more than $750 million per year. This makes Arizona the biggest medical cannabis market in the country. As of November 2020, there were 290,000 registered medical marijuana patients in Arizona. This number is expected to rise tremendously over the next three years.
Likewise, the recreational cannabis market in Arizona is estimated to surpass the $1.04 billion mark in the next three years. This is mostly fueled by the state's actions to let medical marijuana dispensaries operate as recreational dispensaries. The proposed increase in the number of licenses available for setting up a cannabis dispensary in Arizona will also play a huge role in boosting sales revenue.
How much will it cost me to open a cannabis dispensary in Arizona?
License and application fees alone can cost up to $25,000 per location. And if you're planning on taking advantage of the social equity program, you'll still be expected to part with as much as $5,000 in non-refundable fees.
Apart from the application fees, you will also be required to renew your license. You can do it either annually or biannually to remain compliant with the state's laws. And if you're planning on setting up an Arizona cannabis dispensary that involves both the cultivation and sale of marijuana, be prepared to dig a little deeper into your pockets. You’ll need to cover the costs of additional license applications.
In addition to licensing costs, you'll also have to cover other costs like real estate acquisition. And it doesn't end there. Once you've got your piece of real estate, you still have to buy equipment, hire staff, and pay the bills. You have to buy inventory, market your dispensary, and get legal services. Don't forget that there are regular additional costs that come with running a retail business.
Starting a cannabis delivery service in Arizona
Once your cannabis dispensary is up and running, you can now start thinking of ways to maximize your sales and profits. Offering delivery services from your cannabis dispensary in Arizona is a good place to start.
Lucky for you, the state of Arizona allows medical marijuana dispensaries to deliver cannabis to their patients. But you have to make the delivery with:
- No visible cannabis products
- An unmarked car
- A reliable means of communication with the dispensary
You also have to prepare and carry a detailed trip plan that describes the products you're carrying, the recipient, and the delivery location. These rules will be removed as of January 1st, 2025.
That being said, it doesn't necessarily mean that there won't be any rules governing the delivery of marijuana. For starters, only dispensaries with a physical address will be allowed to make deliveries. Also, all deliveries from cannabis dispensaries in Arizona must be:
- Limited to a certain amount
- Logged accurately
- Made in unmarked vehicles with video surveillance, GPS tracking, and locked compartments for keeping cannabis products
The Bottom Line
When opening a cannabis dispensary in Arizona, you should have a clear understanding of the state's regulations for the application process. You can gain access to this information through the Arizona Department of Health Services.
You should also have all the necessary documentation at hand before you begin the application process. Although opening a cannabis dispensary in Arizona appears to be quite daunting at the moment, things might change in the near future.
But, before that happens, we hope that the information provided in this guide will help you realize your dream of owning a cannabis dispensary in Arizona.